Factors Affecting Auditor Switching with an Emphasis on Auditor Characteristics: A Meta-Analysis Approach

Document Type : Original Article

Authors

1 PhD Student of Accounting, Kashan Branch, Islamic Azad University, Kashan, Iran

2 Assistant professor, Department of Management and Accounting, College of Farabi, University of Tehran, Qom, Iran

3 Assistant professor, Department of Accounting, Kashan Branch, Islamic Azad University, Kashan, Iran

4 Assistant professor, Department of Management, West Tehran Branch, Islamic Azad University, Tehran, Iran

Abstract

The aim of this study is to provide an understanding of the factors affecting auditor switching with an emphasis on auditor characteristics. For this end, a meta-analysis method is used to investigate the common predictors of auditor switching in order to determine whether previous research provides a consistent picture of audit switching drivers using auditor characteristics. By searching for articles published within the period from 2001 to 2021 to find Persian articles and from 1996 to 2021 to find English articles in top international journals indexed in the Scopus database, 67 articles were selected and the variables affecting auditor switching based on auditor characteristics were extracted. Egger regression and Funnel chart have also been used to evaluate the bias. The results of this study showed that variables such as auditor industry expertise, auditor tenure, audit fees, auditor opinions, audit firm size, audit quality, and financial restatements lead to auditor switching. These results contribute to research on the key factors affecting the auditor switching in terms of client characteristics and are useful for regression modeling of the factors affecting auditor switching.

