On the economics of audit partner tenure and rotation : evidence from PCAOB data
- We provide the first partner tenure and rotation analysis for a large cross-section of U.S. publicly listed firms over an extended period. We analyze the effects on audit quality as well as economic tradeoffs with respect to audit hours and fees. On average, we find no evidence for audit quality declines over the tenure cycle and, consistent with the former, little support for fresh-look benefits after five-year mandatory rotations. Nevertheless, partner rotations have significant economic consequences. We find increases in audit fees and decreases in audit hours over the tenure cycle, which differ by partner experience, client size, and competitiveness of the local audit market. Our findings are consistent with efforts by the audit firms to minimize disruptions and audit failures around mandatory rotations. We also analyze special circumstances, such as audit firm or audit team switches and early partner rotations. We show that these situations are more disruptive and more likely to exhibit audit quality effects. In particular, we find that low quality audits give rise to early engagement partner rotations and in this sense have (career) consequences for partners.
Author: | Brandon Gipper, Luzi Hail, Christian LeuzORCiDGND |
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URN: | urn:nbn:de:hebis:30:3-479713 |
URL: | https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3289927 |
Parent Title (English): | Center for Financial Studies (Frankfurt am Main): CFS working paper series ; No. 608 |
Series (Serial Number): | CFS working paper series (608) |
Publisher: | Center for Financial Studies |
Place of publication: | Frankfurt, M. |
Document Type: | Working Paper |
Language: | English |
Year of Completion: | 2018 |
Year of first Publication: | 2018 |
Publishing Institution: | Universitätsbibliothek Johann Christian Senckenberg |
Release Date: | 2018/11/29 |
Tag: | Audit fees; Audit partner tenure; Audit quality; Auditing; Auditor rotation; Competition; PCAOB |
Issue: | June 2018 |
Page Number: | 79 |
HeBIS-PPN: | 439817102 |
Institutes: | Wirtschaftswissenschaften / Wirtschaftswissenschaften |
Wissenschaftliche Zentren und koordinierte Programme / Center for Financial Studies (CFS) | |
Dewey Decimal Classification: | 3 Sozialwissenschaften / 33 Wirtschaft / 330 Wirtschaft |
Sammlungen: | Universitätspublikationen |
Licence (German): | Deutsches Urheberrecht |