"Fresh Look"Effects in the Auditor Switch——Textual evidence from the disclosure of critical auditor matters
Based on the textual information of critical audit matter(CAM)disclosure in the audit reporting,our study examines the'fresh look'effect in auditor switch.This paper finds that the vertical textual similarity(VTS)of CAM significantly lowers for companies with auditor switch than others.Moreover,the VTS of CAM decreases even more when the auditor switch is with new appointment than that with reappointment.Both'changing auditors and accounting firm'and'changing auditors but retaining accounting firms'can significantly decrease the VTS of CAM,but the former causes a greater effect.Audit partner and manager switch simultaneously have a greater effect on the VTS of CAM than when only one of them is switched.Also,the effect of auditor switch is predominated in auditors with industry expertise.Finally,we find that when there is an auditor switch,the lower VTS of CAM results in more audit inputs,higher audit quality and information usefulness.Overall,our results suggest that auditor switch can bring a'fresh look'to the audit of financial statements.Our study contributes to the literature of auditor rotation and CAM disclosure,providing empirical support and reference for auditor rotation system and its supervision.
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