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Title: Audit firm tenure and audit quality: A cross-European study
Author: García Blandón, Josep
Argilés Bosch, Josep M.
Ravenda, Diego
Keywords: Empreses auditores
Control de gestió
Competències transversals
Accounting firms
Management audit
Generic competences
Issue Date: Feb-2020
Publisher: John Wiley & Sons
Abstract: Directive 2014/56/EU and Regulation (EU) No. 537/2014, which came into effect in June 2016, introduced the mandatory rotation of audit firms after a maximum period of 10 years with the same client. We conduct a cross‐European study with the aim of assessing whether long audit firm tenures are associated with lower levels of audit quality. The sample for the study is based on the constituents of the Standard & Poor's Europe 350 index for the years between 2009 and 2016, and we utilize three different sets of proxies for audit quality: discretionary accruals, differences between reported earnings and earnings benchmarks, and accounting restatements. The main result of the study finds that companies with more than 10 years of tenure with their auditors do not have a lower audit quality than other firms. In fact, this study provides some evidence of a higher audit quality for these firms. The results are robust to various checks. Therefore, if there does not seem to be a problem of a lack of audit quality associated with long audit firm tenures, the necessity of establishing a maximum tenure, as the new European regulation does, may be questioned.
Note: Versió postprint del document publicat a:
It is part of: Journal of International Financial Management & Accounting, 2020, vol. 31, num. 1, p. 35-64
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ISSN: 0954-1314
Appears in Collections:Articles publicats en revistes (Empresa)

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