Abstract
This paper examines how audit tenure affects earnings quality by investigating the effect of audit-firm and audit-partner tenure on the level of discretionary accruals. We find that familiarity helps to produce higher earnings quality, but excessive familiarity results in lower earnings quality. Besides, Big 5 auditors are superior in obtaining learning experience in the initial period of engagement, which implies that the negative effect on earnings quality is more serious for clients of non-Big 5 auditors if audit-firm rotation is mandated. These empirical results are valuable to the regulator even though they are analysed on a non-mandatory auditor rotation regime.
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