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Predicting Auditor Switches By Applying Data Mining

Listed author(s):
  • Efstathios KIRKOS
Registered author(s):

    Auditor dismissals are considered to be a threat to audit quality. Several studies have examined auditor switches by applying typical statistical analysis. In the present study we deal with the auditor switching problem by applying data mining methodologies. Publicly available financial statement and auditing data are used as predictors. The optimum vector of significant input variables is defined by employing feature selection. A number of data mining classification methods are used to develop models capable of predicting the auditor change cases. The methods are compared against the widely used Logistic Regression. According to the results, all the data mining methods outperform Logistic Regression. Significant factors associated with auditor changes are revealed. The results can be useful to auditing firms, managers, investors, creditors and corporate regulators.

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    File URL: http://www.jaes.reprograph.ro/articles/Fall2012/articles/KirkosE.pdf
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    Article provided by Spiru Haret University, Faculty of Financial Management and Accounting Craiova in its journal Journal of Applied Economic Sciences.

    Volume (Year): 7 (2012)
    Issue (Month): 3(21)/ Fall 2012 ()
    Pages: 246-261

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    Handle: RePEc:ush:jaessh:v:7:y:2012:i:3(21)_fall2012:p:246
    Contact details of provider: Web page: http://www2.spiruharet.ro/facultati/facultate.php?id=14

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    1. Johnson, W. Bruce & Lys, Thomas, 1990. "The market for audit services : Evidence from voluntary auditor changes," Journal of Accounting and Economics, Elsevier, vol. 12(1-3), pages 281-308, January.
    2. Mohammad Hudaib & T.E. Cooke, 2005. "The Impact of Managing Director Changes and Financial Distress on Audit Qualification and Auditor Switching," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 32(9-10), pages 1703-1739.
    3. Branson, Joel & Breesch, Diane, 2004. "Referral as a determining factor for changing auditors in the Belgian auditing market: An empirical study," The International Journal of Accounting, Elsevier, vol. 39(3), pages 307-326.
    4. DeAngelo, Linda Elizabeth, 1981. "Auditor size and audit quality," Journal of Accounting and Economics, Elsevier, vol. 3(3), pages 183-199, December.
    5. Krishnan, Jagan & Stephens, Ray G., 1995. "Evidence on opinion shopping from audit opinion conservatism," Journal of Accounting and Public Policy, Elsevier, vol. 14(3), pages 179-201.
    6. DeFond, Mark L. & Subramanyam, K. R., 1998. "Auditor changes and discretionary accruals," Journal of Accounting and Economics, Elsevier, vol. 25(1), pages 35-67, February.
    7. Lennox, Clive, 2000. "Do companies successfully engage in opinion-shopping? Evidence from the UK," Journal of Accounting and Economics, Elsevier, vol. 29(3), pages 321-337, June.
    8. David H. Sinason & Jefferson P. Jones & Sandra Waller Shelton, 2001. "An Investigation of Auditor and Client Tenure," American Journal of Business, Emerald Group Publishing, vol. 16(2), pages 31-40.
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