Audit-firm tenure and the quality of financial reports

• 成果类型: Article
• 署名作者: Johnson, VE; Khurana, IK; Reynolds, JK
• 署名单位: University System of Georgia; Georgia State University; University of Missouri System; University of Missouri Columbia; Louisiana State University System; Louisiana State University
• 刊物名称: CONTEMPORARY ACCOUNTING RESEARCH
• ISSN/ISSBN: 0823-9150
• DOI: 10.1506/LLTH-JXQV-8CEW-8MXD
• 发表日期: 2002
• 页码: 637-660
• 关键词: earnings management; Cash flows; fees; INFORMATION; lawsuits; accruals; opinions; rotation; company

摘要

This study examines whether the length of the relationship between a company and an audit firm (audit-firm tenure) is associated with financial-reporting quality. Using two proxies for financial-reporting quality and a sample of Big 6 clients matched on industry and size, we find that relative to medium audit-firm tenures of four to eight years, short audit-firm tenures of two to three years are associated with lower-quality financial reports. In contrast, we find no evidence of reduced financial-reporting quality for longer audit-firm tenures of nine or more years. Overall, our results provide empirical evidence pertinent to the recurring debate regarding mandatory audit-firm rotation - a debate that has, to date, relied on anecdotal evidence and isolated cases.