Analyzing Auditor Changes
 Lack of Disclosure Hinders Accountablility to Investors

By Mark Grothe and Thomas R. Weirich

DECEMBER 2007 - In 2006, 1,322 U.S. public companies changed their independent auditor. Investors were left to guess the reasons behind about three-fourths of those changes. The authors believe there is a simple fix for this problem: The SEC should require companies to provide a reason for all auditor changes. Auditor changes often are linked to financial restatements and discoveries of weak accounting controls. For the announcement of an auditor change to have any predictive power for investors, more disclosure must be required from corporate filings.

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