The Impact of Accounting Standards on Audit Firm Switch Rates

ABSTRACT: Researchers have conjectured that accounting standards decrease the rate at which clients change auditors. They argue that conflict caused by disagreements over accounting standards is reduced because there are fewer acceptable accounting principles. Surprisingly, there is little empirical evidence that investigates the impact of accounting standards on audit firm switch rates. This study investigates the relationship between accounting standards and audit firm switch rates. The paper presents surprising evidence that in the year of enactment, accounting standards cause clients to change auditors at a faster rate. This finding supports the idea that conflict is created over the implementation of the standard which results in a client changing auditors. The paper also supports traditional thought by presenting evidence that in years following the issuance of an accounting standard clients change auditors at slower rates. This finding supports the idea that conflict will be reduced in future years because there are fewer acceptable accounting principles on which an auditor and a client can disagree. Data Availability: Data are available from sources identified in the text.