Download or read book Do Auditor Resignations Convey Private Information About Continuing Audit Clients written by Messod D. Beneish and published by . This book was released on 2014 with total page 45 pages. Available in PDF, EPUB and Kindle. Book excerpt: The paper investigates how auditor resignations affect capital market participants' perception of firms from which the auditors resign (quot;former clientsquot;) and of firms that continue as clients of the resigning auditor (quot;continuing clientsquot;). We find that resignation announcements result in significant negative abnormal returns for former clients and in significant positive abnormal returns for a sample of continuing clients (matched on industry, time period, and recent stock-price performance). As in prior work on auditors' actions, these effects are most pronounced when the news media reports the resignation. We investigate continuing clients because in recent years auditors have adopted a portfolio approach to risk management that includes centralized risk-based screening. We propose that the absence of resignation signals that, despite its poor performance, the continuing client has satisfied the auditor's unobservable risk-screening process. Therefore, the positive abnormal returns observed for the continuing clients suggest that despite their poor recent performance, the auditor believes the continuing clients' accounting methods and financial reporting choices are not misleading. We rule out a competition-based intra-industry information transfer as an alternative explanation for the positive abnormal returns.

Download or read book Auditor Resignations and the Market for Audit Services written by Kannan Raghunandan and published by . This book was released on 1999 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper examines the market for audit services when the incumbent auditor of an SEC registrant has resigned from the engagement. While many previous studies of auditor changes have examined auditor dismissals by the client, only a few studies have specifically focused on auditor resignations. Auditor resignations constitute a unique setting because they may indicate increased likelihood of possible future losses to the new auditor, and provide an opportunity to test the demand-and-supply side incentives in the market for audit services.Results from analyses of 156 auditor resignations and a control sample of 375 auditor dismissals indicate that Big 6 firms were less likely to serve as the successor auditor when the predecessor has resigned, after controlling for three other factors identified as proxies for litigation risk to the auditor (client?s financial stress, industry membership and proportion of total assets in receivables and inventory). The effects were especially pronounced for the subset of resignees in financial stress. These results support suggestions that the implications of auditor resignations are different from auditor dismissals, and provide supporting evidence for the suggestions that supply-side incentives should be considered in examining the market for audit services.

Download or read book Auditor Resignation and Risk Factors written by Aloke Ghosh and published by . This book was released on 2019 with total page 32 pages. Available in PDF, EPUB and Kindle. Book excerpt: Although auditor litigation risk is considered as a leading explanation for auditor resignations, audit risk, and business risk might also trigger resignations. Auditor litigation risk is defined as the risk of the auditor being involved in a lawsuit, audit risk is defined as the risk that the auditor expresses an inappropriate audit opinion when the financial statements are materially misstated, and, finally, business risk is defined as the risk associated with the client's survival and profitability. Because the three risk factors are not mutually exclusive, we examine their relevance and incremental importance using measures from the pre- and post-resignation periods. Using summary indices from the pre-resignation period, we find that all the three ex-ante risk indices are incrementally important for resignations, especially when the predecessor auditor is a Big 4 firm. Because the ex-ante risk factors are prone to measurement errors and are less likely to capture auditor's proprietary information about the client, we analyze data from the post-resignation period when the auditor's proprietary information is likely to become publicly known. We find that within a three-year period following an auditor's resignation, clients are more likely to: (1) be involved in class-action lawsuits (ex-post litigation risk), (2) have internal control problems (ex-post audit risk), and (3) to be delisted from a national stock exchange (ex-post business risk). Our research demonstrates that auditors consider all three risk factors, and not just litigation risk, in resignation decisions.

Download or read book The Market Effects of Auditor Resignations written by Donald Wayne Wells and published by . This book was released on 1993 with total page 150 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Evidence on the Association Between Financial Restatements and Auditor Resignations written by Ying (Julie) Huang and published by . This book was released on 2018 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: Financial restatements have significant implications for auditor-client relationships. We estimate that a restatement increases the odds of an auditor resignation dramatically. Restatements involving fraud, reversing profit to loss and those disclosed in press releases appear to drive the increased resignation likelihood. Further, companies with relatively severe restatements are more likely to hire smaller auditors following a resignation. Collectively, these results are consistent with auditors interpreting restatements as an indication of increased client risk.

