European Journal of Accounting, Auditing and Finance Research (EJAAFR)

EA Journals

Auditor Independence

Auditor Tenure, Auditor Rotation and Audit Quality: A Review (Published)

The arguments on auditor tenure and rotation revolved around ensuring auditor independence and promoting audit quality. Two hypotheses tend to explain the effect of longer auditor tenure. The auditor independence hypothesis argues that longer tenure decreases audit quality and financial reporting because of the impairment of auditor’s independence while the expertise hypothesis posits that longer tenure improves audit quality through learning. Nevertheless, the auditor tenure be long enough for auditors to bring their competence and expertise into the auditing process and also familiarize with the audited firm and environment. Apart from the few countries where there have mandatory audit rotations, it is still under experimentation in many other countries Moreover, the results of the impact of audit firm/partner rotation on audit quality have been mixed and inconclusive. And specifically, one of the leading advocates for mandatory auditor rotation through the Sarbanes Oxley Act of 2002, the United States, has recently made a U-turn through appropriate amendment to the mandatory rotation of the audit firm in 2013.However, in April,2014 the European Union parliament voted in favour of 2011 proposal to force European companies to hire new auditors after six years with a four year cooling period. Therefore, we conclude that the mixed evidence and the recent regulatory changes on auditor rotation provide opportunities for future studies on auditor tenure, auditor rotation and audit quality.

Keywords: Audit Firm, Audit Partner, Audit Quality, Auditor Independence, Auditor Rotation, Auditor Tenure


Based on the assumption that non-audit fees compromise auditor’s independence and result in lower quality services, the Sarbarnes-Oxley Act of 2002 bans certain non-audit services for audit clients. The link between non-audit services and required auditor’s independence has been heavily debated by accounting scholars. The purpose of this study is to identify the threats to auditors’ independence, and to examine the relationship between auditor’s independence and non-audit services. The lack of clear definition of auditor independence contributes to the resilience of this debate. The Sarbanes-Oxley Act (2002) prescribed a list of non-audit services essentially to help restore investor confidence in the reliability of financial information. A survey design using well-structured questionnaire was used to collect data. Respondents were sampled from five sectors of the Nigerian economy: Banking, Brewery, Chemical & Paints, Conglomerates, and Health. The non-parametric statistical tests used in this study include the Kruskal-Wallis Test and the Mann-Whitney U Tests to draw inferential conclusions regarding the data collected since the data collected from the different categories of respondents. The findings indicate that the provision of non-audit services significantly affects investors’ perceptions of auditor independence, and there is high correlation between auditors’ independence and non-audit services in Nigeria. To maintain public confidence, auditors should continually assess their standing in the community. Any reduction in confidence in the auditing profession will immediately reflect a lack of confidence in audited financial statements, leading to an overall decline of trust in the country’s capital market.

Keywords: Auditor Independence, Non-audit services, Sarbanes-Oxley Act., conglomerates


Auditor Tenure defines the length of the auditor-client relationship while auditor independence (measured by the quantum of audit fees received) defines an auditor’s quality of being free from influence, persuasion or bias, and hence the unbiased mental attitude in making decisions throughout the audit and financial reporting process. The absence of independence may greatly impair the value of the audit service and the audit report. On the other hand, an excessively long association between the auditor and his client may constitute a threat to independence. This study examines the relationship and effects of auditor tenure and auditor independence on the earnings management (measured by the amount of discretionary accruals) of companies in Nigeria. The study relies on secondary data derived from various companies’ financial statements and the Nigerian Stock Exchange fact book to determine and measure the level of earnings manipulations in corporate financial statements, applying an all-inclusive multivariate analysis. The empirical analysis using a total of 342 company year observations, shows that Audit tenure and auditor independence exert significant effects and exhibit significant relationship with the amount of discretionary accruals of quoted companies in Nigeria. The descriptive statistics result reveals a minimal presence of discretionary accrual management by the companies in the sample and on the average; about 94% of the companies engage their audit firms for over three years, with a considerable experience of a substantial number of audit firms in this distribution

Keywords: Auditor Independence, Auditor Tenure, Auditors Reports, Discretionary Accrual, Earnings Management

Scroll to Top

Don't miss any Call For Paper update from EA Journals

Fill up the form below and get notified everytime we call for new submissions for our journals.