Auditor Switching and Conservatism Author(s): Jagan Krishnan Source: The Accounting Review, Vol. 69, No. 1 (Jan., 1994), pp. 200-215 Published by: American Accounting Association Stable URL: http://www.jstor.org/stable/248267 . Accessed: 09/05/2014 00:48 Your use of the JSTOR archive indicates your acceptance of the Terms & Conditions of Use, available at . http://www.jstor.org/page/info/about/policies/terms.jsp . JSTOR is a not-for-profit service that helps scholars, researchers, and students discover, use, and build upon a wide range of content in a trusted digital archive. We use information technology and tools to increase productivity and facilitate new forms of scholarship. For more information about JSTOR, please contact support@jstor.org. . American Accounting Association is collaborating with JSTOR to digitize, preserve and extend access to The Accounting Review. http://www.jstor.org This content downloaded from 169.229.32.137 on Fri, 9 May 2014 00:48:29 AM All use subject to JSTOR Terms and Conditions THE ACCOUNTING REVIEW Vol. 69, No.1 January 1994 pp. 200-215 Auditor Switching and Conservatism Jagan Krishnan Temple University SYNOPSIS AND INTRODUCTION: The relation between audit opinions and auditor switching has received considerable attention in recent years. Chow and Rice (1982) report a positive association between a firm's propensity to switch auditors and the receipt of a qualified opinion in the year prior to the switch.1 However, firms that switch auditors do not seem to receive "improved" opinions in the year following the switch (Chow and Rice 1982; Smith 1986). Despite this evidence, the Securities and Exchange Commission (e.g., Release No. 33-6594 [1985] and Financial Reporting Release No. 34 [1989]) and the popular financial press (e.g., Power 1984) continue to express concerns about opinion shopping. This study focuses on the auditor's opinion formulation process for switching and non-switching clients in the year prior to the switch. In particular, it examines the possibility that auditor switches are triggered not by the receipt of qualified opinions, but by auditors' use of conservative judgments for some clients. While conservatism refers to a numberof accounting and auditing issues, the overall conservatism of the auditor is assumed to be reflected in a tendency to issue qualified opinions. An ordered probit model of the qualification decision is estimated with different threshold values for prospective switchers and non-switchers measuring different judgments applied to the two groups of clients. The results support the hypothesis that threshold values for switchers are significantly lower (more conservative) than those for non- switchers. Further analysis of switching patterns suggests that when qualified opinions are based on conservative standards, the switching rate is higher than when average standards are applied. The observed conservatism could be the auditor's reaction to negative private information gathered during the audit that makes continued association with the I Under Statement on Auditing Standards No. 58 (AICPA 1988), auditors no longer issue a qualified opinion for a material uncertainty, which is now reported as an unqualified opinion with an explanatory paragraph. Hence, the term "qualification" for the purpose of this study will also refer to an unqualified opinion issued for a material uncertainty. This paper is based on my dissertation at the Ohio State University. I am indebted to my dissertation committee, Ray Stephens (Chairman), Stephen Cosslett, Douglas Schroeder, and Eric Spires for their guidance and suggestions. I have also benefited from the comments on earlier versions of this article by Celal Aksu, Steven Balsam, Ann Gabriel, Penelope Greenberg, Ralph Greenberg, Jayanthi Krishnan, Eric Press, SridharRamamoorti, A. Rashad Abdel-khalik (editor), two anonymous reviewers, and seminar participants at the Ohio State University, Temple University, and the 1992 American Accounting Association Annual Meeting. Submitted December 1991 Accepted May 1993 200 This content downloaded from 169.229.32.137 on Fri, 9 May 2014 00:48:29 AM All use subject to JSTOR Terms and Conditions Krishnan-Auditor Switching and Conservatism 201 client uneconomical or undesirable. However, the evidence indicating that