Factors contributing to auditor-change decisions in Malta : an evaluation

Abstract

Auditor switching is a hotly debated issue. Auditor changes by companies have negative repercussions within the business community and they can potentially undermine credibility in the auditing profession. The phenomenon is not alarmingly high in Malta but has of late been exhibiting a rising trend. Primarily through an extensive questionnaire, this dissertation seeks to elicit the perceptions of factors, behavioural, economic or other in nature, that influence auditor-client realignments in Malta. This study concludes that auditor changes happen mostly within the ambit of small and medium-sized companies. The factors most determining in inducing auditor changes in Malta are behavioural in nature, these being deterioration in the working relationship with the auditor and lack of accessibility of the auditor, emphasizing the need of nurturing a sound rapport with clients that goes far beyond the mere :financial interest or even the rendering of a professional service. Fundamentally, there is an evident demarcation between large companies and small companies in Malta, with the former choosing to foster relationships with Big-4 audit firms while the latter selecting non-Big-4 audit firms. This underlying difference leads to auditor changes that are all the more associated with the type of auditor engaged and with the size of the company. Moreover, directions of movement following auditor changes indicate that companies seek to maintain relationships with the same type of auditor. Audit fees are motivators of auditor changes mostly in the case of the smaller companies whilst issues relating to audit quality are of concern to the larger companies. Company growth is a fast trigger of auditor changes as is the need for large companies to maintain connections with reputable audit firms. Opinion shopping is not a consistent phenomenon in Malta but the need to maintain relationships with the same auditor for long periods is evident.