Download or read book Auditor Resignations written by Susan Zhan Shu and published by . This book was released on 1999 with total page 174 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Litigation Risk and Auditor Resignations written by Jayanthi Krishnan and published by . This book was released on 2014 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: Litigation against auditors has increased dramatically in recent years. Auditors can offset litigation risk in a number of ways, including improved audit quality and planning, increases in audit fees and increases in the issuance of modified opinions. Auditors can also adjust their client portfolios by becoming more selective in their choice of new clients and by withdrawing from high-risk engagements. We test the hypothesis that litigation risk motivates auditor resignations by comparing resignation companies with two groups of client companies that dismissed their auditors: one matched with the resignation companies on industry and year, and the other matched on year alone. We find resignation companies differ from dismissal companies along dimensions that capture the probability of litigation: financial distress, variance of abnormal returns, auditor independence, tenure and a modified (particularly going-concern) opinion. We also construct a litigation proxy based on a prior litigation-prediction model and find that the proxy is positively associated with the probability that the auditor will resign rather than be dismissed from the engagement. Our analysis is consistent with concerns expressed by the accounting profession that litigation pressures lead to the withdrawal of audit services for a segment of the market.

Download or read book An Empirical Analysis of Auditor Resignations written by Harold E. Davis and published by . This book was released on 2002 with total page 170 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Auditor Fees Around Dismissals and Resignations written by Paul A. Griffin and published by . This book was released on 2008 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper offers new findings on the relation between auditor dismissals and resignations and audit fees. Unlike the prior research, which studies the fees of auditors after an auditor change, we focus on audit fees before an auditor change. Our evidence shows that incumbent auditors charge unusually higher fees at least one year prior to an auditor change event. The existence of unusual fee adjustments by incumbents may serve as a precursor of such events. In the case of dismissals, we reason that if clients perceive the presence of unusually higher audit fees as an indication that their costs are excessive, this should prompt a switch in auditors. We find evidence consistent with this view. For resignations, we interpret unusually higher incumbent fees not as a sign of client-perceived excess but as a signal by auditors that resignation companies reflect higher levels of audit risk or liability, which incumbents capture as additional fees. Eventually, however, the additional fees are insufficient, and the auditor resigns. While our results are based mostly on the audit fee disclosures after Sarbanes-Oxley, we control for and find similar results for periods not dominated by the legislation. Our results are similar for each of the Big 4 firms.

Download or read book Auditor Resignations and Firm Ownership Structure written by Samer Khalil and published by . This book was released on 2011 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper investigates whether firm ownership structure alters the likelihood of auditor resignations and the associated stock market reaction in the U.S. over the period 2004-2008. Relying on prior research, we posit that family ownership aligns family members' interests with those of minority shareholders reducing the likelihood of auditor resignations and attenuating the associated stock market reaction, especially in family firms managed by professional or founder CEOs. Logistic regression documents a lower likelihood of auditor resignations in family firms and in family firms managed by professional CEOs as opposed to non family firms. It also shows that auditors of family firms managed by descendant CEO (founder CEO) are more (less) likely to resign than those auditing family firms managed by a professional CEO (descendant CEO). OLS Regression documents that abnormal returns following auditor resignations in family firms and in family firms managed by a professional CEO are higher (less negative) than those in non family firms. Abnormal returns, however, do not vary based on whether a family firm is managed by a descendant or founder CEO. Results are robust to the selection bias arising from family ownership and contribute to the literature investigating auditor resignations and firm ownership structure.

Download or read book Management Turnover Following Auditor Resignations written by Krishnagopal Menon and published by . This book was released on 2008 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: We investigate chief executive officer (CEO) and chief financial officer (CFO) changes in firms that experience an auditor resignation. We argue that boards of directors have incentives to replace these managers following an auditor resignation both to improve financial reporting performance and to restore reporting credibility. We use two control samples, one matched on industry and size and the other comprising firms that experienced client-initiated auditor changes. We observe higher turnover in both CEO and CFO positions following auditor resignations than in either of the two control samples. The incidence in CEO and CFO turnover increases for firms filing auditor resignation-related reportable events.

