Same-Firm Audit Office Switches, Opinion Shopping and Earnings Quality

A surprisingly large number of companies change their audit engagement office within the same audit firm. This study investigates whether such companies engage in audit opinion shopping behavior. Adopting the empirical framework in Lennox (2000), we examine this issue using the U.S. data over 2000-2015. Our findings suggest that companies successfully improve going concern audit opinions through audit office switch decisions. Moreover, the above-mentioned empirical finding is stronger when opinion shopping involves larger audit offices, industry specialist offices, and offices in the same metropolitan areas. To investigate the nature of opinion shopping, we find that successful opinion shoppers tend to choose audit offices with low Type I errors, and they exhibit higher earnings quality than non-opinion shoppers. Overall, our evidence suggests same-firm office-switching behavior is driven by the client’s desire for better audits and more accurate audit opinions.