Audit firm tenure and qualified opinions: New evidence from Spain

Efecto de la duración del contrato de auditoría en la recepción de informes cualificados: nueva evidencia para el mercado español

Authors

DOI: https://doi.org/10.1016/j.rcsar.2013.02.001
Keywords: Rotación del auditor, Independencia, Salvedades

Abstract

The 2010 Green Paper on Audit Policy by the European Commission has explicitly questioned the sufficiency of audit rotation rules established by European Union Members to guarantee auditor independence. In addition, the Paper clearly states that more research is needed regarding the effects of long audit tenures on independence. In this article, we have replicated the research by Ruiz-Barbadillo, Gómez-Aguilar, and Biedma (2005) about the effects of audit firm tenure on independence with more updated data. However, unlike them, we have performed panel data estimations instead of pooled regression. Our approach allows for a better control of individual unobserved heterogeneity, thus reducing potential problems caused by omitted variable bias. While Ruiz-Barbadillo et al. reported an unexpected positive effect of tenure on the likelihood of audit qualifications, we do not show any significant effect of tenure on the opinion of the audit report. Our results are robust to various sensitivity analyses.

Downloads

Download data is not yet available.
Metrics
Views/Downloads
  • Abstract
    358
  • PDF
    160

Author Biographies

Josep Garcia-Blandon

Professor

Via Augusta, 390
Barcelona
8017
SPAIN

Josep M. Argilés-Bosch

Tenuredlecturer

Av. Diagonal, 696, planta 3
Barcelona
Barcelona
8034
SPAIN

References

[Becker et al., 1998] C.L. Becker, M.L. Defond, J. Jiambalvo, K.R. Subramanyam. The effect of audit quality on earnings management. Contemporary Accounting Research, 15 (1998), pp. 1-24

[Carcello et al., 1995] J.V. Carcello, D.R. Hermanson, H.F. Huss. Temporal changes in bankruptcy-related reporting. Auditing: A Journal of Practice & Theory, 14 (1995), pp. 133-143

[Carcello and Neal, 2000] J. Carcello, T. Neal. Audit committee composition and auditor reporting. Accounting Review, 75 (2000), pp. 453-467

[Carey and Simnett, 2006] P. Carey, R. Simnett. Audit partner tenure and audit quality. Accounting Review, 81 (2006), pp. 653-676

[Chow and Rice, 1982] C.W. Chow, S.J. Rice. Qualified audit opinions and auditor switching. Accounting Review, 57 (1982), pp. 326-335

[CNMV, 2009] CNMV (Comisión Nacional del Mercado de Valores). Report on the review of the annual financial reports filed with the CNMV. Madrid. (2009)

[Craswell, 1988] A.T. Craswell. The association between qualified opinions and auditor switches. Accounting and Business Research, 19 (1988), pp. 23-31

[DeAngelo, 1981] L. DeAngelo. Auditor size and audit quality. Journal of Accounting and Economics, 3 (1981), pp. 183-199

[Defond and Jiambalvo, 1993] M.L. Defond, J. Jiambalvo. Factors related to auditor–client disagreements over income-increasing accounting methods. Contemporary Accounting Research, 9 (1993), pp. 415-431

[Dopuch and Simunic, 1982] N. Dopuch, D. Simunic. Competition in auditing: An assessment, fourth auditing research symposium. University of Illinois, (1982)

[EC, 2010] EC (European Commission). Green Paper – Audit policy: Lessons from the crisis, October. EC, (2010)

[Fargher and Jiang, 2008] N.L. Fargher, L. Jiang. Changes in the audit environment and auditors’ propensity to issue going-concern opinions. Auditing: A Journal of Practice & Theory, 27 (2008), pp. 55-77

[Feldmann and Read, 2010] D.A. Feldmann, W.J. Read. Auditor conservatism after Enron. Auditing: A Journal of Practice & Theory, 29 (2010), pp. 267-278

[Firth, 2002] M. Firth. Auditor-provided consultancy services and their associations with audit fees and audit opinion. Journal of Business Finance & Accounting, 29 (2002), pp. 661-693 http://dx.doi.org/10.1016/j.jebo.2014.01.017

[Garcıa-Benau et al., 1999] M.A. Garcıa-Benau, E. Ruiz-Barbadillo, C. Humphrey, W. Husaini. Success in failure? Reflections on the changing Spanish audit environment. European Accounting Review, 8 (1999), pp. 701-730

[Gomez Aguilar and Ruiz-Barbadillo, 2000] N. Gomez Aguilar, E. Ruiz-Barbadillo. Un estudio empírico sobre la relación entre informe de auditoría y cambio de auditor. Revista Española de Financiación y Contabilidad, 29 (2000), pp. 705-741

[Gonzalo Angulo, 1995] J.A. Gonzalo Angulo. La auditoría, una profesión en la encrucijada de los noventa. Revista Española de Financiación y Contabilidad, 23 (1995), pp. 595-629