opinions do not improve after switches suggests that opinion shopping is generally futile. This condition may exist because private information is obtained during the audit process, and a client usually will not be able to shopfora less conservative auditorwith a prior commitment of a favorable treatment. Recent concerns about opinion shopping and its effect on auditor independence may therefore not be justified. Key Words: Conservatism, Auditor switching, Audit opinion, Opinion shopping. Data Availability: The author has spent considerable time and effort in the collection of the data used for this study. Data will be made available upon completion of related projects. T n HE remainder of this article is organized as follows. Section I provides the motivation and develops the hypothesis. Section II outlines an empirical model to test for auditor con- servatism. Sections III and IV describe the data and the results. Sensitivity analyses are presented in section V. Concluding comments appear in section VIL I. Motivation The relation between audit opinions and auditor switching has been examined around the themes of opinion shopping and reasons for switching. The relation between switching and the opinion issued in the preceding year has received particular attention. Chow andRice (1982) show a significant positive coefficient for the opinion variable in estimating the decision to switch. DeAngelo (1982), Haskins and Williams (1990), Schwartz and Menon (1985) and Smith (1986) examine the issue (although only Smith [19861 makes it the main focus of analysis), but do not find a significant relation between switching and the audit opinion. Given that different meth- odologies are used, no consensus has emerged concerning the degree of association between switching and issuing qualified audit opinions. A smaller number of studies concentrate specifically on opinion shopping by examining the relation between switching and the subsequent audit opinion. These results are more consistent. Chow and Rice (1982, 334) report that firms that switched after a qualified opinion were no more likely to receive a clean opinion in the year after switch than others. Using cases, Smith (1986) compared pre- and post-switch opinions, looking for conflicts between the predecessor and successor auditors. He found that, in a sample of 139 firms that changed auditors after a qualified report, only five cases suggested the possibility of opinion shopping. In the absence of clear evidence of successful opinion shopping in the post-switch period, thA continuing concerns about such shopping expressed by the Securities and Exchange Commission suggest that a further examination of the prior-year opinion and switching would be useful to policy makers, practitioners, and academicians. Previous studies that examine the opinion formulation process have not considered differences between switchers and non-switchers. This study addresses the possibility that auditors apply relatively stricter interpretations of accounting and auditing issues for certain clients, in response to which these clients switch auditors in the hopes of securing a less conservative auditor. The hypothesis tested is that, given a set of observed client financial characteristics, switchers receive more conservative treatment in the audit opinion decision than non-switchers. While relatively more conservative treatment will cause switchers to receive qualified opinions more often, it is the differential treatment rather than the issuance of the qualified opinion that triggers the switch. This content downloaded from 169.229.32.137 on Fri, 9 May 2014 00:48:29 AM All use subject to JSTOR Terms and Conditions 202 The Accounting Review, January 1994 II. Empirical Approach Previous work on audit qualifications (e.g., Bell and Tabor 1991; Dopuch et al. 1987; Mutchler 1985) has used a binary dependent variable to represent qualified and clean opinions. In this article, opinions are classified into three categories of increasing seriousness: unqualified, asset realization (including litigation), and going concern. The audit opinion formulation process is modeled using ordered probit. This approach has the advantage of allowing measurement of movements between qualification levels that would be obscured in a qualified/clean