Document Type

Article

Publication Title

Academy of Accounting & Financial Studies Journal

ISSN

1096-3685

Volume

7

Issue

2

First Page

1

Last Page

12

Publication Date

1-1-2003

Abstract

Companies hire auditors to meet legal requirements if they are publicly traded and to provide credibility to their financial statements. However, all auditors may not provide the same level of service to third parties. Prior research regarding such events as initial public offerings has found qualitative differences among big Five and non-Big Five auditors. Companies may, therefore, switch auditors to attain some perceived qualitative difference in the audit engagement. The degree that this auditor change is or is not incorporated by financial analysts into analysts' forecasts has not been fully researched for the benefit of determining if there is any information content associated with the auditor change on security prices. The results of this study show that financial analysts do not fully incorporate information relative to auditor changes in their forecasts. This study might provide insight into the currently accepted view of the Efficient Market Hypothesis with respect to the information content of auditor changes and the market's interpretation of the information. In addition, analysts may need to scrutinize auditor changes more closely in order to fully understand the signal that may be included in the decision to change auditors.

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