Opaque auditor dismissal disclosures: What does timing reveal that disclosures do not?

Shareholders’ Perception of Auditor Type and Timing of Auditor Engagement: Evidence from Auditor Ratification

“…Although the auditor switching literature is well established and extensive, only a handful of studies have examined the timing of an auditor switch. These studies find that a late auditor switch is associated with longer reporting lags (Schwartz and Soo 1996), lower audit quality (Cassell et al 2020 ;Burks and Stevens 2022) and client firm risk (Her et al 2019). Another approach in the literature is to examine the time between dismissal/resignation of an incumbent auditor and the appointment of the new auditor (i.e., auditor search period).…”

Determinants and consequences of auditor switching during fiscal year‐end audit fieldwork

“…Catanach et al (2011) found that firms whose auditors resign late in the fiscal year tend to employ non‐Big 4 successor auditors. Burks and Stevens (2022) found that dismissals between the end of the fourth quarter and the SEC 10‐K filing dates are associated with increases in the likelihood of delistings in the future.…”

“…The Advisory Committee on the Auditing Profession (ACAP, 2008) noted that there is a lack of transparency surrounding auditor switches, despite the mandatory disclosure requirements of Forms 8‐K. According to Burks and Stevens (2022), not counting going concern opinions and internal controls deficiencies (also available in other sources such as Forms 10‐K), only 10% of auditor‐switching firms disclose some type of adverse audit information, suggesting that there may be widespread non‐compliance. Even when auditor‐switching firms do in fact disclose in Forms 8‐K, they mostly provide innocuous reasons for the changes, such as a desire for securing a larger or a geographically proximate auditor, or low audit fees or mergers (Sankaraguruswamy & Whisenant, 2004).…”

“…Only a few prior studies have discussed auditor turnover in an audit's final phase. These studies (Burks & Stevens, 2022; Catanach et al, 2011; Schwartz & Soo, 1996) defined late‐term switches as auditor changes that occur during the fourth quarter (Q4 Switches) or during periods that include both Q4 Switches and LateSwitches 2 . No past study, however, has sought to differentiate between LateSwitches and Q4 Switches.…”

“…2 2 Another difference in our studies is that Burks and Stevens (2022) only use a sample of auditor dismissals while we include both auditor resignations and dismissals. Resignations are important to include because our study focuses on risks as determinants of auditor changes, and, resignations are likely to be driven by risk‐related reasons (indeed more so than dismissals).…”