Internal Control Opinion Shopping and Audit Market Competition

• In Event: Audit Markets

Abstract

This study examines whether audit clients engage in internal control opinion shopping activities and whether audit market competition appears to facilitate those activities. Regulators have long been concerned about the impact of both audit market competition and opinion shopping on audit quality. We adopt the framework developed in Lennox (2000) to construct a proxy to measure the tendency that clients engage in internal control opinion shopping activities. Our empirical results suggest that clients are successful in shopping for clean internal control opinions. In addition, we find evidence that successful internal control opinion shopping occurs primarily in audit markets that can be characterized as having high levels of competition. Our findings have implications for the current policy debate regarding audit quality and audit market competition.

Authors

• Nathan Newton, University of Missouri

• Julie S. Persellin, Trinity University

• Dechun Wang, Texas A&M University

• Michael S. Wilkins, Trinity University