Auditor Tenure and the Timeliness of Misstatement Discovery

• 成果类型: Article
• 署名作者: Singer, Zvi; Zhang, Jing
• 署名单位: Universite de Montreal; HEC Montreal; University of Alabama System; University of Alabama Huntsville
• 刊物名称: ACCOUNTING REVIEW
• ISSN/ISSBN: 0001-4826
• DOI: 10.2308/accr-51871
• 发表日期: 2018
• 页码: 315-338
• 关键词: market perception evidence; firm tenure; partner tenure; accounting restatements; corporate governance; client relationship; empirical-evidence; nonaudit services; QUALITY; rotation

摘要

Using the timeliness of misstatement discovery as a proxy for audit quality, we examine the association between audit firm tenure and audit quality in a setting that alleviates the endogeneity problem endemic to this line of research. We find that longer audit firm tenure leads to less timely discovery and correction of misstatements, which is consistent with a negative effect of long auditor tenure on audit quality. In addition, using the non-voluntary auditor change following the demise of Arthur Andersen in 2002 as a natural experiment, we show that the misstatements of its former clients were discovered faster than those of comparable companies that retained their auditors throughout the misstatement. This finding speaks to the benefit of a fresh look by a new auditor. An extended analysis shows that longer auditor tenure also leads to misstatements of greater magnitudes, and that the Sarbanes-Oxley Act has mitigated, but not eliminated, the negative effect of long auditor tenure. Last, we show that the negative association between auditor tenure and timely discovery of misstatements is mainly present in the first ten years of an audit engagement. Our study has implications for regulators who continue to express concern regarding lengthy auditor-client engagement.