Audit committee effectiveness characteristics and auditor switches involving industry specialists

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Abstract

The aim of this study is to investigate the association between audit committee effectiveness characteristics and auditor switches to or from an industry specialist audit firm. This study uses data on auditor changes from Audit Analytics, financial data from North American Compustat, and hand-collected data including audit committee characteristics (such as audit committee chair tenure, the proportion of auditing experts on the audit committee, etc.), the number of audit committee meetings and stock ownership from proxy statements between 2005 and 2011. The results reveal that firms with audit committees that have a large proportion of auditing experts are more likely to choose an industry specialist auditor when the firm switches its auditor. Furthermore, the results also show that the longer the tenure of the audit committee chair is, the more likely that the firm switches from a non-specialist to a specialist auditor. This study adds to the literature by exploring the association between audit committee effectiveness characteristics and auditor switches involving industry specialists. The findings inform regulators regarding the impact that audit committee effectiveness characteristics have on auditor switches involving specialists.

Keywords: Audit Committee Characteristics, Auditor Industry Specialization, Auditor Switches, External Auditor, Auditing, Audit Committee Effectiveness

Authors’ individual contribution: Conceptualization – A.S.; Methodology – A.S.; Writing – Original Draft – A.S.; Writing – Review & Editing – N.C.F.; Data Curation – N.C.F.; Visualization – A.S.; Supervision – A.S.

Declaration of conflicting interests: The Authors declare that there is no conflict of interest.

Acknowledgements: This paper is based on Ankita Singhvi’s dissertation completed at the University of Texas at El Paso. We would like to thank her dissertation committee members, Dr. Stephen B. Salter, Dr. Robert Knechel, and Dr. Giorgio Gotti for their valuable comments and insights. We would also like to thank Dr. Kannan Raghunandan for his help during the initial stages of this project.

JEL Classification: M42

Received: 21.09.2020
Accepted: 10.03.2021
Published online: 12.03.2021

How to cite this paper: Singhvi, A., & Feng, N. C. (2021). Audit committee effectiveness characteristics and auditor switches involving industry specialists. Corporate Ownership & Control, 18(3), 57-65. https://doi.org/10.22495/cocv18i3art5