Does Information about Auditor Switches Affect Investing Decisions?

• In Event: Accounting Leadership/Accounting History/Auditing

Abstract

This study examines the impact of auditor dismissals and resignations on investing decisions. The study also aims to ascertain whether these decisions differ due to a reason given for the dismissal or resignation. Participants were given a scenario involving an investing decision and were first asked to assess the level of risk associated with investing in the company. Next, they were asked to allocate $10,000 between investing in the company versus a money market account. Five different questionnaires were created by varying information about an auditor switch and the reason for the switch. Results indicated that auditor switches produce higher investment risk assessments than no auditor switches. However, the amount invested did not significantly differ due to auditor switching. Furthermore, the effects of resignations were not significantly different from the effects of dismissals. Also, disclosure of a disagreement as a reason for an auditor switch had no impact.

Author

• Arnold Schneider, Georgia Institute of Technology