Fiscal year-end and non-lateral auditor switches
Abstract
Purpose
The purpose of this paper is to examine the potential effect of busy season resource constraints on the selection of a new auditor, conditioned upon the status of the prior auditor.
Design/methodology/approach
The paper employs multivariate logistic regressions for a sample of firms that changed auditors between 1979 and 2005 to explore the empirical correlations between having a December fiscal year-end (FYE) and non-lateral switches.
Findings
The paper finds that non-BigN clients with December FYEs are less likely to switch to BigN auditors than those with non-December FYEs prior to the enactment of the Sarbanes-Oxley Act (SOX). This trend subsides after SOX. For firms with BigN predecessor auditors, fiscal year-end appears to have insignificant influence on auditor switching.
Research limitations/implications
The findings suggest that upwardly mobile clients face greater audit supply constraints compared to clients already being audited by a BigN firm during the traditional busy season. However, the curbing influence on switching upwards erodes after SOX.
Practical implications
This study is to show the impact of supplier capacity constraints on audit production and structural changes within the auditing profession.
Originality/value
The findings can further the understanding of the determinants of auditor-client realignment, given that the paper identifies and explores the effects of having a December FYE on subsequent auditor appointments, conditioned upon the status of the prior auditor.
Keywords
Acknowledgements
JEL classification – M41, M42
The author is very grateful to Krishnagopal Menon for his insightful suggestions and dedicated support throughout this research project. Thanks also to Nishi Sinha and Cory A. Cassell for their helpful comments. The author have benefited from comments of participants and anonymous reviewers associated with 2009 American Accounting Association Annual Meeting, 2009 American Accounting Association Auditing Midyear Meeting, 2008 AAA Northeastern Region Meeting, and Boston University Accounting Department research workshop. The author thankfully acknowledges the financial support of Boston University School of Management. All errors are the author's own.
Citation
Chun Feng, N. (2013), "Fiscal year-end and non-lateral auditor switches", Journal of Applied Accounting Research, Vol. 14 No. 3, pp. 268-292. https://doi.org/10.1108/JAAR-05-2012-0041
Publisher
:Emerald Group Publishing Limited
Copyright © 2013, Emerald Group Publishing Limited