dependent variable. It also allows for a measure of auditor conservatism in terms of the threshold values, after controlling for observed differences in the financial and market conditions of client furns. Let ye denote the auditor's judgment of the client's (observable) condition, specified as a function of a vector of financial and market variables X and a random error Ec. Thus for client i, y* = xi#+ (1) The components of Xi are discussed in detail in the next section. The auditor applies threshold values in determining the qualification. Let ye take values between y and y. Denoting threshold values by g 1 and g2' the auditor's choice of opinions are unqualified, asset realization, and going concern when ye falls in the ranges (y, Q), (Ro, g) and (g2, y) respectively. Let (4yS' I2SW) and (11NSW, INsw) denote the thresholds of switchers and non-switchers respectively, and let SWITCH be a dummy that takes the value of one if an observation is a prospective switcher, and zero otherwise. The possibility of different thresholds for the two groups is taken into account by specifying the threshold values g, and i2 as: M1 = 91NSW + (4u91 - g1NSW) * SWITCH, and J2 = t2NSW + (2SW- U2NSW) * SWITCH. (2) For the purpose of identification the first threshold for non-switchers, I1NSW, equals zero. The model is an extended form of the standard ordered probit model.2 (See Dietrich and Kaplan 1982 and McKelvey and Zavoina 1975 for detailed descriptions of the standard ordered model.) The parameters to be estimated are ,1SW 92SW' g2Nsw and P/. The test of the hypothesis that switchers receive more conservative treatment than non-switchers is that [tysw - gk1NSW < 0 and I2SW - 12NSW < O? III. Data and Variables The primary data source is the Disclosure Inc. database. An initial sample of companies was drawn for the years 1986, 1987 and 1988.3 The process of moving from the initial collection of data to the final sample involved several steps. First, only companies with data on the CRSP tapes (New York, American and NASDAQ daily files) were retained. Market variables were con- structed using data from CRSP, but companies with price data for less than 70 trading days were deleted. Second, financial service companies (SIC Codes 6000-6999) were excluded because 2The log likelihood function 11 for a sample of size N is given by: L*= EZil In[O(ulsw * SWITCHi - Xip)] + Zi2 ln[(L)(P2NSW + (M2SW - P2NSW) * SWITCHi - X id) -4(ju1w * SWITCHi - Xip)] + Zi3 11 - D(P2NSW + (P2SW - P2NSW) * SWITCHi - Xip)]} where ZQ = 1, if OPINION, = j, zero otherwise, and j=1,2,3. 3The initial list of companies was drawn from March 1988 to March 1990 data discs. This content downloaded from 169.229.32.137 on Fri, 9 May 2014 00:48:29 AM All use subject to JSTOR Terms and Conditions Krishnan-Auditor Switching and Conservatism 203 variables used in studies such as this one may be inappropriate for these firms (Dopuch et al. 1987, 434). Third, companies that filed for bankruptcy in the year before switch were dropped. Finally, some observations were deleted because of incomplete data. The main analysis is based on 2,989 observations for 1986 and 1987, while the 1988 data, comprising 808 companies, were retained as a time series holdout sample to test the predictive ability of the model. The dependent variable, OPINION, represents the auditor's opinion in the year before the switch. It takes the value 1 for unqualified opinions (U), 2 for asset realization (including litigation) opinions (AR), and 3 for going concern opinions (GC).4 Consistency exceptions for voluntary and mandatory accounting changes are included in the unqualified category. Litigation qualifications include tax uncertainties. The asset realization category includes future financing opinions in which the possible violation of the going concern assumption is not stated, and multiple qualifications involving litigation and asset realization. Multiple qualifications arising in conjunction with the going concern opinion are included in the going concern category. The switching variable, SWITCH, denoting the prospective switching status of the firm, is coded one if the firm changed auditors in the year following the issuance of the opinion, zero otherwise. Prospective switchers were identified by comparing the current year auditor with