The Effect of Engagement and Review Partner Tenure and Rotation on Audit Quality: Evidence from Germany

52 Pages Posted: 22 Jul 2010 Last revised: 29 Aug 2012

See all articles by Anna Gold

Anna Gold

Vrije Universiteit Amsterdam; Norwegian School of Economics (NHH)

Friederike Lindscheid

University of Muenster - Accounting Center

Christiane Pott

University of Muenster - Accounting Center

Christoph Watrin

University of Muenster - Accounting Center; University of Muenster - Accounting Center

Date Written: August 15, 2012

Abstract

This study contributes to the recent debate over the effect of audit partner tenure and rotation on auditor independence, expertise and, ultimately, audit quality. We investigate the effect of partner tenure and rotation on audit quality, using unique 1995-2010 data from all German listed companies for which we identify not only the audit engagement but also the quality review partner. Using multiple absolute and signed values earnings management measures as proxies for audit quality, we find evidence of less income-reducing accounting with an increase in review partner tenure (but not engagement partner tenure). Further, rotation of the review partner (but not the engagement partner) is associated with more income-reducing accounting. These findings underline the importance of distinguishing between the two partner roles and support the expertise hypothesis with respect to the review partner.

Keywords: Audit partner rotation, Audit partner tenure, Audit quality, Review partner

JEL Classification: G34, G38, M41, M42, M48

Suggested Citation

Gold, Anna and Lindscheid, Friederike and Pott, Christiane and Watrin, Christoph, The Effect of Engagement and Review Partner Tenure and Rotation on Audit Quality: Evidence from Germany (August 15, 2012). Available at SSRN: https://ssrn.com/abstract=1631947 or http://dx.doi.org/10.2139/ssrn.1631947

Anna Gold (Contact Author)

Vrije Universiteit Amsterdam ( email )

De Boelelaan 1105
Amsterdam, 1081HV
Netherlands
+31 20 598 25 92 (Phone)

Norwegian School of Economics (NHH) ( email )

Helleveien 30
Bergen, NO-5045
Norway

Friederike Lindscheid

University of Muenster - Accounting Center ( email )

Universitätsstr. 14-16
Münster, 48143
Germany

Christiane Pott

University of Muenster - Accounting Center ( email )

Universitätsstr. 14-16
Münster, 48143
Germany

Christoph Watrin

University of Muenster - Accounting Center ( email )

Universitätsstr. 14-16
Muenster, 48143
Germany

University of Muenster - Accounting Center ( email )

Universitätsstraße 14-16
Münster, 48143
Germany

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