A Political–economic Analysis of Auditor Reporting and Auditor Switches

A Political–economic Analysis of Auditor Reporting and Auditor Switches This study examines whether auditor opinions are affected by political and economic influences from governments. We use auditor locality (local versus non-local) to capture such influences from local governments in China. Based on data from China’s stock markets for the period 1996–2002, we find that local auditors, who have greater economic dependence on local clients and are subject to more political influence from local governments than non-local auditors, are inclined to report favorably on local government-owned companies to mitigate probable economic losses. Moreover, companies with qualified opinions are more likely to switch from a non-local auditor to a local auditor than companies with unqualified opinions. Contrary to some prior studies, we find that in China’s political environment, local government-owned companies that switched from a non-local auditor to a local auditor after receiving a qualified opinion can succeed in opinion shopping. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Review of Accounting Studies Springer Journals

A Political–economic Analysis of Auditor Reporting and Auditor Switches

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Publisher
Kluwer Academic Publishers
Copyright
Copyright © 2006 by Springer Science+Business Media, Inc.
Subject
Business and Management; Accounting/Auditing; Corporate Finance; Public Finance
ISSN
1380-6653
eISSN
1573-7136
D.O.I.
10.1007/s11142-006-6394-z
Publisher site
See Article on Publisher Site

Abstract

This study examines whether auditor opinions are affected by political and economic influences from governments. We use auditor locality (local versus non-local) to capture such influences from local governments in China. Based on data from China’s stock markets for the period 1996–2002, we find that local auditors, who have greater economic dependence on local clients and are subject to more political influence from local governments than non-local auditors, are inclined to report favorably on local government-owned companies to mitigate probable economic losses. Moreover, companies with qualified opinions are more likely to switch from a non-local auditor to a local auditor than companies with unqualified opinions. Contrary to some prior studies, we find that in China’s political environment, local government-owned companies that switched from a non-local auditor to a local auditor after receiving a qualified opinion can succeed in opinion shopping.

Journal

Review of Accounting StudiesSpringer Journals

Published: Jan 1, 2006

References

  • Factors related to auditor–Client disagreements over income increasing accounting methods
    DeFond, M. L.; Jiambalvo, J.
  • The impact of improved auditor independence on audit market concentration in China
    DeFond, M. L.; Wong, T. J.; Li, S.
  • Audit firm industry specialization and client disclosure quality
    Dunn, K. A.; Mayhew, B. W.

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