Do Companies Engage in Auditor Shopping to Conceal Misreporting? Evidence from Financial Misstatements

https://doi.org/10.1111/jbfa.12562

61 Pages Posted: 18 Oct 2018 Last revised: 27 Oct 2021

See all articles by Zvi Singer

Zvi Singer

HEC Montreal

Jing Zhang

university of Colorado Denver

Date Written: July 11, 2021

Abstract

Prior studies on auditor shopping primarily focused on the motivation to
avoid unfavorable audit opinions, such as going concern and modified
opinion. In this study, we show that companies that misstate their
financial statements engage in auditor shopping to try to conceal the
financial misstatements. In other words, their misstatements would have
been discovered sooner had they made an opposite “replace or retain”
auditor decision. We further show that engagement in auditor shopping
results in a higher turnover of the CEO, the CFO, and audit committee
members, but only when auditor shopping involves auditor dismissal.
Thus, we document negative consequences of engaging in auditor
shopping. Finally, we show that effective monitoring curbs auditor
shopping. Our findings should be of interest to regulators who continue
to express concerns over this practice as well as to senior managers and
audit committee members.

Keywords: : auditor shopping; accounting misstatement discovery; executive turnover; audit committee turnover

JEL Classification: G38, M41, M42, M48

Suggested Citation

Singer, Zvi and Zhang, Jing, Do Companies Engage in Auditor Shopping to Conceal Misreporting? Evidence from Financial Misstatements (July 11, 2021). https://doi.org/10.1111/jbfa.12562, Available at SSRN: https://ssrn.com/abstract=3260930 or http://dx.doi.org/10.2139/ssrn.3260930

Zvi Singer (Contact Author)

HEC Montreal ( email )

3000, Chemin de la Côte-Sainte-Catherine
Montreal, Quebec H2X 2L3
Canada
514-340-1847 (Phone)

Jing Zhang

university of Colorado Denver ( email )

1475 Lawrence St
Denver, CO
Denver, CO 80202
United States

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