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Audit switching risk and lending decisions
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Journal Article
Audit switching risk and lending decisions
2010
Overview
Auditors have access to information that is less accessible to lenders, giving auditors an information advantage. For clients that approach a bank for a loan after switching auditors, the lender should be able to discern the client risks from the information revealed by the auditor switch that would otherwise not be apparent. This article explains the types of switches, discusses the risk characteristics of clients typically associated with a particular type of audit switch and shows how auditor switching signals a change in client risk. Switches from national auditors are likely for risk-related reasons and alignment reasons. With the exception of a few high-profile scandals, national audit firms appear to have less risky clients than regional auditors, which reduces potential litigation that can damage the firms' reputation. Lenders can demand information from their current and potential clients' information about client risk. This may include detailed projections of cash flows, sales and costs.
Publisher
Aspen Publishers,CCH INCORPORATED
Subject
