This correlation isn’t too surprising, but it’s stronger than I might have guessed:

From 2005 to 2024, Big R financial restatements occurred at a rate of around 3% per year. On average, just under 30% of these restatements followed an auditor change in the previous year. As a point of reference, the average annual auditor-change rate across the broader population, which includes companies without Big R restatements, was 11%.

Those stats are from a recent report from the PCAOB – which also shows that the rate of auditor change was nearly 13% in 2024. That compares to an average of 11% across the 20-year period and is just a hair under the years with the greatest rate of turnover (2005 and 2009).

Here’s more color from Dan Goelzer:

The fact that restatements are more likely in the first year of a new auditor’s tenure is not surprising. A new audit firm takes a fresh look at the company’s financial reporting and brings no assumptions or biases from prior audits. Similarly, the new auditor has no incentive to overlook or perpetuate past mistakes or debatable judgment calls. A new auditor may also perform more rigorous procedures as part of building its knowledge of the client.

While restatements can have negative consequences for the company, from an audit committee perspective the fresh look that a new auditor provides may improve long‑term reporting integrity.

Just because something is expected and is good in the long run, doesn’t mean it’s easy in the moment. Clawback and disclosure triggers give you all the more reason to approach an auditor change with care and lots of pre-planning, to the extent possible. We’ve also blogged about a prior study that found that within the universe of restatements occurring after an auditor change, they are more common when the auditor turnover happens during the second half of the fiscal year.

– Liz Dunshee