Keywords

References

  • Azinfar, A. Ghodrati Zavaram, S. Teymourpour, and M. Norouzi, ”Audit quality, audit firm switching policy, and auditor fees: A structural equation modeling approach”, Auditing Knowledge, No. 77, 2019, pp. 290-275.
  • Bazrafshan, “Meta-analysis methodology in accounting: Introduction, necessities and applications”, 11th National Accounting Conference of Iran, 17 and 18 October 2013, Ferdowsi University of Mashhad. In Persian
  • Banimahd, M. Moradzadehfard, and Zeinali, “The relationship between switching independent auditor and changing audit opinion”, Journal of Accounting Knowledge, 4 (14), 2013. In Persian
  • J. Zare Bahnemiri and F. Hasankhani, “Features of audit firm and the delay in submitting audit report: a meta-analysis approach”, Journal of Accounting and Auditing Reviews, 28 (4), 2021, pp. 664-690. In Persian
  • Mehrani, M. Moradi, M. Nakhaei, and M. Motamed, “The role of auditor characteristics in earnings quality”, Financial Accounting Research, 5 (2), 2013, pp. 93-108. In Persian
  • Azizkhani, R. Daghani, and M. Ahmadian, “The Impact of the mandatory auditor switching policy on audit fees: evidence from the Tehran Stock Exchange”, Auditing Knowledge, No. 64, 2016, pp. 43-62. In Persian
  • Alikhani, M. Maranjori, and J. Rezvani, “The effects of mandatory and voluntary auditor switching on liquidity of shares of companies listed on the Tehran Stock Exchange”, Auditing Knowledge, No. 69, 2017, pp. 193-216. In Persian
  • Rezazadeh and K. Zarei Moravaj, “Factors affecting auditor switching in Iranian companies”, Empirical Studies in Financial Accounting, 5 (20), 2007, pp. 89-105. In Persian
  • Alavi Tabari and N. Bashirimanesh, “The effect of audit quality and auditor switching on the capital market, Management Accounting and Auditing Knowledge, 2 (6), 2013, pp. 65-75. In Persian
  • Azizkhani and A. Safarondi, Alireza, “Investigating the effects of audit tenure on the profit error forecast in companies listed on the Tehran Stock Exchange”, Accounting and Auditing Reviews, 19 (3), 2012, pp. 61-78. doi: 10.22059/acctgrev.2012.73238. In Persian
  • Abbott, L., and S. Parker. 2000. Auditor selection and audit committee characteristics. Auditing: A Journal of Practice and Theory 19 (2): 47-66.
  • Azam Eshagniya, Mahdi Salehi, (2017) "The impact of financial restatement on auditor changes:Iranian evidence", Asia Pacific Journal of Innovation and Entrepreneurship, Vol. 11 Issue: 3, pp.366-390, https://doi.org/10.1108/APJIE-12-2017-039.
  • Azizkhani, Masoud, Daghani, Reza, Shailer Greg. (2012). “Audit Firm Tenure and Audit Quality in a Constrained Market”. International Journal of Accounting, 2012- 55-76.
  • Beatty, R. P. 1989. Auditor reputation and the pricing of initial public offerings. The Accounting Review (October): 693-709.
  • Bhattacharya , Arnab. Pradip Banerjee.(2020)."An empirical analysis of audit pricing and auditor selection: evidence from India".Managerial Auditing Journal Vol. 35 No. 1, 2020 pp. 111-151. DOI 10.1108/MAJ-11-2018-2101
  • Bi, XiaoGang. Judy Tang, Rajesh Tharyan(2020).Switching due diligence auditor in Chinese mergers and acquisitions.Research in International Business and Finance 54 (2020) 101244
  • Bilal , Songsheng Chena,, Bushra Komal.(2018). Audit committee financial expertise and earnings quality: A meta-analysis.
  • Blouin ,Jennifer. Barbara Murray Grein and Brian R. Rountree Source: The Accounting Review, Vol. 82, No. 3 (May, 2007), pp. 621-650. American Accounting Association Stable URL: http://www.jstor.org/stable/30243791.
  • Cameran, M., D. Di Vincenzo, and E. Merlotti. 2005. The audit firm rotation rule: A review of the literature. Working paper, Bocconi University.
  • Chan-Jane, Lin. Li-Chun Kuo. Hsiao-Lun Lin , (2016),"Auditor switch decisions under forced auditor change: evidence from China", Asian Review of Accounting, Vol. 24 Iss 1 pp. -http://dx.doi.org/10.1108/ARA-03-2014-0035.
  • Chen, F., Peng, S., Xue, S., Yang, Z., Ye, F., 2016. Do audit clients successfully engage in opinion shopping? Partner-level evidence. J. Account. Res. 54, 79–112.
  • Chow, C., and S. Rice. 1982. Qualified audit opinions and auditor switching. The Accounting Review 57 (2): 326-335.
  • DeAngelo, L., 1981. Auditor size and audit quality. J. Account. Econ. 3, 183–199.
  • DeFond, M.L., Wong, T.J., Li, S., 2000. The impact of improved auditor independence on audit market concentration in China. J. Account. Econ. 28, 269–305.
  • DeFond,Mark . Jieying Zhang .(2014).A review of archival auditing research. Journal of Accounting and Economics 58 (2014) 275–326.
  • Durand, Giselle. (2018) "The determinants of audit report lag: a meta-analysis", Managerial Auditing Journal, https://doi.org/10.1108/MAJ-06-2017-157..
  • Ettredge, M., C. Li, and S. Scholz. 2007. Audit fees and auditor dismissals in the Sarbanes Oxley Era. Accounting Horizons 21 (4): 371-386.
  • Farber, D.B. (2005), “Restoring trust after fraud: does corporate governance matter?”, The Accounting Review, Vol. 80 No. 2, pp. 539-561.
