The Effects of Auditor Tenure and Predictability of the Client's Information Environment on Auditor Estimates

• In Event: Understanding the Client: Controls and Information Environment

Abstract

We examine the joint effects of auditor tenure and information predictability on auditor judgments. Prior research suggests competing effects of auditor tenure—that auditors affiliate more with their clients as the length of auditor tenure increases, consistent with the concerns of regulators, though auditors also simultaneously develop expertise that leads to more effective audits. As expected, we find that longer auditor tenure causes auditors to develop higher affiliation with their clients, but also that the effect of affiliation on auditor estimates depends critically on the predictability of the client’s information environment. Specifically, in less predictable information environments, auditors who affiliate more with their clients generate more accurate estimates than auditors who affiliate less with their clients. In contrast, in more predictable information environments, there is no difference in judgment accuracy between auditors who are more versus less affiliated with their clients. Our results suggest that longer auditor tenure improves audit quality in less predictable information environments.

Authors

• Jeremy Brian Griffin, The University of Mississippi

• Kendall O Bowlin, The University of Mississippi

• Emily Kathryn Hornok, Baylor University