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Opinion Shopping and Audit Committees

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  • Lennox, Clive S.

Abstract

This paper tests whether companies engage in opinion shopping and examines the role of audit committees when auditors are dismissed (1996-98). There are three findings. First, US companies strategically dismiss when incumbent auditors are more likely to issue unfavorable audit opinions compared to newly appointed auditors. I estimate opinion shopping motivates 17% of auditor dismissals, and I find opinion shopping dismissals occur significantly later in the reporting period than other dismissals. Second, audit committees are more likely to disapprove of auditor dismissals that are motivated by opinion shopping. This is consistent with the argument that audit committees help maintain the integrity of the audit reporting process. Third, independent audit committee members are more likely to leave committees that disapprove of opinion shopping. This suggests either senior management dismiss audit committee members who oppose opinion shopping, or committee members resign because they do not wish to be associated with opinion shopping.

Suggested Citation

  • Lennox, Clive S., 2002. "Opinion Shopping and Audit Committees," CEI Working Paper Series 2002-12, Center for Economic Institutions, Institute of Economic Research, Hitotsubashi University.
    • Handle: RePEc:hit:hitcei:2002-12
    Note: June 2002
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    File URL: https://hermes-ir.lib.hit-u.ac.jp/hermes/ir/re/13893/wp2002-12a.pdf
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    Cited by:

    1. Nathan R. Berglund, 2020. "Do Client Bankruptcies Preceded by Clean Audit Opinions Damage Auditor Reputation?," Contemporary Accounting Research, John Wiley & Sons, vol. 37(3), pages 1914-1951, September.
    2. Feng Chen & Songlan Peng & Shuang Xue & Zhifeng Yang & Feiteng Ye, 2016. "Do Audit Clients Successfully Engage in Opinion Shopping? Partner‐Level Evidence," Journal of Accounting Research, Wiley Blackwell, vol. 54(1), pages 79-112, March.
    3. Albring, Susan & Robinson, Dahlia & Robinson, Michael, 2014. "Audit committee financial expertise, corporate governance, and the voluntary switch from auditor-provided to non-auditor-provided tax services," Advances in accounting, Elsevier, vol. 30(1), pages 81-94.
    4. C. Piot & L. Kermiche, 2009. "A quoi servent les comités d'audit ? Un regard sur la recherche empirique," Post-Print halshs-00537952, HAL.
    5. Park, Gitae & Lee, Ho-Young, 2018. "Opportunistic behaviors of credit rating agencies and bond issuers," Pacific-Basin Finance Journal, Elsevier, vol. 47(C), pages 39-59.
    6. Ken Y. Chen & Jian Zhou, 2007. "Audit Committee, Board Characteristics, and Auditor Switch Decisions by Andersen's Clients," Contemporary Accounting Research, John Wiley & Sons, vol. 24(4), pages 1085-1117, December.

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