Factors Causing Discretionary Auditor Change in the Insurance Industry: Evidence from Jordan
Purpose: This study aims to examine the effect of several factors on the discretionary change of external auditors in the insurance industry in Jordan. Design/Methodology/Approach: A discretionary change of an external auditor is the change that takes place before the end of the maximum allowed auditor tenure period (4-year in Jordan). The study sample comprises all Jordanian insurance companies with complete data for the period (2014–2018), and used a logistic regression model to test the hypotheses. Findings: The study results revealed that modified audit opinion and change in firm’s management significantly positively affect discretionary auditor change, while firm growth has a significant negative effect. The study recommends that the Jordanian Securities Commission issue instructions that prevent the firm new management from changing the auditor unnecessarily to work with a particular one with whom it might has a special relationship. Practical Implications: The study claimed that due to the threat of discretionary change, the lack of auditor independence may lead to biased reports that may involve incorrect information and materially misstated financial statements that cover problems facing the firm and thus harm the company, industry, and the economy at large. Originality/Value: The company incurs additional costs and time to select a new auditor and suffers the loss of experience and knowledge developed by the previous one, which may raise questions about the entity’s policy. Therefore it is important to consider the solution proposed by this study.