This paper aims to examine the determinants of auditor switching among the UK failing firms three years prior to failure. The determinants examined are auditor quality (competence) and independence (auditor size, opinion and fees), corporate governance (management change, gender diversity and board size), changing environment (change in the absolute size of the firm and growth of the firm) and financial condition (leverage, the variability of income and return on assets). The study uses a matched sample of 2912 UK failing and non-failing private firms and applies logistic regression analysis. The findings show that the change in the top management, board size and absolute size of the firm increases the likelihood of the auditor switch, while the presence of female directors on the board and the auditor size (Big4 auditors) decrease the likelihood of auditor switch. In addition, firms approaching failure were more likely to switch auditors. Return on asset, growth of the firm, the variability of income, audit fees and qualified opinion were not statistically significant. The practical implication is that policymakers should strengthen corporate governance and use auditing as a control mechanism in the financial reporting process in the private firms. They should regulate the private audit market, reduce the number of auditors by merging small audit firms and setting a minimum requirement for audit partners and clients. In addition, policymakers should develop and publish a database on the number of audit failures for each audit firm on a public website. To safeguard their reputation, auditors will increase the quality of their audit and their independence.
Auditor switch, Failing firm, Private firm, Corporate governance