دانلود رایگان مقاله افشای داوطلبانه دلایل تغییرات حسابرس

abstract

This study examines the association between firm attributes and management’s voluntary disclosure of the reason(s) for auditor changes and evaluates the capital market reaction to information disclosure of the auditor change events accompanied by preexisting red flag and non-red flag issues. We find that managers are more likely to disclose the reason(s) for auditor changes when those changes occurred because of benign business reasons or if the reasons do not indicate the presence of any underlying operating or financial reporting problem. On the other hand, managers are less likely to disclose the reason(s) for auditor changes when those changes are preceded by red-flag situations. Furthermore, auditor changes accompanied by preexisting red-flag situations are viewed negatively by the capital market, implying that the full disclosure of reasons for auditor changes is informative to investors. This observation is supported further by our market-based analyses, which consistently show that auditor changes accompanied by prevailing red flag issues are valued incrementally in the market above and beyond the reportable events (under FRR No. 31) and auditor-initiated changes. The study contributes to the recent policy debate related to mandating the disclosure of the reason(s) for auditor switches. Specifically, the results support the recent debates that the current voluntary disclosure regime results in selective disclosure practices that are likely to contribute to the general lack of transparency with respect to auditor changes.

5. Conclusions

While it is mandatory for public companies to notify the SEC of a change in firms’ auditors via 8-K filings, firms are not required to disclose the reason(s) for such changes except for some reportable events under FRR No. 31. Under the current regulation concerning firms’ disclosures associated with auditor changes, the firms that choose to disclose the reason(s) for their auditor changes in the 8-K filings do so voluntarily. This voluntary disclosure regime has been criticized, however, by various interest groups, e.g., the Council of Institutional Investors (CII) have long criticized the current voluntary disclosure regime as adding to a lack of transparency associated with auditor switches. Using a sample of 3355 auditor switches over a period from 2004 through 2010, we find that the firms are significantly less likely to disclose the reasons for their auditor switches when, the switches are accompanied by red-flag issues. We document that several firm-specific attributes, especially those that indicate ‘‘red-flag’’ issues concerning management’s integrity and financial reporting quality, are negatively associated with the likelihood that the switching firms choose to voluntarily report the reason(s) for their auditor changes. We further show that when such changes are accompanied by red-flag issues, these are negatively priced into stock by the capital market. Further, the changes accompanied by red-flag issues are incrementally informative above and beyond FRR 31 reportable events and auditor-initiated changes, and have incremental pricing implication for the investing community. The result also implies that in absence of adequate disclosure, the market tends to speculate worst-possible scenarios especially when the changes are accompanied by red-flag issues and reacts negatively.26 The evidence suggests that the regulators mandate the full disclosure of reasons for auditor changes for the SEC registrants to reduce the opacity, which would enable the market participants to evaluate the switching firms in proper perspectives by reducing the market speculation and skepticism. Our study contributes to the recent regulatory policy debate associated with firms’ disclosure of the reason(s) for auditor switches. Specifically, our results support the arguments made by the CII that the current voluntary disclosure regime results in selective disclosure practices and are likely contribute to the general lack of transparency with respect to auditor changes.