Description:
AbstractIn periods of financial distress management may attempt to suppress unfavorable information from creditors and investors through the use of undisclosed changes in accounting methods, estimates and procedures, thus reducing the quality of the information contained in the firm's financial statements. The auditor's role in this context is to ensure that such compromise does not take place. If the auditor does not permit such accounting treatments, the company may choose to switch to another auditor who will. Empirical evidence relating auditor‐change behavior to the quality of comparative bankruptcy prediction models provides support for the notion that auditor changes before bankruptcy may be at least partially due to lack of success at suppressing unfavorable information with the current auditor. Conversely, non‐auditor switching companies appear to enjoy greater success at suppressing negative income and leverage information.