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03.0 Articles

Auditor Changes and the Cost of Bank Debt0405Jennifer M Mueller-PhillipsJune 26, 2017
Spatial Competition in Local Audit Markets and the Fallout...0222Jennifer M Mueller-PhillipsMay 30, 2017
Shareholder Votes on Auditor Ratification and Subsequent...0266Jennifer M Mueller-PhillipsApril 19, 2017
Auditor Ratification: Can’t Get No &...0150Jennifer M Mueller-PhillipsApril 19, 2017
Audit Report Restrictions in Debt Covenants0368Jennifer M Mueller-PhillipsAugust 30, 2016
Investor Heterogeneity, Auditor Choice, and Information...0256Jennifer M Mueller-PhillipsMay 31, 2016
Small Audit Firm Membership in Associations, Networks, and...0277Jennifer M Mueller-PhillipsMay 31, 2016
Non-Big 4 Local Market Leadership and its Effect on...0295Jennifer M Mueller-PhillipsMay 31, 2016
Internal Control Opinion Shopping and Audit Market...0655Jennifer M Mueller-PhillipsMarch 31, 2016
Restatements: Do They Affect Auditor Reputation for Quality.0554Jennifer M Mueller-PhillipsFebruary 17, 2016
Do Clients Avoid “Contaminated” Offices? The Economic Con...0550Jennifer M Mueller-PhillipsJanuary 20, 2016
Management Influence on Auditor Selection and Subsequent...0206Jennifer M Mueller-PhillipsSeptember 17, 2015
The Value of Big N Target Auditors in Corporate Takeovers.0233Jennifer M Mueller-PhillipsSeptember 16, 2015
Do Private Company Targets that Hire Big 4 Auditors Receive...0189Jennifer M Mueller-PhillipsJuly 30, 2015
Does a Lack of Choice Lead to Lower Quality? Evidence from...0428Jennifer M Mueller-PhillipsMarch 11, 2015
Auditor industry expertise and cost of equity0378Jennifer M Mueller-PhillipsMarch 10, 2015
Can Big 4 versus Non-Big 4 Differences in Audit-Quality...0963Jennifer M Mueller-PhillipsMarch 4, 2015
Damaged Auditor Reputation and Analysts' Forecast...0264Jennifer M Mueller-PhillipsMarch 3, 2015
National Level, City Level Auditor Industry Specialization...0260Jennifer M Mueller-PhillipsFebruary 24, 2015
Determinants and Market Consequences of Auditor Dismissals...01681Jennifer M Mueller-PhillipsFebruary 24, 2015
Founding Family Ownership and the Selection of Industry...0360Jennifer M Mueller-PhillipsFebruary 15, 2015
A Reexamination of Audit Fees for Initial Audit Engagements...0479Jennifer M Mueller-PhillipsDecember 3, 2014
Market Reaction to Auditor Switching from Big 4 to...0727Jennifer M Mueller-PhillipsNovember 10, 2014
When the PCAOB Talks, Who Listens? Evidence from Stakeholder...0313Jennifer M Mueller-PhillipsJune 22, 2014
Bringing Darkness to Light: The Influence of Auditor Quality...0251Jennifer M Mueller-PhillipsJune 2, 2014
Evidence on the Association between Financial Restatements...0267Jennifer M Mueller-PhillipsJanuary 14, 2014
Does Audit Fee Homogeneity Exist? Premiums and Discounts...0410Jennifer M Mueller-PhillipsOctober 29, 2013
An Experimental Investigation of the Influence of Audit Fee...0403Jennifer M Mueller-PhillipsOctober 15, 2013
Recent Auditor Downgrade Activity and Changes in Client’s D...0304Jennifer M Mueller-PhillipsOctober 3, 2013
Changes in Audit Market Competition and the Big N Premium0239Jennifer M Mueller-PhillipsOctober 3, 2013
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Auditing Section - American Accounting Association

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  • Jennifer M Mueller-Phillips
    Internal Control Opinion Shopping and Audit Market...
    research summary posted March 31, 2016 by Jennifer M Mueller-Phillips, tagged 03.0 Auditor Selection and Auditor Changes, 07.0 Internal Control, 07.03 Reporting Material Weaknesses, 12.0 Accountants’ Reports and Reporting, 12.06 Consequences of Adverse 404 Opinions in Auditing Section Research Summaries Space public
    Internal Control Opinion Shopping and Audit Market Competition.
    Practical Implications:

    The study results are important to regulators, practitioners, and academics. The findings show that internal controls opinion shopping appears to occur among firms that have clean internal control opinions prior to a restatement. In addition, clients have the incentive to manipulate the audit process, via internal control opinion shopping, due to the increased focus and oversight on internal controls reporting. Finally, auditor dismissals that occur late in the fiscal period are more likely to be associated with internal control opinion shopping.   


    Newton, N. J., J. S. Persellin, D. Wang, and M. S. Wilkins. 2016. Internal Control Opinion Shopping and Audit Market Competition. The Accounting Review 91 (2): 603623.

    opinion shopping, internal control weaknesses, audit opinion, audit quality, audit market competition
    Purpose of the Study:

    This study evaluates three research questions related to opinion shopping using the internal controls environment. There have been historical concerns with the presence of audit opinion shopping. However, most studies use going concern opinions in assessing audit clients retention and dismissal behavior. This study expands the opinion shopping environment to internal control reporting. Going concern opinions typically have a low base rate of occurrence and have leading indicators (poor growth, bankruptcy indicators, etc.). Internal control opinions do not have similar indicators that give rise to a warning of an adverse internal control opinion. From this background, the authors investigate: 1) whether internal control opinion shopping exist; 2) how audit market competition influences internal control opinion shopping; and 3) does the timing of an auditor dismissal indicate opinion shopping motivations.  

    This study also provides an avenue to evaluate opinion shopping in the period after the passage of the Sarbanes-Oxley Act. In addition, it highlights the unintended consequences of increased audit market competition. Finally, it lends support to recent regulatory concern over the decrease in material weakness assessments that may not be the caused by improved internal control environments.

    Design/Method/ Approach:

    The authors employ an archival research methodology in this study. Audit opinion and audit client data is from Compustat, Audit Analytics, and the Center for Research in Security Prices (CRSP). The sample period starts in 2005, the year after the implementation of SOX Section 404, and ends in 2011.

    • The authors find that audit clients are successful at internal control opinion shopping. The results show that clients would have received adverse internal control opinions at a higher rate if they made different auditor retention or dismissal choices.
    • When assessing the type of audit firm changes, the results suggest that opinion shopping may be more prevalent for audit clients that do not need the services of a Big 4 auditor.
    • Using three proxies for audit market concentration, the authors find a higher likelihood of opinion shopping in markets with high concentration.
    • The authors also find that auditor dismissals that occur in the third fiscal quarter are more likely to be associated with opinion shopping compared to auditor dismissals occurring prior to the end of the second quarter, especially in competitive markets.
    • The authors performed supplemental analyses to determine the association between internal control opinion shopping and going concern opinion shopping. They find that internal control opinions are less predictable and therefore more valuable than going concern opinions. They did find evidence of going concern opinion shopping in the pre-SOX period but not in the post-SOX period. This gives rise to the possibility that going concern reporting has a reduced role in auditor retention decisions after the introduction of SOX.
    Accountants' Reporting, Auditor Selection and Auditor Changes, Internal Control
    Consequences of Adverse 404 Opinions, Reporting Material Weaknesses