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

• In Event: Auditor Independence

Abstract

We examine the joint effects of auditor tenure and information predictability on auditor judgments to address regulators’ ongoing concerns that audit quality suffers with longer auditor tenure presumably because of auditors’ social bonds with their clients. Using a laboratory experiment, we predict and find that longer auditor tenure allows auditor-client social bonds to strengthen. Furthermore, we predict and find that in less predictable information environments a stronger social bond between the auditor and client results in more accurate estimates by the auditor. Conversely, we observe the opposite of this effect in more predictable information environments. Our results provide causal evidence that tenure strengthens social bonds and identify a setting in which the social bond improves audit quality. Our findings suggest that regulation surrounding auditor tenure should consider the context (e.g., the client’s information environment) in which the auditor and client are operating. We also provide insights for interpreting the relationship between auditor tenure and audit quality.

Authors

• John Bentley, University of Mississippi

• Kendall O Bowlin, The University of Mississippi

• Jeremy Brian Griffin, The University of Mississippi

• Emily Kathryn Hornok, Baylor University