A Study On Motivation And Economic Consequences Of Auditor Switches Timing Selection

Auditor switches can be explained auditor changes or audit firm changes, in thisstudy, it doesn’t distinguish between them strictly. But in the paper the core idea aboutauditor changes is audit firm switches. The study of auditor changes is an important areaof audit research, scholars at home and abroad do the research from different aspects,and of course acquire a series of fruitful results. The content of this research can bedivided into several parts: the motivation of auditor changes, the consequence of auditorchanges, the selection about auditor changes and so on. But it is not so much researchon the timing about auditor changes, some relation researches mainly about: the changefactors before and after an event, or during the financial report period, dividing thesamples based on the point of time. As an observable variable----the timing aboutauditor changes, it helps to understand the behavior of auditor changes and the timingselection factors. In this paper, the timing selection about auditor changes not onlyreflect on the financial report period, but also research on the annual situation, in otherword, it’s about the research of time-period and time-point effect. This paper regardesthe timing selection about changes as a “bridge”, mainly research about the selectionmotivation and the economic consequence. The main content of the article are asfollows:Firstly, the types of timing selection of auditor changes. It concludes time-pointand time-period and it has reflectes on the financial report period and annual situation.In particular, time-point---Based on the annual date December31st, if auditor changeshappened before the date, in this study, it definite it as changes timely, if opposite thesesituation, it can called it changes not in time. And based on the sample of auditorchanges each year, transfer the statistic data into graphics, in order to describe itconveniently, called it “peak-valley” phenomenon; time-period----Based on the daysfrom change date to annual date December31st or to disclosure date, the longer thedays, the less change timely. Based on the years after firm’s listed year, calculate yearsbetween change year with listed year.Secondly, the motivation of the timing selection about auditor changes. In thispaper, it divided the reasons into two aspects: supply-side reasons and demand-sidereasons. Based on the two aspects, in this study, market environment is also play animportant role on the timing selection of auditor changes. Thirdly, the economic consequences of the timing selection about auditor changes.In this study, based on the effect of time-period and time-point, using audit fees afterauditor changes and the credibility response from the market to firm’s quality offinancial information as variables to research the outcome. At the same time, it willcombine with the type of timing selection to do our research.From the research aspects above all, the finding that we acquire during the studyare as follows:a. In this paper, mainly based on the tine-point and time-period to do the research,on the aspects of the motivation of auditor changes and the economic consequences,mainly conclude two situations: the auditor changes of annual financial report year andbetween different years.b. In this paper, it showed that among the affecting factors, if auditor changeshappened in demand-side reasons, the firms will change timely, if happened insupply-side reasons, the firms will not change on time. Putting the environment factorsinto consideration, the more improved the market environment, the more timely theauditor changes, to the opposite, the less timely the auditor changes.c. In this study, it appears that among the economic outcome, during the annualfinancial report, the credibility response from the market to firm’s quality of financialinformation will be reduced if the timing about auditor changes become later, if auditorchanges become timely, the market credibility response will be enhancement.Combining with the change reasons, the market credibility response also will beenhancement because of the demand-supply reason, but the credibility response will bereduced if auditor changes happened in supply-side reason.d. During the annual financial report, the more timely the auditor changes, thelower the auditor fees, if timing selection not on time, the audit fees will be high afterchange the auditor. At the same time, the fee will be comparable high if happened indemand-side reason, if in supply-side reason, audit fee will be low.e. The research has total sample and subsample, so between annual changesresearch, in this paper, using subsample to do the study. If auditor changes appear“peak” phenomenon, the credibility response from the market to firm’s quality offinancial information will be enhancement, if auditor changes appear “valley”phenomenon, the credibility response will be reduced.f. Divided the samples into categories based on the years from firms’ listed year tothe change year, after that put it on the graphics and select the shortest interval year as the sample. If firms prepare to change audit firm in three years from the listed year tochange year, the credibility response from the market to firm’s quality of financialinformation will be reduced.