Clients’ selection of auditors: evidence from the Athens stock exchange

  • Authors

    • Anastasia Maggina BUSINESS CONSULTANT/RESEARCH SCIENTIST
    2015-10-28
    https://doi.org/10.14419/ijaes.v3i2.5219
  • The auditing profession is at a crossroad worldwide. It currently faces many challenges especially in Greece where auditor rotation has been instituted as mandatory by EU regulation and the auditing profession is going to be fully liberalized (no limits o

  • The auditing profession is at a crossroad worldwide. It currently faces many challenges especially in Greece where auditor rotation has been instituted as mandatory by EU regulation and the auditing profession is going to be fully liberalized (no limits on audit fees) . Given the Greek environment, it is important to investigate how client companies select auditors. In this study we address three questions. First, can selection of auditors be forecasted? Second, which statistical technique better fits the data set? Third, are there differences in firms’ financial ratios as well as institutional factors that affect auditor choice? Clients’ selection of auditors is considered in a research context using discriminant analysis and logistic regression. The discriminating factors between the two groups of companies include some firm financial ratios and institutional factors: QATA(Quick Assets/Total Assets) when using one year data, and QATA(Quick Assets/Total Assets) and SHAREHOLD (level of shareholdings) when using two year data. Prediction accuracy is close to 60.0 percent using discriminant analysis and around 80.0 percent using logistic regression. The contribution of this study is that it discriminates between the two groups of companies (Big Four versus second-tier or local auditing firms) in an IFRS environment.

  • References

    1. [1] Abbott, L. J. and S. Parker. 2000. Auditor Selection and Audit Committee Characteristics. Auditing:A Journal of Practice and Theory:47-67. http://dx.doi.org/10.2308/aud.2000.19.2.47.

      [2] Beattie, V. and S. Fearnley.1995.The Importance of Audit Firm Characteristics and the Drivers of Auditor Change in UK Listed Companies.Accounting and Business Research.25:227-239. http://dx.doi.org/10.1080/00014788.1995.9729912.

      [3] Benston, G. J.1969.The Value of the SEC’s Accounting Disclosure Requirements.The Accounting Review: 515-532.

      [4] Brown, R. and A. Tarca.2005.A Commentary on Issues Relating to the Enforcement of International Accounting Reporting Standards in the EU.European Accounting Review.14.1:181-212 http://dx.doi.org/10.1080/0963818042000338997.

      [5] Caramanis, C.1998.Assessing the Impact of Liberalisation on Auditor Behaviour: Accounting Research in Politically Charged Contexts.Accounting,Auditing and Accountability Journal.11.5:562-592. http://dx.doi.org/10.1108/09513579810239855.

      [6] Chan, K. H.; K. Z. Lin and P. L. Mo.2006.A Political-Economic Analysis of Auditor Reporting and Auditor Switches.Review of Accounting Studies.11:21-48 http://dx.doi.org/10.1007/s11142-006-6394-z.

      [7] Chow, C. W.1982.The Demand of External Auditing: Size, Debt,and Ownership Influences. The Accounting Review: 272-291.

      [8] Citron, D. and G. Manalis.2001.The International Firms as New Entrants to the Statutory Audit Market: An Empirical Analysis of Auditor Selection in Greece, 1993-1997.The European Accounting Review.10.3:439-459 http://dx.doi.org/10.1080/713764634.

      [9] Cohen, J.; G. Krishnamoorthy and A.Wright.2010. Corporate Governance in the Post Sarbanes-Oxley Era: Auditors’ Experiences. Contemporary Accounting Research.27.3:751-786. http://dx.doi.org/10.1111/j.1911-3846.2010.01026.x.

      [10] Dao, M.; K.Raghunadan and D.Rama (2012),’’Shareholder Voting on Auditor Selection,Audit Fees,and Audit Quality’’,The Accounting Review:87.1:149-171 http://dx.doi.org/10.2308/accr-10159.

      [11] Deakin, E.1976.Distributions of Financial Accounting Ratios: Some Empirical Evidence. The Accounting Review: 90-96

      [12] DeAngelo, L.1981.Auditor Size and Audit Quality.Journal of Accounting and Economics: 183-189. http://dx.doi.org/10.1016/0165-4101(81)90002-1.

      [13] Eichenseher, J. W.1985.The Effects of Foreign Operations on Domestic Auditor Selection.Journal of Accounting, Auditing and Finance.8.3:195-209

      [14] Ettredge, M.; P. B. Shane and D. B. Smith.1988.Audit Firm Size and the Association Between Reported Earnings and Security Returns. Auditing: A Journal of Practice and Theory.7.2:29-42.

