The Impact of Auditor Tenure on Audit Quality: Evidence from Pakistan

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From: Paradigms(Vol. 11, Issue 2)
Publisher: University of Central Punjab
Document Type: Report
Length: 6,140 words
Lexile Measure: 1390L

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Abstract :

This study aims at examining the impact of auditor tenure on audit-quality, moreover, to observe whether the mandatory auditor-rotation will result in enhancement of audit quality. Data for the period covering 10 years (2005 till 2014) is gathered from the audited financial statements after selecting 121 companies related to non-financial sector listed in Pakistan Stock Exchange. Discretionary accruals calculated with the help of MJ Model 1991, have been used as a proxy to calculate the quality of audit. It is observed that during the early years of auditor tenure the magnitude of discretionary accruals increases, for the reason that the auditors are not equipped with required client-specific knowledge. Once the auditors acquire client-specific knowledge, the magnitude of discretionary accruals decreases, resulting in an increase in audit quality. Based on the findings of this study, it is derived that the lengthy auditor tenure does not result in a decrease in audit quality in the case of Pakistani non-financial sector organizations. The outcomes of the study suggest that the regulators and standards setters in Pakistan should reconsider their policy regarding mandatory-auditor-client relationship tenure. Keywords: Auditor Tenure, Audit Quality, Discretionary Accruals, Modified Jones Model, Pakistan Stock Exchange

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Gale Document Number: GALE|A541045639