Does Audit Firm Tenure Matter to Audit Committee Members? Evidence from an Accounting Dispute
School of Accountancy
This study examines the effects of Big 4 audit firm tenure on audit committee member support for the auditor in an auditor/management dispute over a subjective accounting issue. One hundred eighteen U.S. public company audit committee members participated in an experiment with audit firm tenure (short/long) manipulated randomly between subjects. Consistent with source credibility theory, the results indicate that participants in the long audit firm tenure group provide more support for the auditor in the dispute than participants in the short tenure group. The results also reveal that audit committee support for the auditor is positively related to audit committee member experience and CPA status, as well as perceived management pressure to meet analyst expectations, but negatively related to perceived management experience in financial reporting. Finally, we find that audit committee members' perceptions of audit firm reliability (i.e., credibility and dependability) mediate the audit firm tenure-auditor support relation. Overall, while prior research often has indicated that greater audit firm tenure is associated with enhanced client-specific auditor knowledge, our results suggest a second, previously undocumented, benefit of greater audit firm tenure - enhanced audit committee support for longer-tenured auditors.
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