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New study says long audit tenure slows corrections

Tammy Whitehouse | March 6, 2018

Recently published academic research suggests there is indeed a detriment to audit quality when audit firms hold long tenures on audit engagements.

“We find that longer audit firm tenure leads to less timely discovery and correction of misstatements, which is consistent with a negative effect of long auditor tenure on audit quality,” write authors Zvi Singer of HEC Montreal and Jing Zhang of the University of Alabama in Huntsville. “This finding speaks to the benefit of a fresh look by a new auditor.”

The study is based on the timeliness of the discoveries of errors in financial statements, comparing audits performed by relatively newer auditors against auditors that have served for long periods on the same engagements.

The research uses data produced by the massive turnover in audit engagements that occurred when public companies fled Arthur Anderson in 2002 as it crumbled under the...

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