Dissertation
Dissertation > Economic > Economic planning and management > Audit > Various types of audit

Auditor Size,Audit Partner Tenure and Audit Quality

Author WangFang
Tutor FangHongXing
School Dongbei University of Finance
Course Accounting
Keywords audit partner tenure audit quality auditor size financial restatement
CLC F239.4
Type Master's thesis
Year 2012
Downloads 191
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The relationship between audit tenure and audit quality had won attention as early as1960s. After the release of "Sarbanes-Oxley Act", China Securities Regulatory Commission (CSRS) and Ministry of Finance of the People’s Republic of China (MOF) issued "Provision of Audit Partner Periodic Rotation for Securities and Futures Business" in2003. The provision reqires that audit partner or audit project manager should perform auditing for the same organization no longer than five years successively. State-owned Assets Supervision and Administration Commission of the State Council (SASAC) has also issued a great deal of documents since2004to force central enterprises to rotate auditing firms periodically and to require auditing firms not to perform auditing longer than five years. Hence the relationship between audit tenure and audit quality has been brought back to the forefront. Researchers want to know how audit tenure influences audit quality, and supervisers need to find theoretical foundations for auditor rotation. The thesis intends to start with selecting listed companies with financial restatements as samples, investigates the relationship between audit partner tenure and audit quality, explains in theory whether and how auditor size influences the relationship between audit partner tenure and audit quality, and provides empirical evidence for policy of audit partner rotation in auditing firms of different sizes.After introducing relevant background, the thesis analyzes the relationship between audit partner tenure, auditor size and audit quality based upon the analysis of "two pressure-sources" and firm’s system of quality control. It is argued that:for auditing firms with larger size, the pressure from investors and supervisers is dominant when auditors make decisions facing two pressure-sources, and stringent quality control intensifies professional competence and independence, so the impact of audit partner tenure to audit quality mainly reflects in professional competence and hence, audit quality varies as learning curve versus audit partner tenure; but for auditing firms with smaller size, the pressure from listed companies (clients) and audit competition market is dominant when auditors make decisions facing two pressure-sources, and weak quality control impairs professional competence and independence, so the impact of audit partner tenure to audit quality mainly reflects in independence and hence, audit quality changes inversely with audit partner tenure. Consequently, auditor size could influence the relationship between audit partner tenure and audit quality, and auditing firms with larger size could supress the negative impact of audit partner tenure to audit quality. The empirical tests further demonstrate the main conclusions above.This thesis can be divided into six parts:The first part is preface. It introduces the research background, research significance, research contents and research method, summarizes the previously related literatures, and states contributions and limitations of this thesis.The second part is about institutional background. It introduces audit partner periodic rotation and auditing firm periodic rotation in China, as well as auditor size and quality control system.The third part is about theoretical analysis and research hypothesis. It first explains audit partner tenure and audit quality explicitly, analyzes the relationship between audit tenure and audit quality, and then analyzes the relationship between auditor size, audit partner tenure and audit quality based upon the analysis of "two pressure-sources" and firm’s system of quality control. The thesis proposes the research hypothesis accordingly.The fourth part is about research design. It states in detail sample-selecting process and data sources, and introduces the models and variables.The fifth part is about the results and analysis of empirical tests. It shows the empirical tests results, and demonstrates that auditor size could influence the relationship between audit partner tenure and audit quality, and auditing firms with larger size could supress the negative impact of audit partner tenure to audit quality.The sixth part is about research conclusion and suggestions. It proposes that audit partner periodic rotation should be implemented discriminatively in auditing firms of different sizes, and brings forward future study trends.The research method this thesis adopts is normative and empirical analysis. The thesis first analyzes the relationship between auditor size, audit partner tenure and audit quality, and then demonstrates it by empirical tests.The main contribution of the thesis is that it studies for the first time whether and how auditor size influences the relationship between audit partner tenure and audit quality, and provides empirical evidence for the distinguishing implementation of audit partner periodic rotation.

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