The Effect Of Audit Tenure On Audit Quality

With the exposure of a series of financial scandal cases,US has appeared the famous bill-"Sarbanes-Oxley Bill" in 2002.From April 1st,2004 on,regulatory agencies in domestic also regulates that the time certified public accountants who are occupied in the audit securities and futures business provide continuous auditing services for a related institution cannot be more than five years.From then on,the research about relationship between audit tenure and audit quality in domestic and foreign increase gradually,but till now,we have not yet reach a consensus.Based on the theory of principal-agent contract and the reference to the methods and conclusions of domestic and foreign related literature research,the article combined the special research background in domestic and put forward research hypothesis,find an optimal audit tenure which is suitable for our national conditions and maintains a high audit quality by empirically test and analyze the relationship between the audit quality and audit tenure,furthermore,provide assist for development of our independent auditing and securities regulation.The article set the listed company of Shanghai and Shenzhen from 2012 to 2015 which were issued by standard unqualified audit opinion as the research object,made an estimate on the discretionary accruals of China listed companies 'financial reports by an adjusted and extended Jones Model,and empirically tested the relationship between audit tenure and audit quality in a perspective of audit firm size.The results show that after the influence of the firm characteristics,company size,ROE(return of equity),industry growth,annual asset-liability,ratio of listed age and sampling year is controlled,the relationship between audit tenure and the absolute value of discretionary accruals profit appears non-linear,which lead to an inverted U-shaped relationship between audit tenure and audit quality.Moreover,the research is made by segmenting Firm-Tenure into a long term,a middle term and a short term,in conclusion,when the Firm-Tenure is too long or too short,the audit quality will be lower.Finally,in order to get a more reliable result,the article analyzed the discretionary accruals by segmenting it into a positive term and a negative term,and found that the relationship between the Firm-Tenure and positive discretionary accruals is a U-shape,and the relationship between Firm-Tenure and negative discretionary accruals is an inverted U-shape.And by distinguishing the firm size,the optimal auditing tenure of large-scale firms is longer than small-scale firms,audit tenure and audit quality of large-scale firms are positively correlated in the longer term.Therefore,according the results of the empirical research,the article put forward that accounting firms of different firm scale are supposed to adopt different rotation system,which means the audit tenure forced rotation time limit of large-scale accounting firms can be extended appropriately,and correspondingly the audit tenure forced rotation time limit of small-scale accounting firms can be shortened appropriately.