Does Auditor Tenure Disclosure Affect Shareholder Ratification Voting?

Abstract

SUMMARY The Public Company Accounting Oversight Board requires audit reports to include information about auditor tenure for fiscal years ending on or after December 15, 2017. Tanyi, Rama, and Raghunandan (2021) examine the impact of this requirement on shareholder ratification voting of auditors. Consistent with shareholders sharing the oft-expressed views of legislators and regulators that long auditor tenure may impair auditor independence and audit quality, they find that shareholder opposition to auditor ratification increases (decreases) for long-tenured (short-tenured) auditors after the tenure disclosure. Thus, the very act of public disclosure in the audit report appears to have impacted investors’ voting decisions. The results suggest that auditors should respond to the increased scrutiny of auditor tenure by proactively engaging with the audit committees of their long-tenured clients. The results are also relevant in the context of the Securities and Exchange Commission’s efforts to have such tenure-disclosure requirements in registrants’ proxy statements.