Auditor Tenure and Earnings Management

Document Type : Research Paper



This paper examines the relationship between the length of auditor tenure and the extent of corporate earnings management. In particular, we test the relationship between the length of auditor tenure and the magnitude of absolute discretionary accruals, using a sample of 133 firms over the period 1379 to 1385. We find a positive relationship between the tenure and absolute discretionary accruals. These findings show that as auditor tenure increases, the reporting flexibility in management using discretionary accruals rises. We also examine the relationship between auditor tenure and signed discretionary accruals. We find a significant negative relationship that is consistent with the view that management uses reporting flexibility to reduce reported earnings.


- رجبی، روح اله.(1385). «چالشهای تعویض حسابرس»،  فصلنامه حسابدار رسمی، شماره 8 و 9، صص62-53.
- کرمی، غلامرضا و آمنه بذرافشان، (1388) «بررسی رابطه دوره تصدی حسابرسان و گزارشگری سودهای محافظه‌کارانه در شرکتهای بورس اوراق بهادار تهران». پایان نامه کارشناسی ارشد رشته حسابداری، دانشکده مدیریت، دانشگاه تهران.
- کرمی، غلامرضا و آمنه بذرافشان، (1389)، «پیامدهای تغییر حسابرس»، ماهنامه حسابدار. شماره 218. صص 58-63.
- AICPA.(1997)." In the Public Interest: A New Conceptual Framework for Auditor Independence." New York: AICPA.
- Bates, H., Ingram, R. and Reckers, P., (1982). "Auditor-client affiliation: The impact on materiality." Journal of Accountancy, Vol. 164. pp. 60-63.
- Bates, H. L., Ingram, R. W. and Reckers, M .J. (1982). "Auditor-client affiliation: the impact on «materiality» (a study of the effect of auditor rotation on materiality judgments)." Journal of Accountancy, pp. 60-63.
- Becker, C., DeFond, M., Jiambalvo, J. and Subramanyam, K.. (1998). "The effect of audit quality on earnings management" Contemporary Accounting Research, Vol. 15. pp.1-24.
- Chen, C. Y., Lin, C. J. and Lin, Y. C. (2004). "Audit partner tenure, audit firm tenure and discretionary accruals; does long auditor tenure impair earning quality?" Working paper, Hong Kong University of Science and Technology.
- Choi, J. H., and Doogar, R. (2005). "Auditor tenure and audit quality: evidence from going-concern qualifications issued during 1996-2001." Working Paper, Hong Kong university of Science and Technology, University of Illinois at Urbana-Champaign.
- Chung H. (2004). "Selective Mandatory Auditor Rotation and Audit Quality: an Empirical Investigation of Auditor Designation Policy in Korea." Working paper. Purdue University
- Copley P. and Doucet, M. (1993). "Auditor Tenure, Fixed Fee Contracts, and the Supply of Substandard Single Audits." Public Budgeting & Finance. Vol.13, Issue 3. pp.23-36.
- Davis, L.R., Soo, B., and Trompeter, G. (2000). "Auditor Tenure, Auditor Independence and Earnings Management," Working Paper. Boston College
- DeFond, M., and Jiambalvo, J. (1994). "Debt covenant violation and manipulation of accruals." Journal of Accounting and Economics, Vol. 17. pp.145-176.
- Deis, D. and Giroux, G. (1992). "Determinants of audit quality in the public sector," The Accounting Review, Vol. 67. pp. 462-497.
- Elitzur, R. and Falk, H. (1996). "Planned Audit Quality." Journal of Accounting and Public policy, Vol. 15, pp. 247-269.
- Francis, J. and Krishnan. K. (1999). "Accounting accruals and auditor reporting conservatism," Contemporary Accounting Research, Vol. 16. pp. 135-166.
- Francis, J., Maydew, E. and Sparks. (1999). "The role of big 6 auditors in the credible reporting of accruals." Auditing: A Journal of Practice & Theory, Vol. 18. pp.17-34.
- Geiger M. A. and Raghunandan, K. (2002). "Auditor tenure and audit reporting failures." Auditing: A journal of Practice & Theory, Vol. 21, Issue 1, pp. 67-78.
- Ghosh, A. and Moon, D. (2005). "Auditor Tenure and Perceptions of Audit Quality." The Accounting Review, Vol. 80, Issue 2, pp. 585-612.
- Hamilton, J., Ruddock, C., Stokes, D. and Taylor, S. (2005). "Audit partner rotation, earnings quality and earnings conservatism." Working paper, University of Technology, Sydney, and University of New South Wales.
- Jenkins, D. and Velury, U. (2006). "Does auditor tenure impact the reporting of conservative earnings?" Working paper, University of Delaware.
- Johnson, V. E., Khurana, I. K. and Reynolds, J. K. (2002). "Audit-firm tenure and the quality of financial Reports." Contemporary Accounting Research, Vol. 19, Issue 4, pp. 637-660.
- Jones, J. (1991). "Earnings management during import relief investigations." Journal of Accounting Research, Vol. pp. 29. 193-228.
- Kim, J. B., and Yi, C. H.. (2006). "Does auditor rotation improve audit quality in emerging markets? Korean evidence." Working paper, Concordia University and Hong Kong Polytechnic University.
- Lennox C. S. (1998). "Bankruptcy, Auditor Switching and audit Failure. Evidence from the UK 1987-1994." Working Paper.
- Levitt, A. (1998). The Numbers Game. Speech delivered at the NYU Center for Law and Business, New York, NY (September28).
- Li, D. (2007)." Auditor tenure and accounting conservatism." PhD Thesis, Georgia Institute of Technology.
- Mansi, S. A., Maxwell, W. F. and Miller, D. P. (2004). "Does auditor quality and tenure matter to investors? Evidence from the bond market." Journal of Accounting Research, Vol. 42, Issue 4, pp. 755-793.
- Myers, J. N., Myers, L. A. and Omer, C. T. (2003). "Exploring the Term of the Auditor-client relationship and the quality of Earnings: A case for Mandatory Auditor rotation?" The Accounting Review ,Vol. 78, Issue 3, pp. 779-799.
- Nagy A. (2005). "Mandatory audit firm turnover, financial reporting quality, and client bargaining power: the case of Arthur Andersen." Accounting Horizons, Vol. 19, Issue 2, pp. 51-68.
- Pierre, K. S. and Anderson, J. A. (1984). "An Analysis of the Factors Associated with Lawsuits Against Public Accountants." The Accounting Review, Vol. 59, Issue 2, pp.242-264.
- Securities and Exchange Commission. (2000). "Revision of the Commission's Auditor Independence Requirements."
- Sinnett, W. (2004). "Are there good reasons for auditor rotation?" Financial Executive, Vol. 20. pp. 29-32.
- Stanley, J. D. and DeZoort, F. T. (2007). "Audit firm tenure and financial restatements: an analysis of industry specialization and fee effects." Journal of Accounting and Public Policy, Vol. 26. pp. 131-159.
- Subramanyam, K. (1996). "The Pricing of Discretionary Accruals." Journal of Accounting and Economics, Vol. 18. pp. 249-281.
- Vanstraelen, A. (2000). Impact of renewable long-term audit mandates on audit quality. The European Accounting Review, Vol. 9, Issue 3, pp. 419-443.
- Walker, P. L. (2001). "Mandatory auditor rotation: Arguments and current evidence." Accounting Enquiries, Vol. 10, No. 2.