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Auditor search periods as signals of engagement risk: Effects on auditor choice and audit pricing

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  • Mande, Vivek
  • Son, Myungsoo
  • Song, Hakjoon

Abstract

We examine the effect of auditor search periods (time taken from the dismissal/resignation of the old auditor to the appointment of the new auditor) on successor auditor choice and audit fees. Using a sample of auditor changes during the period 2002–2012, we find that clients associated with long search periods are less likely to be accepted by Big N auditors. Our results also show that successor auditors charge their clients higher initial audit fees following lengthier searches. Finally, we document that delays in appointing successor auditors following resignations are associated with a significantly negative stock market response. Our results suggest that investors, regulators and academics should be heedful of lengthy auditor search periods in their evaluations of audit quality and client risks.

Suggested Citation

  • Mande, Vivek & Son, Myungsoo & Song, Hakjoon, 2017. "Auditor search periods as signals of engagement risk: Effects on auditor choice and audit pricing," Advances in accounting, Elsevier, vol. 37(C), pages 15-29.
    • Handle: RePEc:eee:advacc:v:37:y:2017:i:c:p:15-29
    DOI: 10.1016/j.adiac.2017.03.001
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    Cited by:

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    2. Mihai Carp & Costel Istrate, 2021. "Audit Quality under Influences of Audit Firm and Auditee Characteristics: Evidence from the Romanian Regulated Market," Sustainability, MDPI, vol. 13(12), pages 1-16, June.

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    More about this item

    Keywords

    Auditor search period; Audit fees; Auditor choice; Auditor resignation; Auditor dismissal; Market reaction;
    All these keywords.

    JEL classification:

    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting
    • M42 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Auditing

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