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

EA Journals

Auditor Tenure

Auditor Tenure, Audit Firm Size and Value Relevance of Accounting Information of Quoted Companies in Nigeria (Published)

The paper assesses the value relevance of the tenure of auditors and size of audit firm by using empirical data from actively traded firms on the floor of Nigerian Exchange Group. Data for the study were obtained from the published annual reports and accounts of 124 quoted companies in Nigeria between 2012 to 2021. The average -monthly share price of the fourth month after accounting year end of all sampled firms was utilized as the dependent variable of the study in order to establish the value relevance of accounting information in the financial statements, Incorporating the explanatory variables of the study (auditor tenure and control variables) into The Ohlson’s 1995 price model quantitative approaches such as descriptive statistics, correlation, and panel corrected standard errors regression analysis were used in analyzing the data for the study. Findings of the study indicate that auditor tenure and audit firm size led to significant positive influence on market reaction in the first month after the release of annual reports and accounts of sampled firms. This means that, auditor tenure and audit firm size were found to be value relevant to users of accounting information in Nigeria. The study recommends that investors should consider the audit tenure and auditors size when making investment decisions and prioritize firms that have been audited by big auditors and by integrating small audit firms, as well as firms whose audit tenure is on average of five to six years in line with International best practices, rather than ten years as stipulated by the Code of Corporate Governance and CBN.

Keywords: Audit Firm Size, Auditor Tenure, Earnings, Share Price, Value Relevance, book values, market reaction

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


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

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