that in the next year.5 The switching rate in the sample is 6.6 percent. Since this study focuses on the different treatment of switchers and non-switchers, the choice of independent variables is based on previous work, especially that of Dopuch et al. (1987). The variables consist of a set of financial and market variables, and controls representing auditor type, time listed, and industry affiliation. Ratios of receivables and inventory to assets are used to capture high risk accounts. Firm size (measured by the logarithm of assets) and a dummy for operating losses are included as proxies for possible financial distress. The liabilities/assets ratio measures leverage. Beta and residual standard deviation of returns from the standard market model are used as measures of systematic and fin-specific risks, respectively. The firm's performance relative to the market is measured by its returns minus market return. Descriptive statistics for the full sample and for qualification and switching groups are presented in table 1. The frequency of switching increases significantly as one moves from the unqualified opinion to the going concern opinion. Among the explanatory variables, the incidence of loss and the residual standard deviation of returns increase, on average, with the seriousness of the qualification. The liabilities/assets ratio and firm size do not differ across the unqualified and asset realization qualification groups. However, firms in the going concern category are significantly smaller and have higher liabilities/assets ratio than those in the asset realization category. The receivables/assets and inventory/assets ratios are both lower, on average, for the asset realization category than for the unqualified group. While the latter ratio is higher for the going concern group than the asset realization group, the former is similar over the two qualification groups. One surprising finding is that clients' systematic risk, as measured by beta, decreases as one moves from the unqualified opinion to the asset realization opinion. However, the going concern clients have a higher mean beta than that of the asset realization category. Returns minus market return is not significantly different across the unqualified and asset realization groups, but is distinctly lower for the going concern category. Firms with going 4The audit opinions were verified through comparisons with other sources, such as 10-K filings, annual reports, and COMPUSTAT. Companies for which audit opinions could not be verified from a second source were dropped. IThe switching status of each company was verified by examining other sources such as COMPUSTAT, WhoAudits America, 10-K and 8-K filings, and annual reports. This content downloaded from 169.229.32.137 on Fri, 9 May 2014 00:48:29 AM All use subject to JSTOR Terms and Conditions 204 The Accounting Review, January 1994 ;~~~~~~~x CD Ct C CD o .O CD ^t o CD oN It m CD r- CD oF 'n CD O\ ON kO ' IOO 'OO D j O O O NO CD m U~~~~~~~~~~ s t t > m W) I t r- - CD O M CD N C\ t It o) ~~~~r)W k -4 - -4 -4 m M -4 t 0 CD CD N C\ t- 00 m = R .8 (>0 0 m 0 0 ~O 000 'n NO 0' 0 00 00000O -0 N 0' XN C 0 N 00 0t >10 0 O N (>1m CD 'o C CoD =~~~~~~~~- -S 1, _s _st > t kn ? N oo CD ? t- CD t N N t m r- r C) b = m X m ^ ? o onC CDCDCD o o t t . t C OC '' - CD C oo CD CD 00 C CD OoC oo ND ~~~ o6N D 6546 6i6 6 6o6 e c v 66 66c o.6o6 66 (> C > em o oIC N Co C -o oWi No CDo 00o Oi ;~~~~~~ CD O M CD \ CD M CD oo o, t CD N CD CD o " o A o ~~~~~oO N^ 'o 00 ~o OO ~o 'o O\ '-o o oo?oU O . t D > O O CC 0 CD -O 000 O O 000 o -4OO \ O. NO '~ O0 i OO (>N ifl (>1 o>1 N-0 on NOC o'- oo-0 0?n oto o n ._ . ^ 'O ? N ^ zO (>10> 'no 'n' OO -O 'a t O (>10 o to v~~~~~~~I 0 C\ CD "O o ?? N "t N 't 't N N t- ?? ?- V)V m cr oZ r1C NCIt 00 W ) flO CD CD O) N CD N CD CI ? 