IDEAS home Printed from https://ideas.repec.org/p/hol/holodi/9802.html
   My bibliography  Save this paper

Bankrupcy, auditor Switching and Audit failure: Evidence from the UK. 1987-1994

Author

Listed:
  • Clive Lennox

    (University of Bristol)

Abstract

If a company's auditor believes that the company is likely to enter bankruptcy, the auditor is required to warn investors by giving a 'qualified' audit report. This paper investigates whether auditor switching can help explain why auditors frequently fail to warn about impending bankruptcy. The paper shows that managers use the switch decision to avoid receiving qualified reports and a switch exogenously reduces the accuracy of audit reports by replacing established incumbent auditors with less well informed new auditors. These results mean that the use of switching by managers is not necessarily contrary to investors' interests. Moreover, policies aimed at reducing managerial influence - for example, a recent EC policy proposal recommended the compulsory periodic switching of auditors - could reduce the accuracy of audit reports.

Suggested Citation

  • Clive Lennox, 1998. "Bankrupcy, auditor Switching and Audit failure: Evidence from the UK. 1987-1994," Royal Holloway, University of London: Discussion Papers in Economics 98/2, Department of Economics, Royal Holloway University of London, revised Jul 1998.
    • Handle: RePEc:hol:holodi:9802
    as

    Download full text from publisher

    File URL: http://www.rhul.ac.uk/economics/Research/WorkingPapers/pdf/dpe9802.pdf
    Download Restriction: no
    ---><---

    More about this item

    JEL classification:

    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting
    • G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:hol:holodi:9802. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Claire Blackman (email available below). General contact details of provider: http://www.rhul.ac.uk/economics/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.