Defense Date

Summer 6-27-2016

Degree Type





Business Administration

Chair or Co-Chair

Dana Hermanson, Ph.D.

Committee Member or Co-Chair

F. Todd DeZoort, Ph.D.


Jennifer Schafer, Ph.D.


Since the late 1990s, U.S. regulators have sought to increase auditors’ independence from management and to reduce the presumed detrimental effects of economic bonding on public company financial reporting. Implementation of mandatory audit firm rotation that limits auditor tenure to reduce potential independence impairment has been discussed in the U.S. and other jurisdictions, and adopted in some non-U.S. jurisdictions. While audit firm rotation is expected to increase auditor independence, the opponents of mandatory rotation cite decreasing auditor expertise as a significant counter-argument. This independence/expertise trade-off is integral to much of the academic discussion of mandatory audit firm rotation. The audit committee of the board of directors has received increased attention and a strengthening of its role in enhancing auditor independence during this same regulatory period. In this study, I bring auditor independence/expertise issues before public company audit committee members in an accounting dispute resolution setting. In a 2x2 experimental study with 109 public company audit committee member participants, audit firm tenure (long/short) and audit firm rotation (required/not required) were manipulated randomly between subjects, and the participants’ level of support for the audit firm or management in a subjective issue accounting dispute was assessed. Employing the auditor reliability framework (Taylor, DeZoort, Munn, & Thomas, 2003; DeZoort, Holt, & Taylor, 2012), MANCOVA and ANCOVA analyses were used to test the relationship between the independent variables audit firm tenure and rotation, and the audit committee member participants’ assessment of audit firm characteristics and support for the auditor. Covariates for CPA status, years of management experience, and years of audit committee experience were included in the models. The primary results indicate that the long audit firm tenure group assessed audit firm reliability higher than the short audit firm tenure group. Participants also believed that the typical audit committee member would be more supportive of longer tenured auditors. When controlling for social desirability bias, the long tenure group provided more support for the audit firm proposed adjustment than the short tenure group. Participants with more years of audit committee experience were more supportive of the audit firm. The required rotation group assessed audit firm expertise higher than the no rotation group. A marginally significant interaction between audit firm tenure and rotation resulted in the short tenure group assessing audit firm independence higher when rotation was required, than when rotation was not required. The hypotheses predicting differences in responses for objectivity, reliability, and support based on audit firm rotation (required or not required) are not supported. CPA status is associated with increased assessments of audit firm expertise, independence, and objectivity, with CPAs having higher perceptions of these audit firm characteristics than non-CPAs. Comments from participants provide insight into the judgment and decision making process for public company audit committee members. This study contributes to the academic literature on mandatory audit firm rotation, audit firm tenure, audit committee processes, and the auditor reliability framework. It also informs the public policy debate on audit firm independence and tenure, and has practical implications for audit committees and stakeholders of public companies.

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Accounting Commons