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O 0~~~~ . * .z C d *.H.c5E This content downloaded from 169.229.32.137 on Fri, 9 May 2014 00:48:29 AM All use subject to JSTOR Terms and Conditions 206 The Accounting Review, January 1994 Table 2 Extended Ordered Probit Estimates Threshold/ Expected Parameter Variable Sign Estimate t-statistic Threshold: 91NSW 0.000 I1SW - g1NSW - 0.498a -4.604 92NSW + 0.460a 10.750 2SW - 92NSW - 0.559a -4.234 Variable: CONSTANT -1.417 -8.932 L/A + 0.264a 12.030 R/A + -1.373a -5.108 I/A + 0.176a 0.642 LOSS + 0.738a 7.637 LASSET - 0.147a -6.501 BETA + 0.017a 0.417 SDRET + 8.744a 4.523 RET-NMRET -0.533a -4.271 TIME - 0.030a 5.099 BIG6 -0.103 -1.205 y87b -0.154 -2.190 Industry Dummies C R2 0.371 Cli-squared 577.780 p-value 0.000 N 2,989 a One-tailed test (two-tailed otherwise). b 1 if the observation belongs to year 1987. cOne digit industry dummyvariables were used. Agriculture, forestry, andfishing and mining were combined because there were few observations in each group. The following industry variables were significant: Manufacturing (-0.183, t = -1.839), Transportation (0.636, t = 5.039), and Retail (-0.915, t = -3.677). OPINION (Dependent Variable) = 1 if unqualified, 2 if asset realization or litigation, and 3 if going concern. J1lNSW, j2Nsw9 pls~w and p2sw are the first and second thresholds for non-switchers and switchers, respectively. The first threshold for non-switchers is normalized to zero. Other variables are defined in table 1. This content downloaded from 169.229.32.137 on Fri, 9 May 2014 00:48:29 AM All use subject to JSTOR Terms and Conditions Krishnan-Auditor Switching and Conservatism 207 concern opinions have the lowest mean for time listed on an exchange. However, time listed is higher on average for the asset realization category than for the unqualified group. The incidence of qualified opinions is significantly higher for switchers as compared to non- switchers. Relative to non-switchers, switching clients tend to be smaller, and incur losses more often. The residual standard deviation of returns is higher for switchers, while beta and time listed are significantly lower. The three financial ratios and returns minus market return are not significantly different for the two groups. IV. Empirical Results Extended Ordered Probit Model Estimates Table 2 presents the estimates of the extended ordered probit.6 The model chi-squared statistic has a p-value less than 0.001. The R2 (as defined in McKelvey and Zavoina 1975) for the model is 0.371. A Hausman specification test (Hausman 1978) was also conducted with the binary probit model defined as the alternative specification. The results support the null hypothesis of no misspecification (p = 0.247). Among the explanatory variables, the liabilities/assets ratio, losses, residual standard deviation of returns, returns minus market return, and firm size have significant coefficients in the expected direction. The coefficients of the receivables/assets ratio and time listed have unexpected signs.7 Beta and the inventory/assets ratio have statistically insignificant coeffi- cients.8 The first threshold for non-switchers is normalized to zero. The second threshold for non- switchers is significantly positive, suggesting the appropriateness of the ordered probit model. The differences between the first thresholds of switchers andnon-switchers, ,t sw - ,t NSW and that between the second thresholds, 12SW - 2Nsw are both negative and statistically significant at below the one percent level.9 The finding that switchers have lower thresholds than non-switchers suggests that switching may be motivated by auditor conservatism, rather than by the issuance of a qualified opinion per se. Consider an alternative naive model in which clients are expected to switch in response to a qualified opinion, regardless of treatment. In such a model, a client would switch auditors even when a qualified opinion is deserved. By contrast, the model presented here suggests that clients would switch auditors only when they perceive the qualification issued to be "undeserved"; i.e., the result of a conservative treatment. The client's deserved opinion can be approximated by using a simple ordered probitmodel with uniform thresholds for all clients. According to the naive model, the switching rate for clients that deserve an asset realization or going concern opinion will be higher than that for clients that deserve an unqualified opinion. However, the conservatism 6Pooled data for 1986 and 1987 is used in this study because the numberof observations in each qualification category is small in each year, particularly when categorized by switching status. A likelihood ratio test did not reject the null hypothesis of no difference in slope coefficients across years (p = 0.431). 