EVIDENCE ON OPINION SHOPPING FROM AUDIT OPINION CONSERVATISM

Auditor switching preceded by the receipt of a qualified opinion has received considerable attention in recent years. The concern that such switching may be motivated by opinion shopping (i.e., shopping for an improved audit opinion from a new auditor) has resulted in the issuance of policy statements aimed at controlling potential opinion shopping. Two studies (Chow and Rice 1982; Smith 1986) compared the audit opinions of predecessor and successor auditors but did not find empirical evidence consistent with opinion shopping. Krishnan (1994) examined the audit opinion decisions for clients who switched and found that auditors treated prospective switchers more conservatively than non-switchers in the year prior to a switch. Our study extends Krishnan (1994) by comparing the audit opinion decisions of the predecessor and successor auditors for clients who switched, relative to auditors' treatment of non-switching clients. Following Krishnan (1994), an ordered probit audit opinion model was estimated. Controlling for clients' financial conditions, the model provides threshold values for auditors' qualification decisions. Differential threshold estimates for switching and non-switching clients were assumed to be attributable to auditors' differential treatment of different clients. The results suggest no difference in the treatment of clients who switched in the pre-switch and post-switch years relative to non-switching clients. In fact, clients who switched were treated relatively conservatively by both predecessor and successor auditors, suggesting either the absence of successful opinion shopping or that the increased switching is not motivated by opinion shopping.