Causes and Consequences of Recent Auditor Switching

Looking to the Research for Answers

Duane M. Brandon, PhD, and Brian T. Carver, PhD, CPA, and Carl W. Hollingsworth, PhD, and Jonathan D. Stanley, PhD

Since the demise of Arthur Andersen and the passage of the Sarbanes Oxley Act of 2002 (SOX), the profession has witnessed an almost unprecedented increase in the frequency of auditor switching. One unique characteristic of this recent rash of changes is that increasing numbers of public companies are switching to smaller audit firms (Mark Grothe and Thomas R. Weirich, “Analyzing Auditor Changes,” The CPA Journal, vol. 77, no. 12, pp. 14—23, December 2007). Speculation on the reasons for the shift abounds. SOX increased both the workload and fees per audit client, and some argue that this may have motivated larger audit firms to resign from clients that were either unprofitable or created unwanted risk exposure. it also may have caused companies to dismiss larger auditors in an attempt to reduce fees. In addition, some companies claim that moving to a smaller audit firm provides the additional benefit of more individualized service.