Abstract
Is the level of earnings management related to the length of audit engagements? Auditors may allow earnings management in order to retain clients longer; this suggests that audit engagements are likely to be longer when earnings management is greater. Alternatively, auditors may restrain earnings management by abandoning those clients with abnormal levels of earnings management; this suggests that audit engagements are likely to be shorter when earnings management is greater. Using a discrete time hazard model, we find that each of our five measures of earnings management is statistically significantly, suggesting that longer engagements are associated with greater levels of earnings management. Our results are consistent with DeFond and Subramanyam's (1998) finding that clients tend to switch away from auditors who allow less discretionary accruals. One interpretation of our results is that mandatory auditor rotation is likely to improve the quality of financial reporting by making auditors more independent.
Sign-in/Register to access full text options 
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
