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The Impact of Managing Director Changes and Financial Distress on Audit Qualification and Auditor Switching
Author(s) -
Hudaib Mohammad,
Cooke T.E.
Publication year - 2005
Publication title -
journal of business finance and accounting
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.282
H-Index - 77
eISSN - 1468-5957
pISSN - 0306-686X
DOI - 10.1111/j.0306-686x.2005.00645.x
Subject(s) - ceteris paribus , audit , financial distress , business , accounting , chief executive officer , intimidation , sample (material) , auditor's report , officer , going concern , auditor independence , external auditor , joint audit , internal audit , economics , psychology , management , financial system , political science , social psychology , chemistry , chromatography , law , microeconomics
This study examines the interactive effects of change in managing director/chief executive officer (MD) and financial distress together with five control variables (type of audit firm; audit fees; gearing; time; and company size) on first, audit opinion and secondly on auditor switching. Based on a sample of 297 UK listed companies between 1987 and 2001, we find that companies that are financially distressed and change their MD are most likely to receive a qualified audit report, ceteris paribus . In addition, we find evidence of both familiarity and intimidation threats and that the probability of a switch increases with the severity of qualification.