Bankrupcy, auditor Switching and Audit failure: Evidence from the UK. 1987-1994

Clive Lennox ()

No 98/2, Royal Holloway, University of London: Discussion Papers in Economics from Department of Economics, Royal Holloway University of London

Abstract: If a company's auditor believes that the company is likely to enter bankruptcy, the auditor is required to warn investors by giving a 'qualified' audit report. This paper investigates whether auditor switching can help explain why auditors frequently fail to warn about impending bankruptcy. The paper shows that managers use the switch decision to avoid receiving qualified reports and a switch exogenously reduces the accuracy of audit reports by replacing established incumbent auditors with less well informed new auditors. These results mean that the use of switching by managers is not necessarily contrary to investors' interests. Moreover, policies aimed at reducing managerial influence - for example, a recent EC policy proposal recommended the compulsory periodic switching of auditors - could reduce the accuracy of audit reports.

JEL-codes: G33 M41 (search for similar items in EconPapers)
Pages: 36 pages
Date: 1998-07, Revised 1998-07
References: Add references at CitEc
Citations:

Downloads: (external link)
http://www.rhul.ac.uk/economics/Research/WorkingPapers/pdf/dpe9802.pdf (application/pdf)
Our link check indicates that this URL is bad, the error code is: 404 Not Found (http://www.rhul.ac.uk/economics/Research/WorkingPapers/pdf/dpe9802.pdf [307 Temporary Redirect]--> https://www.rhul.ac.uk/economics/Research/WorkingPapers/pdf/dpe9802.pdf [307 Temporary Redirect]--> https://www.royalholloway.ac.uk/economics/Research/WorkingPapers/pdf/dpe9802.pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:hol:holodi:9802

Ordering information: This working paper can be ordered from
Egham Hill, Egham, Surrey, TW20 0EX, UK.

Access Statistics for this paper

More papers in Royal Holloway, University of London: Discussion Papers in Economics from Department of Economics, Royal Holloway University of London Egham Hill, Egham, Surrey, TW20 0EX, UK..
Bibliographic data for series maintained by Claire Blackman ( this e-mail address is bad, please contact ).