Auditor’s Downward Switch, Governance, and Accounting Conservatism
Bibliographic record
Abstract
This study demonstrates that the firms that switch from Big N auditors to non-Big N auditors use less accounting conservatism in the post-switch year relative to the year before switch. Our analyses further show that the decline in conservatism is mainly evident for the firms that switch to smaller non-Big N auditors, but not when the firms switch from Big N to second-tier national auditors, such as BDO Seidman and Grant Thornton (BDO/GT). In addition, we find that the firms experiencing switches from Big N to smaller non-Big N firms exhibit less accounting conservatism in the post-switch year when they have relatively weaker corporate governance. We also observe that both auditor resignation and auditor dismissal events lead to a significant decline in post-switch conservatism, especially among the firms with weaker governance mechanisms that experience switch to smaller non-Big N auditors. Furthermore, the smaller and younger firms with weaker governance adopt less conservatism in the post-switch period relative to the pre-switch period. Our findings complement prior research in this area and have policy implications that the quality of audits provided by smaller auditors may continue to remain a matter of concern in the post–Sarbanes–Oxley Act of 2002 (SOX) and post–Public Company Accounting Oversight Board (PCAOB) periods, especially when the firms have weaker governance.
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How this classification was reachedexpand
Full frame distilled prediction
Teacher imitationNot calibrated prevalence, not ground truth. Human validation pending. Learned from the 10,348 direct Codex labels and 10,348 direct Gemma labels. Candidate is the union of thresholded teacher heads; consensus is their intersection. These outputs are machine_predicted_unvalidated and are not human labels or direct frontier model labels.
Codex and Gemma teacher scores by category
| Category | Codex | Gemma |
|---|---|---|
| Metaresearch | 0.004 | 0.024 |
| Meta-epidemiology (narrow) | 0.001 | 0.001 |
| Meta-epidemiology (broad) | 0.001 | 0.000 |
| Bibliometrics | 0.000 | 0.001 |
| Science and technology studies | 0.001 | 0.000 |
| Scholarly communication | 0.001 | 0.006 |
| Open science | 0.001 | 0.001 |
| Research integrity | 0.000 | 0.001 |
| Insufficient payload (model declined to judge) | 0.000 | 0.000 |
Machine scores (provisional)
The two teacher heads of the student model, read on this work. A score orders the frame for review; it never asserts a category, and the validation status ships verbatim with every row.
Baseline scores from an immature model (maturity gate not passed, 7 training rounds). Scores rank; they never assert a category.
score_only:v0-immature-baseline · verbatim from the scoring run: score_only means the number may rank works, and no category label ships from itClassification
machine, unvalidatedMachine predicted; a candidate call from one teacher head, not a consensus.
How this classification was reached, model by model and score by score, is at the end of the page under "How this classification was reached".