  • Feng, Nancy Chun, (2013),"Fiscal year-end and non-lateral auditor switches", Journal of Applied Accounting Research, Vol. 14 Iss 3 pp. 268 - 292
  • Gregory, A., and P. Collier. 1996. Audit fees and auditor change: An investigation of the persis­tence of fee reduction by type of change. Journal of Business, Finance, and Accounting. 23 (1): 13-28.
  • Hackenbrack, K. and C. Hogan. 2005. Client retention and engagement-level pricing. Auditing: A Journal of Practice and Theory 24 (1): 7-20.
  • Harber,Michael .Maroun, Warren .(2020)." Mandatory audit firm rotation: a critical composition of practitioner views from an emerging economy". Managerial Auditing Journal. DOI 10.1108/MAJ-09-2019-2405
  • Hay, D.C., Knechel, W.R. and Wong, N. (2006), “Audit fees: a meta-analysis of the effec of supply and demand attributes”, Contemporary Accounting Research, Vol. 23 No. 1, pp. 141-191.
  • Hennes, K.M., Leone, A.J. and Miller, B.P. (2013), “Determinants and market consequence of auditor dismissals after accounting restatements”, The Accounting Review,Vol.89No.3, 1051-1082.
  • Hoffman Benjamin W. Albert L. Nagy , (2016),"SOX 404(b) Exemption Effects on Auditor Changes", Managerial Auditing Journal, Vol. 31 Iss 4/5 pp. -http://dx.doi.org/10.1108/MAJ-05-2015-1189
  • Hudaib, M., and T. Cooke. 2005. The impact of managing director changes and financial distress on audit qualification and auditor switching. Journal of Business, Finance, and Account­ing 32 (9/10): 1703-1739.
  • Kallunki, J-P., P. Sahlstrom, and M. Zerni. 2007. Propensity to switch auditors and strictness of legal liability environment: The role of audit mispricing. International Journal of Audit­ing 11 (3): 165-185.
  • Kanodia, C., and A. Mukherji. 1994. Audit pricing, lowballing and auditor turnover: A dynamic analysis. The Accounting Review 69 (4): 593-615.
  • Knapp, M. and F. Elikai. 1988. Auditor changes: A note on the policy implications of recent analytical and empirical Journal of Accounting, Auditing, and Finance 3 (1): 78-86.
  • Knechel, W., V. Naiker, and G. Pacheco. 2007. Does auditor industry specialization matter? Evidence from market reaction to auditor switches. Auditing: A Journal of Practice and Theory 26 (1): 19-45.
  • Krishnan, G.V. 2003. Audit quality and the pricing of discretionary Auditing: A Journal of Practice and Theory 22(1):   107-126.
  • Krishnan, J.Francis J., 2002. Evidence on auditor risk-management strategies before and after the private securities litigation reform act of 1995. Asia-
  • Clive S. Xi Wu. Tianyu Zhang.(2014). " Does Mandatory Rotation of Audit Partners Improve Audit Quality?" THE ACCOUNTING REVIEW .Vol. 89, No. 5 2014 pp. 1775–1803.
  • Liu, Z., Lin, S., (2019), Determinants and Consequences of Voluntary Switches to Chinese Auditors in Hong Kong, Journal of Contemporary Accounting & Economics (2019), doi:  https://doi.org/10.1016/j.jcae. 2019.100158
  • Mande, V. and Son,M. (2013), “Do financial restatements lead to auditor changes?”, Auditing: A Journal of Practice& Theory, Vol. 32 No. 2, pp. 119-145.
  • Mary F. Allen Mark Linville David M. Stott, (2005),"The Effect of Litigation on Independent Auditor Selection", American Journal of Business, Vol. 20 Iss 1 pp. 37 - 45. http://dx.doi.org/10.1108/19355181200500004
  • Matsumura, E., K. Subramanyam, and R. Tucker. 1997. Strategic auditor behavior and going­concern decisions. Journal of Business Finance and Accounting 24 (6): 727-758.
  • Saaei, M.J., Valashani, B., Ali, M. and Nasser, M.B. (2013), “Review of the frequency an importance of financial restatement”, Journal of Financial Accounting, Vol. 1 No. 15, pp. 67-86.
  • Salleh,Kalsom and Jasmani,Hazlina.(2015)." Audit rotation and audit report: empirical evidence from Malaysian  PLCs over the period of ten years".  Procedia -Social and Behavioral Sciences   145  ( 2014 )  40 – 50 .
  • Shockley, R. A. (1981). Perceptions of auditors' independence: An empirical analysis. The Accounting Review, 56(4), 785–800.
  • Stefaniak, Chad M;Robertson, Jesse C;Houston, Richard W.(2009).The Causes and Consequences of Auditor Switching: A Review of the Literature Journal cf Accounting Literature; 2009; 28, ProQuest Central. pg.47.
  • Tim Cairney and Errol G. Stewart.(2019)." Client industry characteristics and auditor changes". Review of Accounting and Finance. Vol. 18 No. 2, 2019 pp. 245-267. DOI 10.1108/RAF-01-2017-0017.
  • Wang, Q., Wong, T.J., Xia, L., 2008. State ownership, the institutional environment, and auditor choice: evidence from China. J. Account. Econ. 46 (1), 112–
  • Weiss, Renee. Lawrence Kalbers. (2013). Determinants of auditor changes for non-accelerated filers. Research in Accounting Regulation 25 (2013) 13–29.
  • Whisenant, J.S., Sankaraguruswamy, S., Raghunandan, K., 2004. Market reactions to disclosure of reportable events. Auditing 22, 181–194.
  • Williams, D. 1988. The potential determinants of auditor change. Journal of Business, Finance, and Accounting 15 (2): 243-261.
  • Yang, Z., 2013. Do political connections add value to audit firms? Evidence from IPO audits in China. Contemp. Account. Res. 30, 891–921.

Files

Share

How to cite

Statistics