The Impact of Managing Director Changes and Financial Distress on Audit Qualification and Auditor Switching


  • Mohammad Hudaib,

  • T.E. Cooke

    Corresponding authorSearch for more papers by this author
    • The authors are respectively from the University of Bradford and the University of Exeter. They would like to acknowledge the helpful comments of the anonymous referee, Dr R.Haniffa, Dr K.McMeeking, B.Pearson and Professors D.Citron, F.Gul, R.J.Taffler, M.J.Tippett and S.Zeff.

T.E.Cooke, Department of Accounting and Finance, School of Business and Economics, University of Exeter, Streatham Court, Exeter EX4 4PU, UK.


Abstract:  This study examines the interactive effects of change in managing director/chief executive officer (MD) and financial distress together with five control variables (type of audit firm; audit fees; gearing; time; and company size) on first, audit opinion and secondly on auditor switching. Based on a sample of 297 UK listed companies between 1987 and 2001, we find that companies that are financially distressed and change their MD are most likely to receive a qualified audit report, ceteris paribus. In addition, we find evidence of both familiarity and intimidation threats and that the probability of a switch increases with the severity of qualification.