Abstract
This paper studies a firm's decision to replace its auditor when the replacement affects outsiders' perceptions of its financial condition and auditors' attestations. If the auditor and firm possess common information about the firm's financial condition, and this information can be communicated through financial statements, then, quite generally, the auditor is never replaced. If the firm possesses information superior to that of the auditor and financial reports reflect only the auditor's information, then the auditor is more likely to be replaced the more favorable the firm's information and less favorable the auditor's information. Low-balling is explained by its effect on auditors' attest behavior, rather than by the cost differences of initial and repeat engagements.
Sign-in/Register to access full text options 
Free) 
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a call