7Dopuch et al. (1987) also report finding an opposite sign on their change in receivables/total assets ratio variable. 8The correlation matrix (not reported) showed that the correlations between residual standard deviation of returns and (log) assets (-0.535) and between time listed and (log) assets (0.621) may result in multicollinearity. Reestimation of the model after dropping residual standard deviation of returns and time listed (separately), however, showed no change in the qualitative results. None of the other correlations exceeded 0.45. 9 To check the robustness of the results, the model was reestimated on 100 randomly generated samples of 2,989 observations, each drawn with replacement from the estimation sample. The differences in both thresholds for switchers and non-switchers were negative and statistically significant in each of these 100 samples. This content downloaded from 169.229.32.137 on Fri, 9 May 2014 00:48:29 AM All use subject to JSTOR Terms and Conditions 208 The Accounting Review, January 1994 Table 3 Impact of Conservatism on Switching Rates Predicted Opinion from Predicted Opinion Ordered Probit from Extended Ordered Switching Model a Probit Modelb Rate (%) Unqualified 6.22 Unqualified 5.75 Asset Realization 11.36 Going Concern 22.22 Asset Realization 20.55 Asset Realization 0.00 Going Concern 20.55 Going Concern 8.33 aDerived from a simple ordered probit (estimates not reported) using average thresholds for all clients. bDerived from the extended ordered probit reported in table 2, using conservative thresholds for all clients. model has the following implications: (1) among firms that deserve unqualified opinions, the switching rate will be higher for those that had actually received asset realization qualifications or going concern opinions than for those that received unqualified opinions; (2) among clients that deserve the asset realization qualification, the switching rate will be higher for clients that had actually received the going concern opinion than for those that received the asset realization qualification.10 No predictions can be made for the going concern opinion, since the application of conservative standards cannot yield a more serious outcome. Predicted opinions from the ordered probit (in which all clients face the same thresholds) and the extended ordered probit (using the conservative thresholds) were cross-classified and switching rates were computedfor the subgroups mentioned above. The results are shown in table 3. Looking first at the naive model, the switching rates for firms that deserve unqualified, asset realization, and going concern opinions are 6.22 percent, 20.55 percent, and 8.33 percent respectively. These rates support the hypothesis of the naive model: clients deserving qualified opinions switch more often. However, the application of conservative thresholds reveals a different picture. Among clients that deserve unqualified opinions but receive qualified opinions due to apparent conservative treatment, the switching rate is significantly higher (11.36 percent for asset realization and 22.22 percent for going concern) than for clients that both deserve and receive unqualified opinions (5.75 percent). Similarly, while firms that deserve an asset realization qualification have a switching rate of 20.55 percent, all of these clients receive going concern opinions because of the apparent conservative application of standards. The pattern of 'Othe model also predicts that clients who receive unqualified opinions by the application of conservative standards have a higher probability of switching than those who receive unqualified opinions by the application of average standards. However, such behavior cannot be tested, since the actual thresholds are not observed. This content downloaded from 169.229.32.137 on Fri, 9 May 2014 00:48:29 AM All use subject to JSTOR Terms and Conditions [...]