Management Turnover Following Auditor Resignations *

Management Turnover Following Auditor Resignations * Accepted by Michael Willenborg. We would like to acknowledge helpful comments from Anil Arya, Anne Beatty, Theodore Burnst, Chris Hogan, Douglas Schroeder, Eric Spires, Jonathan Stoller, Gary Taylor, and Teri Ziegler. Contemporary Accounting Research Vol. 25 No. 2 (Summer 2008) pp. 567–604 © CAAA doi:10.1506/car.25.2.10 Contemporary Accounting Research An auditor’s resignation from an engagement creates financial reporting uncertainties. Financial reporting uncertainties in turn potentially increase the cost of capital. If the directors hold managers responsible for the failure to satisfy auditors, we expect them to respond to the auditor’s resignation by dismissing the responsible managers and finding more competent replacements. Replacing top managers also signals investors of the directors’ intention to restore reporting credibility. A firm that changes auditors is required to file an 8-K report with the SEC indicating whether there has been an accounting or auditing disagreement between the auditor and the managers. The 8-K must note any “reportable event”, that is, whether the auditor believes the client’s internal control system is so weak as to generate unreliable financial statements (internal control reportable events), or the representations made by managers with respect to the financial statements are not credible, or the scope of the audit needs http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Contemporary Accounting Research Wiley

Management Turnover Following Auditor Resignations *

Loading next page...
 
/lp/wiley/management-turnover-following-auditor-resignations-ZShUElS1eF
Publisher
Wiley
Copyright
2008 Canadian Academic Accounting Association
ISSN
0823-9150
eISSN
1911-3846
D.O.I.
10.1506/car.25.2.10
Publisher site
See Article on Publisher Site

Abstract

Accepted by Michael Willenborg. We would like to acknowledge helpful comments from Anil Arya, Anne Beatty, Theodore Burnst, Chris Hogan, Douglas Schroeder, Eric Spires, Jonathan Stoller, Gary Taylor, and Teri Ziegler. Contemporary Accounting Research Vol. 25 No. 2 (Summer 2008) pp. 567–604 © CAAA doi:10.1506/car.25.2.10 Contemporary Accounting Research An auditor’s resignation from an engagement creates financial reporting uncertainties. Financial reporting uncertainties in turn potentially increase the cost of capital. If the directors hold managers responsible for the failure to satisfy auditors, we expect them to respond to the auditor’s resignation by dismissing the responsible managers and finding more competent replacements. Replacing top managers also signals investors of the directors’ intention to restore reporting credibility. A firm that changes auditors is required to file an 8-K report with the SEC indicating whether there has been an accounting or auditing disagreement between the auditor and the managers. The 8-K must note any “reportable event”, that is, whether the auditor believes the client’s internal control system is so weak as to generate unreliable financial statements (internal control reportable events), or the representations made by managers with respect to the financial statements are not credible, or the scope of the audit needs

Journal

Contemporary Accounting ResearchWiley

Published: Jun 1, 2008

References

You’re reading a free preview. Subscribe to read the entire article.


DeepDyve is your
personal research library

It’s your single place to instantly
discover and read the research
that matters to you.

Enjoy affordable access to
over 18 million articles from more than
15,000 peer-reviewed journals.

All for just $49/month

Explore the DeepDyve Library

Search

Query the DeepDyve database, plus search all of PubMed and Google Scholar seamlessly

Organize

Save any article or search result from DeepDyve, PubMed, and Google Scholar... all in one place.

Access

Get unlimited, online access to over 18 million full-text articles from more than 15,000 scientific journals.

Your journals are on DeepDyve

Read from thousands of the leading scholarly journals from SpringerNature, Elsevier, Wiley-Blackwell, Oxford University Press and more.

All the latest content is available, no embargo periods.

See the journals in your area

DeepDyve

Freelancer

DeepDyve

Pro

Price

FREE

$49/month
$360/year

Save searches from
Google Scholar,
PubMed

Create folders to
organize your research

Export folders, citations

Read DeepDyve articles

Abstract access only

Unlimited access to over
18 million full-text articles

Print

20 pages / month

PDF Discount

20% off