Auditor Tenure and the Ability to Meet or Beat Earnings Forecasts*

Davis, Larry R.; Soo, Billy S.; Trompeter, Gregory M.

doi:10.1506/car.26.2.8

Cited by 322 publications

(133 citation statements)

References 64 publications

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“…However, Kabir, Sharma, Islam, and Salat (2010) and Jeong and Rho (2004) were unable to find evidence linking the size of the auditing firm and the financial performance of the firms they represent. A number of studies (Reichelt & Wang, 2010;Knechel, Naiker, & Pacheko, 2007;Balsam, Krishnan, & Yang, 2003;Krishnan, 2003;Gramling & Stone, 2001) have claimed that the specialization of auditors is associated with firm performance and that long-term auditor-client relationships enhance client-specific knowledge (Ghosh & Moon, 2005;Mansi, Maxwell, & Miller, 2004;Myers et al, 2003;Johnstone, Bedard, & Biggs, 2002); however, many other studies (Davis, Soo, & Trompeter, 2009;Gul, Fung, & Jaggi, 2009;Boone, Khurana, & Raman, 2008) have published findings that contradict these claims.…”

Section: Introductionmentioning

confidence: 99%

How Do Auditors Increase Substantially Firm Value?

Wang¹,

Huang²

2014

IJEF

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This study used Tobin's Q to examine the relationship between various types of auditors (e.g., industry expert, supply chain auditor) and market participants in order to determine the effects on firm value. Our results indicate that market participants highly value Big 4 supply chain auditors with industry experience and that these impressions are extended to their evaluation of their clients. We also found that only in the subsample of long-term auditor-client relationships were Big 4 supply chain auditor with industry experiences is auditors associated with higher firm value. This is consistent with previous literature indicating that the tenure of auditors does not affect audit quality (Myers, Myers, & Skinner, 2007;Myers, Myers, & Omer, 2003). The inclusion of different supply chain streams revealed that up-stream supply chain auditors are more likely than middle and down-stream supply chain auditors to receive favorable reactions from market participants. This is an indication that market participants are impressed by the specific expertise and knowledge of these professionals.

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Section: Introductionmentioning

confidence: 99%

How Do Auditors Increase Substantially Firm Value?

Wang¹,

Huang²

2014

IJEF

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“…Yet Davis et al (2009) found that firms with long tenure (13-15 years or more) are more likely to report levels of discretionary accruals that allow them to meet or beat earnings forecasts. They also found the same for firms with short tenure of two or three years.…”

Section: Reported Earnings and Measures Of Audit Qualitymentioning

confidence: 99%

“…Some studies found evidence of lower audit quality in the early years of the auditor-client relationship, with audit quality improving as audit tenure lengthens (Beck & Soloman, 1988;Geiger & Raghunandan, 2002;Carcello & Nagy, 2004;Chi & Huang, 2004;Boone et al, 2008). Other studies found that audit firm tenure affects audit quality adversely (Hoyle, 1978;Davis et al, 2009;Al-Thuneibat et al, 2011). These studies on audit tenure also contribute to the arguments regarding mandatory auditor rotation and audit independence.…”

Section: Introductionmentioning

confidence: 96%

“…These studies on audit tenure also contribute to the arguments regarding mandatory auditor rotation and audit independence. Davis et al (2009) argued in favor of mandatory rotation to provide a "fresh look" at a client's financial statements. Johnson et al (2002) looked at short (2-3 years), medium (4-8 years), and long (greater than 9 years) audit terms and found that short audit firm tenures are associated with lower-quality financial reports, but that there is no evidence of reduced audit quality for audit tenures of more than eight years.…”

Section: Introductionmentioning

confidence: 99%

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The Effect of Client Importance and Auditor Tenure on Accounting Conservatism: Evidence from Chinese Companies

Yu¹,

Lenard²

2012

IBR

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The concern over accounting regulation has resulted in studies of auditor independence and audit quality, as measured by auditor tenure, accounting conservatism, and the type of audit firm the client employs (Big 4 or non-Big 4).In this study, we continue the line of research on conservatism and auditor tenure by examining whether accounting conservatism is related to auditor tenure for Chinese firms. We extend the studies by Jenkins and Velury (2008) and Li (2010) in order to examine Chinese firms that have non-Big 4 auditors, and we investigate whether the association exists for the most important and least important clients of these audit firms. Our findings indicate that least important clients employ more conservative accounting techniques as auditor tenure increases. For the most important clients, there is less conservatism, compared to the least important clients, in the early years of the auditor's tenure. Our study provides more information about the regulatory issue of mandatory audit firm rotation because our results suggest that mandatory auditor rotation may have an adverse effect on the least important clients of these Chinese audit firms.

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“…One of the consequences of mandatory firm rotation could be an increase in the number of audit failures. The Treadway Commission Report (Committee of Sponsoring Organizations of the Treadway Commission [COSO] 1987) suggests that a significant number of financial frauds involved companies that had recently changed their auditor, and others suggest that a greater proportion of audit failures occur on newly acquired audit clients (Berton 1991;Petty and Cuganesan 1996;Geiger and Raghunandan 2002;Johnson et al 2002;Myers et al 2003;Carcello and Nagy 2004;Stanley and DeZoort 2007;Davis et al 2009;Gul et al 2009). Further, Palmrose (1986Palmrose ( , 1991 documents greater litigation risk to auditors in the early years of an engagement, and the AICPA's Quality Control Inquiry Committee of the Securities and Exchange Commission (SEC) Practice Section concluded that, in its analysis of 406 cases of alleged auditor failures between 1979 and 1991, audit failure occurred almost three times more often when the audit firm was engaged in its first or second year (AICPA 1992).…”

mentioning

confidence: 99%

Comments by the Auditing Standards Committee of the Auditing Section of the American Accounting Association on PCAOB Rulemaking Docket Matter No. 37: PCAOB Release No. 2011-006, Concept Release on Auditor Independence and Audit Firm Rotation

Jones¹,

Aier²,

Brandon³

et al. 2012

Current Issues in Auditing

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SUMMARY In August 2011, the Public Company Accounting Oversight Board (PCAOB or Board) issued a concept release to solicit public comment on the potential direction of a proposed standard-setting project on means to enhance auditor independence, objectivity, and professional skepticism. The Concept Release sought comments on and explores in detail the possibility of mandatory audit firm rotation. The PCAOB provided for a 121-day exposure period (from August 16 to December 14, 2011) for interested parties to examine and provide comments on the concept release. The Auditing Standards Committee of the Auditing Section of the American Accounting Association provided the comments in the letter below (dated December 13, 2011) to the PCAOB on PCAOB Rulemaking Docket Matter No. 37: PCAOB Release No. 2011-006, Concept Release on Auditor Independence and Audit Firm Rotation. Data Availability: Information about and access to the release are available at: http://pcaobus.org/Rules/Rulemaking/Docket037/Release_2011-006.pdf

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Auditor Tenure and the Ability to Meet or Beat Earnings Forecasts*

Cited by 322 publications

References 64 publications

How Do Auditors Increase Substantially Firm Value?

How Do Auditors Increase Substantially Firm Value?

The Effect of Client Importance and Auditor Tenure on Accounting Conservatism: Evidence from Chinese Companies

Comments by the Auditing Standards Committee of the Auditing Section of the American Accounting Association on PCAOB Rulemaking Docket Matter No. 37: PCAOB Release No. 2011-006, Concept Release on Auditor Independence and Audit Firm Rotation

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