Download this Paper Open PDF in Browser

Auditor Tenure and Audit Quality: The Role of the Demand for Unique Client Specific Knowledge

50 Pages Posted: 16 Apr 2010  

Bin Srinidhi

University of Texas at Arlington - Department of Accounting; City University of Hong Kong (CityUHK) - Department of Accountancy

Sidney Leung

City University of Hong Kong (CityUHK) - Department of Accountancy

Ferdinand A. Gul

Monash University Sunway Campus

Date Written: April 16, 2010

Abstract

Using a sample of US firms from 1988 to 2000, we find a strong positive (weak or no) association between auditor tenure and earnings quality in client firms whose demand for unique client-specific knowledge is higher (lower). These results are consistent with the idea that learning the unique client-specific knowledge is best accomplished by long tenure. Firms requiring higher unique client-specific knowledge are identified in two ways: those with operating characteristics that diverge significantly from industry norms and those with high audit complexity as measured by volatility and audit fees. Our findings are robust to alternative specifications of earnings quality.

Keywords: Mandatory Audit Firm Rotation, Auditor Tenure, Client-Specific Knowledge, Earnings Quality

JEL Classification: M42

Suggested Citation

Srinidhi, Bin and Leung, Sidney and Gul, Ferdinand A., Auditor Tenure and Audit Quality: The Role of the Demand for Unique Client Specific Knowledge (April 16, 2010). Available at SSRN: https://ssrn.com/abstract=1590811 or http://dx.doi.org/10.2139/ssrn.1590811

Bin Srinidhi (Contact Author)

University of Texas at Arlington - Department of Accounting ( email )

Arlington, TX 76013
United States

City University of Hong Kong (CityUHK) - Department of Accountancy ( email )

83 Tat Chee Avenue
Kowloon
Hong Kong
China

Sidney Leung

City University of Hong Kong (CityUHK) - Department of Accountancy ( email )

83 Tat Chee Avenue
Kowloon
Hong Kong
China
+852 2788-7924 (Phone)
+852 2788-7944 (Fax)

Ferdinand A. Gul

Monash University Sunway Campus ( email )

Jalan Lagoon Selatan
Selangor Darul Ehsan
Bandar Sunway, 46150
Malaysia

Paper statistics

Downloads
814
Rank
23,883
Abstract Views
3,320