[Gul et al., 2011] F. Gul, I. Basioudis, A. Ng. Non audit fees, auditor tenure and auditor independence. International Symposium on Audit Research (ISAR) Working Paper, (2011),

[Jara and López, 2007] M.A. Jara, F.J. López. Auditoría y discrecionalidad contable en la gran empresa no financiera española. Revista Española de Financiación y Contabilidad, 36 (2007), pp. 569-594

[Khurana and Raman, 2004] I.K. Khurana, K.K. Raman. Litigation risk and the financial reporting credibility of big 4 versus non-big 4 audits: Evidence from Anglo-American countries. Accounting Review, 79 (2004), pp. 473-495

[Kluger and Shields, 1991] B.D. Kluger, D. Shields. Managerial moral hazard and auditor changes. Critical Perspectives on Accounting, 2 (1991), pp. 255-272

[Knechel and Vanstraelen, 2007] W. Knechel, A. Vanstraelen. The relationship between auditor tenure and audit quality implied by going-concern opinions. Auditing: A Journal of Practice and Theory, 26 (2007), pp. 113-131

[Krishnan, 1994] J. Krishnan. Auditor switching and conservatism. Accounting Review, 69 (1994), pp. 200-215

[Krishnan and Krishnan, 1996] J. Krishnan, J. Krishnan. The role of economic trade-offs in the audit opinion decision: An empirical analysis, Journal of Accounting. Auditing & Finance, 11 (1996), pp. 565-586

[Lennox, 2000] C. Lennox. Do companies successfully engage in opinion-shopping? Evidence from the UK. Journal of Accounting and Economics, 29 (2000), pp. 321-337

[Levinthal and Fichman, 1988] D.A. Levinthal, M. Fichman. Dynamics of interorganizational attachments: auditor client attachments. Administrative Science Quarterly, 33 (1988), pp. 345-369

[Lim and Tan, 2010] C. Lim, H. Tan. Does auditor tenure improve audit quality? Moderating effects of industry specialization and fee dependence. Contemporary Accounting Research, 27 (2010), pp. 923-957

[Louwers, 1998] T. Louwers. The relation between going-concern opinions and the auditors loss function. Journal of Accounting Research, 36 (1998), pp. 143-156

[McDaniel, 1990] L.S. McDaniel. The effects of time pressure and audit program structure on audit performance. Journal of Accounting Research, 28 (1990), pp. 267-285

[Myers et al., 2003] J. Myers, L. Myers, T. Omer. Exploring the terms of the auditor–client relationship and the quality of earnings: A case for mandatory auditor rotation?. Accounting Review, 78 (2003), pp. 779-799

[Paz-Ares, 1996] C. Paz-Ares. La ley, el mercado y la independencia del auditor. Editorial Civitas, (1996)

[Ruiz-Barbadillo et al., 2005] E. Ruiz-Barbadillo, N. Gómez-Aguilar, E. Biedma. Análisis empírico del efecto de la duración del contrato de auditoria en la recepción de informes cualificados. Revista de Contabilidad, 8 (2005), pp. 15-39

[Ruiz-Barbadillo et al., 2006] E. Ruiz-Barbadillo, N. Gómez-Aguilar, N. Carrera. Evidencia empírica sobre el efecto de la duración del contrato en la calidad de la auditoría: análisis de las medidas de retención y rotación obligatoria de auditores. Investigaciones Economicas, XXX (2006), pp. 283-316

[Ruiz-Barbadillo et al., 2004] E. Ruiz-Barbadillo, N. Gómez-Aguilar, C. De Fuentes-Barberá, M.A. García-Benau. Audit quality and the going-concern decision making process: Spanish evidence. European Accounting Review, 13 (2004), pp. 597-620

[St. Pierre and Anderson, 1984] K. St. Pierre, J. Anderson. An analysis of the factors associated with lawsuits against public accountants. Accounting Review, 59 (1984), pp. 242-263

[Simunic, 1980] D.A. Simunic. The pricing of audit services: Theory and evidence. Journal of Accounting Research, 18 (1980), pp. 161-190

[Vanstraelen, 2000] A. Vanstraelen. Impact of renewable long-term audit mandates on audit quality. European Accounting Review, 9 (2000), pp. 419-442

[Vanstraelen, 2002] A. Vanstraelen. Auditor economic incentives and going-concern opinions in a limited litigious continental European business environment: Empirical evidence from Belgium. Accounting and Business Research, 32 (2002), pp. 171-186

[Zmijewski, 1984] M.E. Zmijewski. Methodological issues related to the estimation of financial distress prediction models. Journal of Accounting Research, 22 (1984), pp. 50-82

Published
01-06-2013
How to Cite
Garcia-Blandon, J., & Argilés-Bosch, J. (2013). Audit firm tenure and qualified opinions: New evidence from Spain: Efecto de la duración del contrato de auditoría en la recepción de informes cualificados: nueva evidencia para el mercado español. Revista De Contabilidad - Spanish Accounting Review, 16(2), 118–125. https://doi.org/10.1016/j.rcsar.2013.02.001
Issue
Section
Articles

Most read articles by the same author(s)