Auditor Tenure and Audit Quality

This paper examines whether the association exists between auditor tenure and audit quality. The results show that there is a negative association between auditor tenure and performance-adjusted discretionary accruals, a proxy for audit quality, based on a sample of 4,566 Korean non-financial firms during the period of Free Audit Engagement System (FAES) between 1998 and 2005. These findings suggest that as auditor tenure increases audit quality improves. Overall, the results provide empirical support that mandating auditor rotation may have an adverse effect on the quality of audited financial statements.