Auditor changes and discretionary accruals

This paper examines accounting choice as reflected in the behavior of discretionary accruals for a sample of auditor change firms. Discretionary accruals are estimated around the time of the auditor change using a variation of the Jones (1991) technique. After controlling for several potentially confounding factors associated with auditor changes the paper finds that discretionary accruals are significantly income-decreasing during the last year with the predecessor auditor and not significantly different from zero during the first year with the successor auditor. In addition the difference in discretionary accruals between the last year with the predecessor and the first year with the successor is significantly income-increasing. The results also indicate there is no significant difference across sample partitions based on prior year audit opinions or Big Six membership of the predecessor and successor auditors.

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