An International Meeting of the American Accounting Association American Accounting Association 2006 Annual Meeting August 6–9, 2006 Washington, D.C.

Jagan Krishnan
Temple University

K. Raghunandan
Florida International University

Joon S. Yang
University of Minnesota Duluth

Abstract: Policymakers have periodically expressed concerns about the possible adverse effects on auditor independence associated with lengthy auditor-client relationships. Some recent studies find that contrary to the fears expressed by legislators, auditors’ judgments are not less conservative for their long-tenured clients; these studies have examined voluntary switches by clients or auditors. In this paper, we focus on a setting that comes closest to the mandatory switches recommended by policymakers. The indictment of Arthur Andersen in 2002 led to an involuntary exodus of clients from Andersen. We examine going-concern opinions for former clients of Andersen, and compare them with opinions issued for other clients. We find some evidence that auditors were less likely to issue a going-concern modified audit opinion to clients who switched from Andersen than their existing clients. This finding does not support concerns that auditors would be more lenient to their long-tenured clients.

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