Does Auditor Tenure Improve Audit Quality? Moderating Effects of Industry Specialization and Fee Dependence

42 Pages Posted: 11 Jul 2010 Last revised: 12 May 2015

See all articles by Chee Yeow Lim

Chee Yeow Lim

Singapore Management University - School of Accountancy

Hun-Tong Tan

Nanyang Business School, Nanyang Technological University

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Date Written: September 11, 2009

Abstract

We investigate whether the relation between auditor tenure and audit quality is conditional on auditor specialization and fee dependence. Although prior studies have investigated the relation between extended auditor-client tenure and audit quality, none has examined how this relation is jointly influenced by both auditor specialization and fee dependence. Our main analyses, using accrual quality as a measure of audit quality, show that firms audited by specialists (vs. non-specialists) have relatively higher audit quality with extended auditor tenure, and that this relation is negatively moderated by auditors’ fee dependence on clients. These results are robust to sensitivity tests, and alternative proxies for audit quality such as the issuance of going concern opinions and the market’s response to quarterly earnings surprises.

Keywords: Auditor Tenure, Audit Quality, Auditor Specialization, Fee Dependence

JEL Classification: M42

Suggested Citation

Lim, Chee Yeow and Tan, Hun-Tong, Does Auditor Tenure Improve Audit Quality? Moderating Effects of Industry Specialization and Fee Dependence (September 11, 2009). Singapore Management University School of Accountancy Research Paper No. 2014-07, Available at SSRN: https://ssrn.com/abstract=1638530 or http://dx.doi.org/10.2139/ssrn.1638530

Chee Yeow Lim (Contact Author)

Singapore Management University - School of Accountancy ( email )

60 Stamford Road
Singapore 178900
Singapore

Hun-Tong Tan

Nanyang Business School, Nanyang Technological University ( email )

Singapore, 639798
Singapore
+65 6790 4819 (Phone)
+65 6793 7956 (Fax)

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