کیفیت حسابرسی و دوره تصدی شرکت حسابرسی در یک بازار محدود
Abstract
Keywords
1. Introduction
2. Background and hypotheses
3. Research design
4. Results
5. Implications and conclusion
Acknowledgments
Appendix A
Appendix B
References
Abstract
We examine the relation between audit quality and audit firm tenure in the Iranian audit market, which is constrained by government policies that create intense competition for clients among many small audit firms. We develop arguments that these circumstances create cost pressures that entrench low audit quality and render auditors' plans more predictable to managers wishing to misstate their accounts. Using publicly available data for the audits of listed companies in Iran prior to mandatory audit firm rotation and the incidence of misstated financial reports identified by the Iranian Association of Certified Public Accountants Inspection Office, we find that the likelihood of a misstatement is lowest in the first two years of audit firm tenure. We also find that the likelihood of misstatement is not associated with the year preceding a mandatory audit firm rotation, suggesting outgoing auditor effort is not sensitive to the prospect of subsequent revelations of deficiencies. Although our results from a pre-mandatory rotation period show that frequent rotations appear to improve the financial reporting quality in our sample, we are wary of interpreting these results as support for the mandatory audit firm rotation policy in Iran. Rather, we suggest this is a peculiar consequence of deficiencies in audit quality inherent in the Iranian market.
1. Introduction
This paper examines the relation between audit firm tenure and audit quality in the Iranian audit market. The effect of audit firm tenure on audit quality, and thus on the quality of financial reports, has been the subject of a long debate among professionals and regulators. Regulators around the world have considered mechanisms aimed to improve auditor independence, including mandatory auditor rotation at both the partner and firm level (Firth, Rui, & Wu, 2012). Proponents of mandatory audit firm rotation emphasize the auditor independence hypothesis to argue that audit quality tends to decline with audit firm tenure because longer tenure can increase economic dependency on the client (DeAngelo, 1981; Raghunathan, Lewis, & Evans, 1994), induce auditor complacency (AICPA, 1992; GAO, 2003; Johnson, Khurana, & Reynolds, 2002; Shockley, 1981), and increase familiarity threats to auditor independence (AICPA, 1992; Arel, Brody, & Pany, 2005). By limiting tenure, mandatory audit firm rotation can reduce the likelihood of economic dependency, familiarity, and complacency (Mautz & Sharaf, 1961).