Abstract

http://ssrn.com/abstract=1304244
 
 

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Does Increased Audit Partner Tenure Reduce Audit Quality?


Jerry L. Turner


TCU

Theodore J. Mock


University of Southern California; University of California, Riverside

David Manry


University of New Orleans

November 19, 2008

Journal of Accounting, Auditing and Finance, Vol. 23, No. 4, 2008

Abstract:     
The Sarbanes-Oxley Act of 2002 requires the lead audit or coordinating partner and the reviewing partner to rotate off the audit every five years so the engagement can be viewed "with fresh and skeptical eyes." Using data obtained from actual audits by multiple U.S. offices of three large international audit firms, we examine whether there is a relationship between evidence of reduced audit quality, measured by estimated discretionary accruals, and audit partner tenure with a specific client. We find that estimated discretionary accruals are significantly and negatively associated with the lead audit partner's tenure with a specific client. Thus, audit quality appears to increase with increased partner tenure. After controlling for client size and engagement risk, we find audit partner tenure significantly and negatively associated with estimated discretionary accruals only for small clients with partner tenure of greater than seven years, regardless of risk level. We also find that tenure is not significantly associated with estimated discretionary accruals for large clients. This suggests that as partner tenure increases, auditors of small client firms become less willing to accept more aggressive financial statement assertions by managers, and that partner tenure does not affect audit quality for large clients or for shorter-tenure smaller clients. Our results relating to audit partner tenure are consistent with the conclusions about audit firm tenure by Geiger and Raghunandan (2002); Johnson, Khurana, and Reynolds (2002);Myers, Myers, and Omer (2003); and Nagy (2005) and extend their findings by focusing on individual audit partners rather than on audit firms.

Number of Pages in PDF File: 1

Keywords: Discretionary accruals, auditor tenure, earnings management

JEL Classification: M49, M41, M43

Accepted Paper Series





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Date posted: November 21, 2008  

Suggested Citation

Turner, Jerry L. and Mock, Theodore J. and Manry, David, Does Increased Audit Partner Tenure Reduce Audit Quality? (November 19, 2008). Journal of Accounting, Auditing and Finance, Vol. 23, No. 4, 2008. Available at SSRN: http://ssrn.com/abstract=1304244

Contact Information

Jerry L. Turner (Contact Author)
TCU ( email )
M.J. Neeley School of Business
TCU Box 298530
Fort Worth, TX 76129
United States
Theodore J. Mock
University of Southern California ( email )
Los Angeles, CA 90089-0441
United States
University of California, Riverside ( email )
Riverside, CA 92521
United States
David Manry
University of New Orleans ( email )
2000 Lakeshore Drive
New Orleans, LA 70148
United States
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