An Investigation of Auditor and Client Tenure

Abstract

The purpose of this study is to examine the duration of the auditor’s relationship with a client and factors that affect audit firm tenure. The duration of the auditor and client relationship has been cited as possibly affecting the risk of a loss of auditor independence. Also, audit firm tenure has been used as an independent variable in several studies with variations on the characterization of a “long auditor‐client association.” However, little is known about the duration of the auditor’s relationship with a client. Generally, no empirical justification is provided for the treatment of the variable and no consideration is included for auditor or client factors that may affect the relationship. This study evaluates the duration of the auditor relationship with a client and determines which factors contribute to changes in that relationship. In an examination of 16,976 COMPUSTAT companies over a twentyyear period, the mean duration of audit tenure is found to be more than six years. However, audit tenure is affected by client size, client growth rate, and type of audit firm involved in the change of auditor. Audit tenure is not affected by audit firm size, client risk, or audit opinion.