Audit Partner Tenure, Audit Firm Tenure, and Discretionary Accruals: Does Long Auditor Tenure Impair Earnings Quality?*

Abstract

Audit partner rotation has been adopted in several countries, but the academic research has not investigated the relation between audit partner tenure and earnings quality. We investigate the relation using a sample of Taiwanese listed companies for which the audit report must show the audit partners’ names. We find a significantly negative relation between audit partner tenure and absolute discretionary accruals, a proxy for earnings quality. The negative relation mainly occurs after five to seven years of audit partner-client relationship. When audit firm tenure and audit partner tenure are analyzed simultaneously, audit firm tenure is not significantly related to absolute discretionary accruals but audit partner tenure is. Collectively, our evidence does not support the hypotheses that earnings quality decreases with audit partner tenure and that audit firm tenure decreases with earnings quality after controlling for audit partner tenure.