Audit Partner Tenure and Reported Internal Control Deficiencies: U.S. Evidence from the Not-for-Profit Sector

Abstract

This study examines the effect of audit partner tenure and audit partner changes on auditors’ reporting of internal control deficiencies among large U.S. not-for-profit (NFP) organizations. We find a negative association between audit partner tenure and the likelihood that the audit report discloses significant deficiencies and material weaknesses, which our tests indicate reflects deterioration in the quality of internal control reports with audit partner tenure. We also find that audit reports are more likely to disclose a significant deficiency rather than a material weakness as tenure increases. Further, audit partner tenure is associated with lower odds of remediating an internal control deficiency in the following year. Finally, we find limited evidence that audit partner changes are associated with reported internal control deficiencies. Our findings contribute large-sample U.S. evidence on the association between audit partner tenure and internal control reporting and provide useful information to government regulators, NFP boards charged with auditor and internal control oversight, and NFP stakeholders.