Auditor switch decisions under forced auditor change: evidence from China

Purpose – From 2000 to 2007, 14 Chinese accounting firms had their audit licenses terminated or suspended for different reasons, forcing clients of these accounting firms to select new auditors within a short period of time. The purpose of this paper is to examine the auditor switching patterns and...

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Bibliographic Details
Published in:Asian review of accounting 2016-02, Vol.24 (1), p.69-89
Main Authors: Kuo, Li-Chun, Lin, Chan-Jane, Lin, Hsiao-Lun
Format: Article
Language:English
Subjects:
Accountants
Accounting & Finance
Accounting firms
Accounting/accountancy
Auditor changes
Audits
CPAs
Economic reform
Financial statements
Investigations
Investments
Licenses
New stock market listings
Quality of service
Sanctions
Securities markets
Stock exchanges
Studies
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Summary:Purpose – From 2000 to 2007, 14 Chinese accounting firms had their audit licenses terminated or suspended for different reasons, forcing clients of these accounting firms to select new auditors within a short period of time. The purpose of this paper is to examine the auditor switching patterns and audit partner following decision of these clients and the effect of both client and (terminated or suspended) auditor characteristics on the auditor change decisions. Design/methodology/approach – By using 245 (191) clients of terminated or suspended audit firms, the authors apply logistic regressions to investigate clients’ switching decision (following decision). Findings – The empirical results indicate that state-owned enterprises tend not to switch to Big 4 audit firms; clients with dual shares tend to choose from the Big 4 for their succeeding audit firms. Moreover, companies whose preceding auditors received severe regulatory sanctions are less likely to switch to auditors of higher quality; companies who hired local auditors are more likely to follow their preceding audit partners as a result of forced auditor change. Originality/value – This study enriches forced auditor change literature by discussing both clients’ and preceding auditor’s attributes on clients’ switching and following decisions.
ISSN:1321-7348
1758-8863
DOI:10.1108/ARA-03-2014-0035