Reasons Behind Auditor Switch

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Factors Influencing Auditor Switch: Evidence from A Shares Companies Listed in Shanghai and Shenzhen Stock Exchange in China


Deng Zhirui

Li Lujun

A Business Project Submitted to the Division of
Business and Management in Partial Fulfillment of
the Graduation Requirement for the Degree of
Bachelor of Business Administration (Honours)

Beijing Normal University – Hong Kong Baptist University
United International College

April 2013

Table of Content
1. Introduction1
2. Statement of problems2
3. Literature Review3
3.1 Theory Framework3
3.2 Qualified Audit Opinion4
3.3 Audit Fee5
3.4 Client Financial Distress6
3.5 Auditor Locality7
4. Objective of this study9
5. Statement of Hypotheses9
5.1 Qualified audit opinion9
5.2 Audit fee10
5.3 Client financial distress10
5.4 Auditor locality11
6. Data and Research Methodology12
6.1Data Collection and Sample Selection12
6.2 Variable Definition and Measurements12
6.2.1 Dependent Variable Definition and Measurement12
6.2.2 Independent Variable Definition and Measurement13
6.3 Research Methodology15
7. Findings and Analysis16
7.1Descriptive statistics16
7.2 Pearson Correlation Analysis:17
7.3 Regression Analysis19
8. Limitation21
9. Conclusion22
10. Reference24
10.1 English Reference24
10.2 Chinese Reference29
11. Appendix31

List of Tables

Table 1 Variable Measurement14
Table 2 Variable Descriptive Statistics16
Table 3 Pearson Correlation Analysis17
Table 4 Logistic Regression Result18
Table 5 Logistic Regression Result except Client Financial Distress19 Table 6 Logistic Regression Result except Qualified Audit Opinion19

Firstly, we would like to express our sincere gratitude and appreciation to our supervisor, Dr. Raymond Ho, Assistant Professor of Division of Business and Management of Beijing Normal University-Hong Kong Baptist University United International College. He spent time on providing new researches on our topic and giving feedback on our project promptly and insightfully. Without his continuous guidance and unconditional support, we may not finish our project effectively and efficiently. We give our truthful gratitude for his support in the whole academic year. Besides, we thank for Dr. Pak Patrick and Mr. King Guo. They organized workshop on APA style and qualitative research method for us so that we can finish our project regularly and completely. Last but not least, we acknowledge our friends and families who supporting us in conducting our research project. We would like to make special thanks to them.

The increasing concern for credibility of financial statements and the independence of auditors create the demand for the research of auditor switch. The purpose of this research is to examine four factors influencing auditor switch: qualified audit opinion, audit fee, client financial distress, and audit locality, for A-shares companies listed in the Shanghai and Shenzhen Stock Exchange in China. The sample consists of 100 auditor-change companies and 100 non-auditor-change companies listed in the Shanghai and Shenzhen Stock over a three year period from 2009 to 2011. Descriptive statistics, Pearson correlation and stepwise logistic regression are used to analyze the data. The findings reveal that auditor switch is significantly influenced by qualified audit opinion, client financial distress and audit fee. Auditor locality and auditor switch is positively but not significantly correlated.

1. Introduction
With the establishment of Shanghai and Shenzhen stock exchange, China’s security market is becoming mature gradually. However, in recent years, accounting frauds in China such as “Yin Guang Xia”, “Zhong Tianqing” and “Hua Yuan Group” event drawn public attention to the reliability of accounting information and led investors to question the quality of...
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