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The efficiency and the effectiveness of the audit depend in part on the efficiency and the effectiveness of the client inquiry process. This paper presents a model that helps auditors to understand the stages of the client inquiry process and the factors that influence its reliability. The model serves to illuminate the client inquiry process and thereby assist auditors in evaluating the evidence thus obtained. Our model is a multistage communication channel that connects reality, the client’s perception of reality, the client’s representation of reality, the auditor’s perception of reality, and the auditor’s representation of reality. Distortions of reality occur between adjacent stages as the result of the subjectivity, technical incompetence, untrustworthiness, and poor presentation skills of either the client or the auditor. We discuss our model in the context of the analytical review task.

To explore the effects of mandatory auditor rotation and retention on the long‐term market shares of the accounting firms that audit the members of the Standard and Poor's (S&P) 500.

A Markov model is constructed that depicts the movements of S&P 500 firms in the period 1995 to 1999 among Big 5 accounting firms. Auditor rotation and retention are reflected in the transition probabilities. The impacts of mandatory auditor rotation and retention policies are evaluated by examining the state probabilities after two, five, and nine years.

The paper finds that mandatory auditor rotation will have substantial effects on long‐term market shares, whereas mandatory auditor retention will have very small effects. It shows that a firm's ability to attract new clients, as opposed to retaining current clients, will be the primary factor in determining the firm's long‐term market share under mandatory auditor rotation.

The paper assumes that S&P 500 firms will continue their reliance on Big 5 firms and that the estimated transition probabilities will remain stable over time.

Excessive market share concentration resulting from such policies should not be a concern of regulators. The paper conjectures that, under mandatory rotation, accounting firms will reallocate resources to attract new clients rather than retain existing clients. This may result in lower audit quality.

Interestingly, over the past 25 years, several bodies have considered mandatory auditor rotation and retention. Surprisingly, the authors have found no studies of the effects of mandatory auditor rotation and retention on audit market share.

Arthur Andersen’s conviction and its decision not to audit public firms will transform the Big 5 into the Big 4. Meanwhile, other Big 4 firms face investigations that threaten their future market shares. The article compares the observed post‐scandal shifts in market share with those estimated by a Markov model. It then estimates the year‐by‐year and long‐term market shares that the Big 4 firms would have achieved had they remained untouched by these investigations. The study finds that the absence of Arthur Andersen alone would not have led to excessive market share concentration. It demonstrates how the post‐scandal shifts reveal the impacts of the investigations on the Big 4 firms and provides market share benchmarks against which the firms can evaluate the long‐term effects of the investigations. Finally, the article concludes that a firm’s long‐term gain in market share depends on its ability to retain audit clients.

To investigate how accounting majors have reacted to recent accounting scandals and to evaluate the extent to which they are familiar with the scandals, the effects of the scandals on their opinions of accountants and corporate managers, and the consequent influences on the student's educational and career plans.

In total 105 accounting majors at two institutions were surveyed. Forsyth's ethics position questionnaire was used to evaluate the student's ethical orientation. The survey instrument also measures student demographic data, the student's knowledge of the profession and the scandals, and how the scandals affected the student's opinions and plans. The data are analyzed using linear regression.

Accounting students are generally knowledgeable about the scandals but seem to know considerably less about the accounting profession. Accounting students lowered their opinions of corporate managers more than that of accountants. Accounting students also express an increased interest in majoring in accounting and seeking a position in the profession, but express less interest in working for a Big 4 firm. Students scoring higher on the idealism scale tended to lower their opinions of accountants more than that of corporate managers.

The results represent a case study only. It is believed that the conclusions may apply to other student populations.

The results can guide educators to prepare interventions that help students to avoid ethical crises.

The paper introduces ethical orientation in explaining how students react to ethical crises. The results enable accounting educators to understand what students feel and how and why they react to such events.