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Do audit clients successfully engage in opinion shopping? Partner-level evidence

journal contribution
posted on 2016-03-01, 00:00 authored by F Chen, S Peng, S Xue, Zhifeng Yang, F Ye
This study investigates whether companies engage in audit opinion shopping activities by exerting influence over an audit firm's decision to switch the engagement partner ("partner-level opinion shopping") in the Chinese setting, where the identities of engagement partners are publicly disclosed. Adopting the empirical framework developed by Lennox [2000], we show evidence that companies successfully engage in partner-level opinion shopping. Further, partner-level opinion shopping is more likely to be successful if a company is economically important to an audit firm, and it is less likely to be successful if the audit firm is formed as a partnership rather than a corporation. We also find that companies successfully engaging in partner-level opinion shopping exhibit significantly lower earnings quality. Finally, we directly compare audit records between incoming and outgoing partners and find that, for companies that successfully improve audit opinions after partner switching, incoming partners have a significantly higher propensity to issue clean opinions than their outgoing counterparts.

History

Journal

Journal of accounting research

Volume

54

Issue

1

Pagination

79 - 112

Publisher

Wiley-Blackwell

Location

London, Eng.

ISSN

0021-8456

eISSN

1475-679X

Language

eng

Publication classification

C1.1 Refereed article in a scholarly journal; C Journal article

Copyright notice

2015, University of Chicago on behalf of the Accounting Research Center

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