... Carpenter, C G., and R H Strawser 1971 Displacement of auditors when clients go public Journal of Accountancy 131 (June): 5 5-5 8 Chow, C W., and S J Rice 1982 Qualified audit opinions and auditorswitching TheAccountingReview 57 (April): 32 6-3 5 This content downloaded from 169.229.32.137 on Fri, 9 May 2014 00:48:29 AM All use subject to JSTOR Terms and Conditions Krishnan- Auditor Switching and Conservatism. .. voluntary auditorchanges Journal of Accounting and Economics 12 (January): 28 1-3 08 Knapp, M C., and F Elikai 1988 Auditor changes: A note on the policy implications of recent analytical and empirical research Journal of Accounting, Auditing and Finance, n.s 3 (Winter): 7 8-8 6 McConnell, D K Jr., 1984 Auditor changes and related disagreements Auditing: A Journal of Practice & Theory 3 (Spring): 4 4-5 6 McKelvey,... 2014 00:48:29 AM All use subject to JSTOR Terms and Conditions Krishnan- Auditor Switching and Conservatism 211 identify some kinds of "other" switchers Three other reasons for switching, identified inprevious work, were used: initial public offerings (IPOs), rapid growth, and search for "credible" auditors (Carpenter and Strawser 1971; Dopuch and Simunic 1982; Johnson and Lys 1990; Menon and Williams 1991;... T L., and D Palmon 1979 Some evidence of the magnitude of auditor turnover Working paper, New York University DeAngelo, L E 1982 Mandated successful efforts and auditor choice Journal of Accounting and Economics 4 (December): 17 1-2 03 DeFond, M L 1992 The association between changes in client firm agency costs and auditor switching Auditing: A Journal of Practice & Theory 11 (Spring): 1 6-3 1 Dietrich,... model of intra-Big Eight auditorchanges Auditing: A Journal of Practice & Theory 9 (Fall): 5 5-7 4 Hausman, J A 1978 Specification tests in econometrics Econometrica 46 (November): 125 1-7 1 Healy, P., and T Lys 1986 Auditor changes following Big Eight mergers with non-Big Eight audit firms Journal of Accounting and Public Policy 5 (Winter): 25 1-6 5 Johnson, W B., and T Lys 1990 The marketfor audit services:... Auditing Standards No 58: Reports on Audited Financial Statements New York: AICPA Bedingfield, J B., and S E Loeb 1974 Auditor changes-An examination Journal of Accountancy 137 (March): 6 6-6 9 Bell, T B., and R H Tabor 1991 Empirical analysis of audit uncertainty qualifications Journal of Accounting Research 29 (Autumn): 35 0-7 0 Burton, J C., and W Roberts 1967 A study of auditorchanges Journal ofAccountancy... of sensitivity analyses are conducted First, companies that reported changing auditors because of high fees were assumed to be switching for reasons unrelated to auditor conservatism and were deleted from the sample Second, an independent attempt was made to Healy and Lys (1986), Johnson and Lys (1990), Menon and Williams (1991), Schwartz and Menon (1985), and Smith (1986) See Knapp and Elikai (1988)... R., and R S Kaplan 1982 Empirical analysis of the commercial loan classification decision The Accounting Review 57 (January): 1 8-3 8 Dopuch, N., andD Simunic 1982 Competition in auditing:An assessment Fourth SymposiumonAuditing Research 40 1-5 0 Department of Accountancy, Urbana: University of Illinois R W Holthausen, and R W Leftwich 1987 Predicting audit qualifications with financial and _, market variables... 43 1-5 4 Eichenseher, J W., andD Shields 1983 The correlatesof CPA-firmchangeforpublicly-held corporations Auditing: A Journal of Practice & Theory 2 (Spring): 2 3-3 7 Francis, J R., andE R Wilson 1988 Auditorchanges: Ajoint test of theories relating to agency costs and auditor differentiation The Accounting Review 63 (October): 66 3-8 2 Haskins, M E., andD D Williams 1990 A contingent model of intra-Big... on Fri, 9 May 2014 00:48:29 AM All use subject to JSTOR Terms and Conditions 0 Krishnan- Auditor Switching and Conservatism t~~~~W It 213 cM ONl 00 0 0 (N 2 b~~~~~~i 000 ~~~~ oc> oo666.-m66 -z~~~~~~~C 0 00W CD n oo6 4C r 4 -4 r On~ 0b0 C _0 C9 ,, , U, b c i wxt'> N M q*0 N N E* 0 P"= n X st t b b ^ 00 m in o^D X o N M CD in o.N tn mC1 C1r- \< ~~~~~~~~It M 0 0 ^N 00 CD M N r- o ON W oX 0S C7 a~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ . 12.030 R/A + -1 .373a -5 .108 I/A + 0.176a 0.642 LOSS + 0.738a 7.637 LASSET - 0.147a -6 .501 BETA + 0.017a 0.417 SDRET + 8.744a 4.523 RET-NMRET -0 .533a -4 .271 TIME - 0.030a 5.099. January 1994 pp. 20 0-2 15 Auditor Switching and Conservatism Jagan Krishnan Temple University SYNOPSIS AND INTRODUCTION: The relation between audit opinions and auditor switching. 00:48:29 AM All use subject to JSTOR Terms and Conditions Krishnan- Auditor Switching and Conservatism 215 Coe, T. L., and D. Palmon. 1979. Some evidence of the magnitude of auditor turnover.