Determinants of the Existence and Extent of Delays in Naming a Successor Auditor

• In Event: Break with Research and Education Poster Forum

Abstract

The Securities and Exchange Commission (SEC) mandates timely public disclosure of an external auditor change by a publicly traded client company. Typically, the disclosure names the successor auditor. At times, however, the successor is initially unnamed, but is typically named in a later announcement. This study identifies instances of these auditor change events, and hypothesizes they (1) include the disclosure of more undesirable information about the client company; and (2) as the amount of this undesirable information increases, the number of days that pass before appointing a successor increase. The results, including both primary and supplemental tests, show significant evidence consistent with both hypotheses; however, exceptions with primarily the second hypothesis are noted with diminishing sample sizes in supplemental tests. This study contributes to the auditor changes literature by identifying and empirically investigating the determinants of this sparsely identified and researched type of auditor change, opening opportunities for future research. The study also expands our understanding of the auditor-client relationship surrounding the occurrence of certain auditor change events likely associated with a measure of auditor-client friction.

Author

• John Conrad Naegle, Missouri State University