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Audit Committee Characteristics and Auditor Dismissals Following "New" Going-Concern Reports

One important role of audit committees is to protect external auditors from dismissal following the issuance of an unfavorable report. We examine auditor dismissals following new going-concern reports that Big 6 firms issued between 1988 and 1999. Our findings suggest that audit committees with grea... Full description

Journal Title: The Accounting review 2003-01-01, Vol.78 (1), p.95-117
Main Author: Carcello, Joseph V.
Other Authors: Neal, Terry L.
Format: Electronic Article Electronic Article
Language: English
Subjects:
Quelle: Alma/SFX Local Collection
Publisher: Sarasota: American Accounting Association
ID: ISSN: 0001-4826
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recordid: cdi_proquest_miscellaneous_38430039
title: Audit Committee Characteristics and Auditor Dismissals Following "New" Going-Concern Reports
format: Article
creator:
  • Carcello, Joseph V.
  • Neal, Terry L.
subjects:
  • Accountant independence
  • Analysis
  • Appointments, resignations and dismissals
  • Audit committees
  • Auditing
  • Auditor independence
  • Auditors
  • Auditors reports
  • Business accounting
  • Business audits
  • Business structures
  • Corporate affiliates
  • Dismissals
  • Financial management
  • Financial reporting
  • Firings
  • Going concern (Accounting)
  • Going concerns
  • Management audits
  • Public companies
  • Reports
  • Service industries
  • Statistical analysis
  • Stock ownership
  • Studies
ispartof: The Accounting review, 2003-01-01, Vol.78 (1), p.95-117
description: One important role of audit committees is to protect external auditors from dismissal following the issuance of an unfavorable report. We examine auditor dismissals following new going-concern reports that Big 6 firms issued between 1988 and 1999. Our findings suggest that audit committees with greater independence, greater governance expertise, and lower stockholdings are more effective in shielding auditors from dismissal after the issuance of new going-concern reports. In addition, we find that the relation between audit committee independence and auditor protection from dismissal has grown stronger over time. Finally, independent audit committee members experience a significant increase in turnover rate after auditor dismissals. These findings, coupled with those from Carcello and Neal (2000), suggest that when affiliated directors dominate the audit committee, management often can (1) pressure its auditor to issue an unmodified report despite going-concern issues, and (2) dismiss its auditor if the auditor refuses to issue an unmodified report.
language: eng
source: Alma/SFX Local Collection
identifier: ISSN: 0001-4826
fulltext: fulltext
issn:
  • 0001-4826
  • 1558-7967
url: Link


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descriptionOne important role of audit committees is to protect external auditors from dismissal following the issuance of an unfavorable report. We examine auditor dismissals following new going-concern reports that Big 6 firms issued between 1988 and 1999. Our findings suggest that audit committees with greater independence, greater governance expertise, and lower stockholdings are more effective in shielding auditors from dismissal after the issuance of new going-concern reports. In addition, we find that the relation between audit committee independence and auditor protection from dismissal has grown stronger over time. Finally, independent audit committee members experience a significant increase in turnover rate after auditor dismissals. These findings, coupled with those from Carcello and Neal (2000), suggest that when affiliated directors dominate the audit committee, management often can (1) pressure its auditor to issue an unmodified report despite going-concern issues, and (2) dismiss its auditor if the auditor refuses to issue an unmodified report.
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subjectAccountant independence ; Analysis ; Appointments, resignations and dismissals ; Audit committees ; Auditing ; Auditor independence ; Auditors ; Auditors reports ; Business accounting ; Business audits ; Business structures ; Corporate affiliates ; Dismissals ; Financial management ; Financial reporting ; Firings ; Going concern (Accounting) ; Going concerns ; Management audits ; Public companies ; Reports ; Service industries ; Statistical analysis ; Stock ownership ; Studies
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abstractOne important role of audit committees is to protect external auditors from dismissal following the issuance of an unfavorable report. We examine auditor dismissals following new going-concern reports that Big 6 firms issued between 1988 and 1999. Our findings suggest that audit committees with greater independence, greater governance expertise, and lower stockholdings are more effective in shielding auditors from dismissal after the issuance of new going-concern reports. In addition, we find that the relation between audit committee independence and auditor protection from dismissal has grown stronger over time. Finally, independent audit committee members experience a significant increase in turnover rate after auditor dismissals. These findings, coupled with those from Carcello and Neal (2000), suggest that when affiliated directors dominate the audit committee, management often can (1) pressure its auditor to issue an unmodified report despite going-concern issues, and (2) dismiss its auditor if the auditor refuses to issue an unmodified report.
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