      [15] Firth, M. and A. Smith.1992.Selection of Auditor Firms by Companies in New Issue Market.Applied Economics. 24:247-255. http://dx.doi.org/10.1080/00036849200000123.

      [16] Francis, R. J. and E. Wilson.1988.Auditor Changes: A Test of Theories Relating to Agency Cost and Auditor Differentiation. The Accounting Review: 663-682.

      [17] Grant-Thornton.2006.Study on the Impact of IFRS Application on Greek Listed Companies in the Athens Stock Exchange (ASE). June.www.Grant-Thornton.gr (in Greek)

      [18] Hodgdon, C.; R. H. Tondkar, A. Adhikari and D. W. Harless.2009.Compliance with International Financial Reporting Standards and Auditor Choice:New Evidence on the Importance of Statutory Audits.The International Journal of Accounting.44:33-55 http://dx.doi.org/10.1016/j.intacc.2008.12.003.

      [19] Klein, B. and K. Leffer.1981.The Role of Market Forces in Assuring Contractual Performance.Journal of Political Economy.89:615-641. http://dx.doi.org/10.1086/260996.

      [20] Krishnan,J. and Z.Ye (2005),’’Why Some Companies Seek Shareholder Ratification on Auditor Selection’’,Accounting Horizons,19,4,pp. 237-254 http://dx.doi.org/10.2308/acch.2005.19.4.237.

      [21] Maddala, G. S.1991.A Perspective on the Use of Limited-Dependent and Qualitative Variables:Models in Accounting Research.The Accounting Review.66.4:788-807.

      [22] Maggina,A. and A.Tsaklanganos(2011),’’Predicting Audit Opinions:Evidence from the Athens Stock Exchange’’. Journal of Applied Business Research.27,4:53-68

      [23] Maijoor,S. and A.Vanstraelen(2012),’’Research Opportunities in Auditing in the EU,Revisited’’,Auditing:A Journal of Practice and Theory,31,1,pp. 115-126 http://dx.doi.org/10.2308/ajpt-10209.

      [24] Meyhew,B. and J.Pike(2004),’’Does Investor Selection of Auditors Enhance Auditor Ãndependence?’’,The Accounting Review,79,3,pp. 797-822 http://dx.doi.org/10.2308/accr.2004.79.3.797.

      [25] Palepu, K. G.1986.Predicting Take-Over Targets:A Methodological and Empirical Analysis.Journal of Accounting and Economics:3-35. http://dx.doi.org/10.1016/0165-4101(86)90008-X.

      [26] Raghunandan,K.(2003),’’Nonaudit Services and Shareholder Ratification of Auditors’’,Auditing:A Journal of Practice and Theory,22,1,pp. 155-163 http://dx.doi.org/10.2308/aud.2003.22.1.155.

      [27] Simmunic, D. A. and M. Stein.1987.Product Differentiation on Auditing:A Study of Auditor Choice in the Market for Unseasoned New Issues.Canadian Certified General Accountants’ Research Foundation.

      [28] So, J. C.1987.Some Empirical Evidence on the Outliers and Non-Normal Distribution of Financial Ratios.Journal of Business Finance and Accounting.14.4:483-486 http://dx.doi.org/10.1111/j.1468-5957.1987.tb00108.x.

      [29] Spathis, C. T.2003.Audit Qualification,Firm Litigation,and Financial Information: An Empirical Analysis in Greece. International Journal of Auditing.7:71-85 http://dx.doi.org/10.1111/1099-1123.00006.

      [30] Spathis, C. T., M. Doumpos and C. Zopounidis.2003. Using Client Performance Measures to Identify Pre-Engagement Factors Associated with Qualifed Audit Reports in Greece.The International Journal of Accounting.38:267-284 http://dx.doi.org/10.1016/S0020-7063(03)00047-5.

      [31] Titman, S. and B. Trueman.1986.Information Quality and the Valuation of New Issues. Journal of Accounting and Economics. 8:159-172. http://dx.doi.org/10.1016/0165-4101 (86)90016-9.

  • Downloads

  • How to Cite

    Maggina, A. (2015). Clients’ selection of auditors: evidence from the Athens stock exchange. International Journal of Accounting and Economics Studies, 3(2), 156-164. https://doi.org/10.14419/ijaes.v3i2.5219