Download or read book Determinants and Consequences of Auditor Resignations and Dismissals written by Kathleen Marie Hertz and published by . This book was released on 2006 with total page 194 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Auditor Litigation Risk and Auditor Resignations written by Sue Woolley Scholz and published by . This book was released on 1996 with total page 169 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Client Influence and Auditor Independence Revisited written by Tom Adams and published by . This book was released on 2017 with total page 48 pages. Available in PDF, EPUB and Kindle. Book excerpt: Financial scandals such as those surrounding the Enron-Andersen debacle provoke concerns that auditors lack independence when faced with influential clients, and are unwilling to respond to client risks by resigning. Unlike previous studies that examine whether client influence affects audit quality on ongoing engagements (and provide mixed results), we investigate whether office-level client influence affects auditor resignations from risky clients for whom the resignation decision is most salient. Using a sample of risky clients, we find that (1) auditors are more likely on average to resign from influential clients, and (2) this positive association holds for non-Big N auditors, auditors in smaller offices, and non-specialist auditors. We speculate that audit firms or audit offices that have inadequate mechanisms to mitigate independence risk use resignation as a tool to counter such risk. This is consistent with the suggestions offered in professional guidance. Also, importantly, the effect of client influence is distinct from that of client size. Influential clients are prevalent across the spectrum of absolute client size, and the positive association between client influence and auditor resignations occurs for both large and small clients.

Download or read book Auditor Resignations Versus Dismissals written by Jeff P. Boone and published by . This book was released on 2014 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: This study addresses whether an auditor change (a resignation or a dismissal) mitigates information asymmetry as measured by market liquidity or trading activity. For auditor dismissals our results show no effect on our sample firms' market liquidity or trading activity. By contrast, for auditor resignation firms, the market liquidity tests indicate that the 12 month period preceding the 8K filing is characterized by rising information asymmetry. Also, our trading activity analysis suggests that the 8K auditor resignation filing is informative for individual investors but fails to support such informativeness for institutional investors. Our findings lend support for the SEC's decision to differentiate between auditor resignations and dismissals in the 8K. However, the resignation announcement does not appear to decrease information asymmetry subsequent to the 8K filing, which is inconsistent with the presumed SEC objective of maintaining public confidence in the securities markets as a level playing field by mitigating information asymmetry.

Download or read book The Effects of Auditor Dismissals and Resignations on Audit Fees written by Paul A. Griffin and published by . This book was released on 2009 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper assesses the effects of auditor dismissals and resignations on audit fees and, in particular, whether companies pay more or less for their audits around these events. We also test the hypotheses that the fee discount around a dismissal can be explained by the benefits of auditor incumbency and the fee premium around a resignation varies in relation to the additional audit effort and litigation risk of the incoming auditor. We base our study on a comprehensive sample of audit fee disclosures made by SEC registrants during fiscal years 2000 to 2004, so that our study period includes auditor changes before and after the Sarbanes-Oxley (SOX) legislation. For dismissals, we find that not only does the successor auditor discount fees, and in a way that supports our discounting hypothesis, but also that fees are discounted one year before the auditor change by the incumbent auditor, consistent with the view that the threat of a dismissal may influence fees. For resignations, fees are higher one year before and after the event indicating that both the incumbent and incoming auditor charge a premium around a resignation, possibly because the new auditor needs to cope with greater than normal litigation risk and/or audit effort. SOX appears not to have affected discounting around a dismissal, but the fee premium around a resignation increases following the legislation, consistent with our resignation hypothesis. We also find that non-audit fees are discounted around a dismissal, and this result too appears to be unchanged by SOX.

Download or read book Corporate Governance Conservatism and Auditor Resignation written by Jiahui Liang and published by . This book was released on 2017 with total page 29 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper studies the influence of conditional conservatism on the auditor resignations, and more importantly, the impact of corporate governance on this relationship. The existing literature has provided evidence on the existence and pervasiveness of accounting conservatism, such as compensation and debt contracts, shareholder litigation, taxation and accounting supervision. However, there is very limited evidence and discussion on the potential impact of accounting conservatism on audit risk and auditor resignation. Furthermore, research on how effective corporate governance affects the relationship is rarely covered.We select the firm-year observations from 2005 to 2015. We find that the conditional conservatism reduces the auditor resignations by reducing the expected audit risk. However, further empirical results show that this reduction in auditor resignations is attenuated by higher corporate governance quality. That is, effective corporate governance will moderate the negative correlation between conservatism and auditor resignations. The empirical results of this paper are of value to firms, auditors, regulators, standard-setters and corporate managers. In addition, this paper expands the literature on the influencing factors of auditor resignations.