This study examines the relationship between auditor partner rotation and fraudulent financial reporting in the post Sarbanes-Oxley conservative environment. Audit firm tenure impacts the quality of the audit and the likelihood of fraudulent financial reporting. Data were retrieved from Accounting and Auditing Enforcement Releases and Computstat spanning the years 1998 through 2008. A logistic regression model similar to one used by Carcello and Nagy (2004) was utilized for the study. Fraudulent financial reporting served as a proxy for audit quality. The first hypothesis concludes that in the presence of long tenure, there are higher levels of fraudulent reporting. The second hypothesis concludes that when data are compared between pre SOX inferred rotation and post SOX mandatory rotation, the implementation of the auditor partner rotation regulation has had a positive effect in reducing the likelihood of fraudulent financial reporting. However, the results are not significant. The third hypothesis concludes that audit fees do not moderate the association between fraudulent financial reporting and auditor partner tenure. High audit fees may send several messages to various users. For example, from the view of the investor, high audit fees may be interpreted as generating economic rents. On the other hand, higher audit fees may indicate more auditor effort and thus higher quality audit. This present study is motivated from two perspectives: (1) the ongoing debate regarding the effect of auditor tenure on audit quality; and (2) the inconclusive evidence concerning audit partner rotation. This study adds to a large volume of literature that looks into the impact of SOX on the audit profession and on the quality of financial reporting. Higher audit quality results in increased firm value. The evidence of the impact of audit partner rotation on FFR will assist regulators such as the FASB, the AICPA, the Government Accountability Office (GAO), the PCAOB, and the SEC in future legislation efforts, as well as practitioners and researchers. This study contributes to archival research by presenting empirical scientific evidence of the effect of audit partner rotation on FFR as a basis to aid in future regulations.
|Commitee:||Felo, Andrew, Kim, Young|
|School:||Nova Southeastern University|
|Department:||Business Administration (DBA)|
|School Location:||United States -- Florida|
|Source:||DAI-A 77/02(E), Dissertation Abstracts International|
|Keywords:||Audit fees, Auditor rotation, Fraudulent financial reporting, Tenure|
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