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Audit Firm Tenure and Audit Quality Implied by Discretionary Accruals and Modified Opinions: Evidence from Turkey

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Listed:
  • Ahmet Türel

    (Istanbul University)

  • Nihat Tas

    (Istanbul University)

  • Mustafa Genç

    (Recep Tayyip Erdogan University)

  • Burcu Özden

    (Istanbul University)

Abstract

Accounting scandals and bankruptcies across the world have raised concerns about the financial statement audit quality. Though, prior results documented mixed results, some argue that auditors become more familiar with the client and therefore independence is impaired when audit firm tenure gets longer. Consequently, some regulators set a limit on the number of years an audit firm may audit the same client. This study examines the association between audit firm tenure and audit quality in Turkey. We used three measures to proxy audit quality such as propensity to issue modified audit reports and discretionary accruals determined by two models. We found some evidence that audit quality does not increase with limited audit firm tenure. Given the additional costs associated with audit switch, it is concluded that there are minimal benefits of mandatory firm rotation. The results of this study will be useful for the regulators who are in charge to improve the audit quality.

Suggested Citation

  • Ahmet Türel & Nihat Tas & Mustafa Genç & Burcu Özden, 2017. "Audit Firm Tenure and Audit Quality Implied by Discretionary Accruals and Modified Opinions: Evidence from Turkey," Acta Universitatis Danubius. OEconomica, Danubius University of Galati, issue 13(1), pages 187-196, February.
    • Handle: RePEc:dug:actaec:y:2017:i:1:p:187-196
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    References listed on IDEAS

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    Cited by:

    1. Ruth Odin & David Jerry Oziegbe, 2022. "Auditors’ Independence, Audit Tenureship, Firm Characteristics and Audit Quality: Evidence from Nigeria," Romanian Economic Journal, Department of International Business and Economics from the Academy of Economic Studies Bucharest, vol. 25(84), pages 54-68, December,.
    2. Dafydd Mali & Hyoung‐joo Lim, 2018. "Conservative Reporting and the Incremental Effect of Mandatory Audit Firm Rotation Policy: A Comparative Analysis of Audit Partner Rotation vs Audit Firm Rotation in South Korea," Australian Accounting Review, CPA Australia, vol. 28(3), pages 446-463, September.
    3. Dilek Kaçmaz & Ahmet Türel, 2021. "Audit Quality and Rotation: Perception in Turkey," Istanbul Management Journal, Istanbul University Business School, vol. 0(91), pages 109-122, December.

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