If Investors Vote on Auditors, Financials Are Higher Quality

Companies that don’t allow shareholder involvement in the choice of auditors are 75% more likely to make financial restatements, compared to firms that get audit-choice approval from investors. That’s the finding of a study appearing in the January/February issue of The Accounting Review, published by the American Accounting Association.

The article — titled “Shareholder Voting on Auditor Selection, Audit Fees, and Audit Quality” — shows that 8.1% of companies not giving investors such a vote later had to restate, compared with 5.1% of companies with auditors up for a shareholder vote.

Recent questions about shareholder voting rights, of course, have extended as well into the question of participation in approving mandatory rotation of auditors. But the study looks more broadly at all investor involvement in auditor questions.

Researchers responsible for the report — Kannan Raghunandan, an accounting professor at Florida International University, who did the work with FIU colleague Dasartha V. Rama and Mai Dao of the University of Toledo –- say that their research validates the assumptions that CFOs and other executives have made about how shareholder ratification is a good thing for companies.

Read : “If Investors Vote on Auditors, Financials Are Higher Quality” an article by CFOworld

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