Audit Partner Tenure and Internal Control Reporting Quality: US Evidence from the Not-For-Profit Sector

• 成果类型: Article
• 署名作者: Fitzgerald, Brian C.; Omer, Thomas C.; Thompson, Anne M.
• 署名单位: Northeastern University; University of Nebraska System; University of Nebraska Lincoln; University of Illinois System; University of Illinois Urbana-Champaign
• 刊物名称: CONTEMPORARY ACCOUNTING RESEARCH
• ISSN/ISSBN: 0823-9150
• DOI: 10.1111/1911-3846.12348
• 发表日期: 2018
• 页码: 334-364
• 关键词: material weaknesses; firm tenure; nonprofit organizations; corporate governance; control deficiencies; rotation; earnings; INDEPENDENCE; CONSEQUENCES; determinants

摘要

This study examines the effects of audit partner tenure and audit partner changes on internal control reporting quality for large U.S. not-for-profit (NFP) organizations. Regulators contend that audit partners lose their objectivity over successive audits, reducing audit quality. A large body of research has examined this issue, primarily in non-U.S. jurisdictions, with mixed results. We examine the associations between audit partner tenure and audit partner changes and the incidence of reported internal control deficiencies (ICDs), the quality of internal control reports (following PCAOB audit quality indicators), and the severity of reported ICDs. We find negative associations between audit partner tenure and the incidence of reported ICDs, the quality of internal control reports, and the severity of reported ICDs. Together, these findings indicate that internal control reporting quality deteriorates with audit partner tenure. However, we find no association between audit partner changes and internal control reporting, which is consistent with partners lacking client specific knowledge in their first year with a client. Finally, we find no association between either audit partner tenure or changes and the likelihood of remediation. Our findings contribute large-sample U.S. evidence on the association between audit partner tenure and internal control reporting quality and provide useful information to government regulators, NFP boards charged with the oversight of the external auditor and internal controls, and NFP stakeholders.