Audit Firm Tenure and Audit Quality Implied by Discretionary Accruals and Modified Opinions: Evidence from Turkey
Audit Firm Tenure and Audit Quality Implied by Discretionary Accruals and Modified Opinions: Evidence from Turkey

Summary/Abstract: Accounting scandals and bankruptcies across the world have raised concerns about the financial statement audit quality. Though, prior results documented mixed results, some argue that auditors become more familiar with the client and therefore independence is impaired when audit firm tenure gets longer. Consequently, some regulators set a limit on the number of years an audit firm may audit the same client. This study examines the association between audit firm tenure and audit quality in Turkey. We used three measures to proxy audit quality such as propensity to issue modified audit reports and discretionary accruals determined by two models. We found some evidence that audit quality does not increase with limited audit firm tenure. Given the additional costs associated with audit switch, it is concluded that there are minimal benefits of mandatory firm rotation. The results of this study will be useful for the regulators who are in charge to improve the audit quality.

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