Title

A political-economic analysis of auditor reporting and auditor switches

Document Type

Journal article

Source Publication

Review of Accounting Studies

Publication Date

3-1-2006

Volume

11

Issue

1

First Page

21

Last Page

48

Keywords

Audit qualifications, Auditor locality, Auditor switches, Economic dependence, Political influence

Abstract

This study examines whether auditor opinions are affected by political and economic influences from governments. We use auditor locality (local versus non-local) to capture such influences from local governments in China. Based on data from China's stock markets for the period 1996-2002, we find that local auditors, who have greater economic dependence on local clients and are subject to more political influence from local governments than non-local auditors, are inclined to report favorably on local government-owned companies to mitigate probable economic losses. Moreover, companies with qualified opinions are more likely to switch from a non-local auditor to a local auditor than companies with unqualified opinions. Contrary to some prior studies, we find that in China's political environment, local government-owned companies that switched from a non-local auditor to a local auditor after receiving a qualified opinion can succeed in opinion shopping.

DOI

10.1007/s11142-006-6394-z

Print ISSN

13806653

E-ISSN

15737136

Publisher Statement

Copyright © Springer Science+Business Media, Inc. 2006

Access to external full text or publisher's version may require subscription.

Full-text Version

Publisher’s Version

Recommended Citation

Chan, K. H., Lin, K. Z., & Mo, P. L.-l. (2006). A political-economic analysis of auditor reporting and auditor switches. Review of Accounting Studies, 11(1), 21-48. doi: 10.1007/s11142-006-6394-z