The Market for Bank Audits and Effects of the Financial Crisis

• In Event: Continental Breakfast and Research & Education Forum
  In Paper Session: Table 5: Audit Risk II

Abstract

In this paper I investigate the audit market for banks and develop an industry specific auditor switch model for banks. I incorporate standard switch determinants from prior switch literature as well as risk measures that are unique to banks into the model. This original model is used within the setting of the financial crisis to analyze the effects of the crisis on auditor switching among banks. My analyses reveal several statistics that set the audit market for the banking industry apart from the audit market for other industries typically included in accounting research. Specifically, Big 4 usage as well as industry specialist usage for banks varies dramatically from other industries. For a sample of 3,255 bank year observations and 210 switches spanning from 2005 to 2010 includes periods of time before, during, and after the financial crisis, I find that resignations decreased significantly during the actual crisis years. Following the crisis, resignations increased significantly while dismissals decreased significantly. Additionally, bank risk factors affect dismissals and resignations differently among the different time periods. My analysis adds to the existing auditor switch literature by identifying determinants of switching in this unique industry and providing evidence on how it was affected by the financial crisis. Additionally, I offer insights on the audit market for the banking industry, which is generally excluded from the audit literature.

Author

• Christine Porter, Wichita State University