An event history analysis of the relationship between first-time audit report uncertainty qualifications and auditor changes: An examination of the existence of 'opinion shopping'

The purpose of this study was to examine the relationship between first-time uncertainty qualifications and auditor changes. Two separate research questions were addressed: (1) Why do some companies change their auditors following the receipt of a first-time audit report uncertainty qualification and others do not? and (2) Do companies who change their auditors following the receipt of a first-time audit report uncertainty qualification receive an unqualified opinion sooner than companies who also received a first-time uncertainty qualification, but did not change their auditors?;In answering the first question, nine hypothesis tests were performed focusing on the impact of variables measuring the composition and strength of the interorganizational relationship, the impact of variables measuring the strength of the shock to the interorganizational relationship, and the impact of variables measuring the composition and activity of the board of directors on the probability that a company would change its auditors following the receipt of a first-time audit report uncertainty qualification. The results suggest a significant role of interpersonal ties between boundary spanners (management, boards of directors, and auditors) and structural barriers (length of time the relationship has endured and audit difficulty) on the likelihood of an auditor change following a first-time audit report uncertainty qualification. The results also indicate that the less expected the qualification the more likely a company was to change its auditors. Finally, the results give no indication of a significant relationship between the composition and activity of the board of directors and the probability of an auditor change following the receipt of a first-time uncertainty qualification.;In answering the second research question, two separate hypothesis tests were performed. The results of the first hypothesis test indicated that it took longer (not shorter) for companies that changed their auditors to receive an unqualified opinion (the opposite of what would be expected if successful opinion shopping was taking place). The results of the second hypothesis test indicated that the companies that changed their auditors were less likely to receive an unqualified opinion, while controlling for financial condition; the opposite of what would have been necessary to provide evidence of successful opinion shopping.