School of Commerce and Accountancy (SCA)

Permanent URI for this community

Now showing 1 - 1 of 1

The impact of auditor tenure on audit quality; evidence from Pakistan
(University of Management and Technology Lahore, 2016) Malik, Zohair Farooq
This study aims to examine the impact of auditor-client-relationship tenure on the quality of audit and whether the mandatory auditor-rotation will result in enhancement of audit quality. Discretionary accruals calculated with the help of Modified Jones Model 1991 are used as the proxy for audit quality. 121 companies related to non-financial sector of Pakistan listed in Pakistan Stock Exchange are selected after taking the data from year 2005 till year 2014. It is observed that the magnitude of discretionary accruals increases during the initial years of auditor-client-relationship tenure, reason being, the auditors are not equipped with required client-specific knowledge. Once the auditors acquire client-specific knowledge, the magnitude of discretionary accruals decreases, resulting in increase in audit quality. Based on the findings of this study, it is derived that the lengthy auditor-client-relationship tenure does not result in decrease in audit quality. Furthermore, the Big 4 audit firms acquire client-specific knowledge far more earlier as compared to other auditors (three years as compared to six years). The results of the study suggest that the regulators and standards setters in Pakistan should reconsider their policy regarding mandatory-auditor-client relationship tenure.