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- Title
An Examination of the Terminal Year in an Auditor-Client Relationship.
- Authors
Aier, Jagadison K.; Jones, Keith L.; Lian, Qiyang; Schroeder, Joseph H.
- Abstract
SYNOPSIS: We examine the cost and consequences of switching auditors. Specifically, we consider several client costs (audit fees, going-concern opinions, and internal control opinions) in the last year of an audit engagement ("terminal year"). We find that outgoing auditors are more likely to charge higher audit fees, issue more going-concern opinions, and issue more adverse internal control opinions during the terminal years of their audits. These findings suggest that outgoing auditors gain greater bargaining power, are more likely to charge for additional hours of audit work, and are less likely to yield to client pressures. Overall, our results suggest that companies face real economic costs from the outgoing auditor in addition to the start-up costs of the incoming auditor. Data Availability: Data are publicly available from sources identified in the text. JEL Classifications: G31; G32; G33; M21.
- Subjects
AUDITOR-client relationships; AUDITING fees; BARGAINING power; INTERNAL auditing; STARTUP costs; SWITCHING costs
- Publication
Accounting Horizons, 2024, Vol 38, Issue 2, p1
- ISSN
0888-7993
- Publication type
Article
- DOI
10.2308/HORIZONS-2020-158