Auditor Tenure and Accounting Conservatism: Testing Moderating Effect of Owner’s Importance

M. D. Arabloo

Abstract


Conservatism is one of the salient features of financial reporting that has attracted more attention in recent years because of financial scandals. Several recent studies have focused specifically on conservatism. This research tries to investigate the effect of auditor tenure and the importance of the client's accounting conservatism by using panel data model, multivariate regression, and data of 114 companies listed in Tehran Stock Exchange during the years 2011 to 2015. The results showed that there is an inverse relationship between auditor tenure and conservatism of auditees; moreover, the client’s importance has an additive effect on the inverse relationship between auditor tenure and conservatism of client.


Keywords


auditor tenure; accounting conservatism; importance; client

Full Text:

PDF

References


S. Basu, “The conservatism principle and the asymmetric timeliness of earnings”, Journal of Accounting and Economics, Vol. 24, No. 1, pp. 3-37, 1997

R. L. Watts, “Conservatism in accounting part I: Explanations and implications”, Accounting Horizons, Vol. 17, No. 3, pp. 207-221, 2003

R. Watts, J. Zimmerman, Positive Accounting Theory, Prentice-Hall, Englewood Cliffs, NJ, 1986

P. A. Copley, “The association between municipal disclosure practices and audit quality”, Journal of Accounting and Public Policy, Vol. 10, No. 4, pp. 245-266, 1992

G. Colbert, D. Murray, “The Association between Audit Quality and Auditor Size: An Analysis of Small CPA Firms”, Journal of Accounting, Auditing and Finance, Vol. 13, No. 2, pp. 135-150, 1998

M. Dao, T. Pham, “Audit tenure, auditor specialization and audit report lag”, Managerial Auditing Journal, Vol. 29, No. 6, pp. 490-512, 2014

H. Y. Lee, V. Mande, M. Son, “Do lengthy auditor tenure and the provision of non-audit services by the external auditor reduce audit report lags?”, International Journal of Auditing, Vol. 13, No. 2, pp. 87-104, 2009

U. S. Congress, The Sarbanes-Oxley Act of 2002, 107th Congress of the United States of America, H. R. 3763, Washington, D.C., Government Printing Office, 2009

L. K. Rickett, A. Maggina, P. Alam, “Auditor Tenure and Accounting Conservatism: Evidence from Greece”, Managerial Auditing Journal, Vol. 31, No. 6, pp. 10-25, 2016

R. A. Price, Accounting Conservatism and The Asymmetry in The Earnings Response to Current and Lagged Returns, Stanford University, 2005.

V. E. Johnson, I. K. Khurana, J. K. Reynolds, “Audit-firm tenure and the quality of financial reports”, Contemporary Accounting Research, Vol. 19, No. 4, pp. 637-660, 2002

D. Citron, R. Taffler, “The audit report under going concern uncertainties: An empirical analysis”, Accounting and Business Research, Vol. 22, No. 88, pp. 337-346, 1992

M. A. Geiger, K. Raghunandan, “Auditor tenure and audit reporting failures”, Auditing, Vol. 21, No. 1, pp. 67-78, 2002

J. N. Myers, L. A. Myers, T. C. Omer, “Exploring the term of the auditor-client relationship and the quality of earnings: A case for mandatory auditor rotation?”, The Accounting Review, Vol. 78, No. 3, pp. 779-799, 2003

J. V. Carcello, A. L. Nagy, “Audit Firm Tenure and Fraudulent Financial Reporting”, Auditing: A Journal of Practice & Theory, Vol. 23, No. 2, pp. 55-70, 2004

M. L. Defond, K. R. Subramanyam, “Auditor changes and discretionary accruals”, Journal of Accounting & Economics, Vol. 25, No. 1, pp. 35-68, 1998

B. Arel, R. G. Brody, K. Pany, “Audit Firm Rotation and Audit Quality”, The CPA Journal, Vol. 75, No. 1, pp. 36-39, 2005

S. K. Gates, D. J. Lowe, P. M. J. Reckers, “Restoring public confidence in capital markets through auditor rotation”, Managerial Auditing Journal, Vol. 22, No. 1, pp. 5-17, 2007

M. Dao, S. Mishra, K. Raghunandan, “Auditor tenure and shareholder ratification of the auditor”, Accounting Horizons, Vol. 22, No. 3, pp. 297-314, 2008

B. W. Daniels, Q. Booker, “Loan Officers' Reactions to Audit Rotation”, Journal of Behavioral Studies in Business, Vol. 1, No. 1, pp. 1-13, 2009

A. Nagy, “Mandatory Audit Firm turnover, financial reporting quality and client bargaining power: the case of Arthur Andersen”, Accounting Horizons, Vol. 19, No. 2, pp. 51-68, 2005

A. B. Jackson, M. Moldrich, P. Roebuck, “Mandatory Audit Firm Rotation and Audit Quality”, Managerial Auditing Journal, Vol. 23, No. 5, pp. 420 – 437, 2008

D. Mostafa, The Impact of the Auditor Rotation on the Audit Quality: A Field Study from Egypt, SSRN, 2010

M. Cameran, P. Annalisa, M. Trombetta, Mandatory Audit Firm Rotation and Audit Quality, European Accounting Review Forthcoming, SSRN, 2014

M. Bani Mahd, M. Morade Zade Fard, M. Zeinali, “The relationship between changing independent auditor and the auditor's report”, Journal of Accounting Knowledge, Vol. 4, No. 14, pp. 91-108, 2013

E. Malekian, F. Abdi poor, “The relationship between changes of audit firm and conservative reporting profits of companies listed on the Tehran Stock Exchange”, Journal of Accounting Knowledge, Vol. 11, No. 41, pp. 173-157, 2014

H. Vakili Fard, S. Muhammadi, “Audit Firm Rotation and Type of Audit Report”, Research of Financial Accounting and Auditing, Vol. 7, No. 25, pp. 33-48, 2015




eISSN: 1792-8036     pISSN: 2241-4487