اثرات متقابل تصدی شریک و شرکت در کیفیت حسابرسی The interaction effects of firm and partner tenure on audit quality

1. Introduction The potentially competing effects of tenure on audit quality are implicit in DeAngelo’s (1981) definition of audit quality as the joint probability that an auditor will both detect and report material misstatements. Mautz and Sharaf (1961) suggest that lengthy auditor–client relationships may impair independence because the auditor’s objectivity towards the client would diminish with the passage of time. Similarly, Hoyle (1978) contends that the audit programme might become a mere routine in lengthy audit engagements. These concerns are summarized by Shockley (1981, p. 789), who notes that ‘complacency, lack of innovation, less rigorous audit procedures and a developed confidence in the client may arise after a long association with the client’. The closeness of the relationship between auditors and clients is also recognized by the IFAC Code of Ethics as a threat to independence: ‘(… ) a familiarity threat occurs when, by virtue of a close relationship with an assurance client, its directors, officers or employees, a firm or a member of the assurance team becomes too sympathetic to the client’s interests’ (IFAC Code of Ethics ED 2003, p. 18). However, the potential loss of independence associated with long audit tenures needs to be balanced against other arguments suggesting that longer tenures may also improve audit quality, because the competence of auditors is expected to increase with tenure. Accordingly, Myers et al. (2005) argue that financial reporting problems are more likely to occur early in the auditor–client relationship, when the auditor is less familiar with the client’s business, processes and risks. Nevertheless, regulators seem to pay more attention to the negative impact of long tenures on independence than to positive effects on competence, and thus many countries have implemented mandatory rotation rules, generally at the partner level, with the aim of improving audit quality. In the US, the Sarbanes-Oxley Act of 2002 (hereafter ‘SOX Act’) accelerated the mandatory rotation of the audit partner. Similarly, member states of the EU were required to adapt national legislations to the 2006 revised 8th Company Law Directive. The directive established the mandatory rotation of the lead audit partner after a maximum seven-year period. However, the Green Paper on auditing (hereafter ‘Green Paper’) issued by the European Commission (EC) posed serious concerns regarding the sufficiency of the new regulatory framework to adequately guarantee independence (EC 2010). Only four years after the release of the Green Paper, the Directive 2014/56/ EU and the Regulation (EU) No 537/2014 (hereafter ‘2014 EU Regulation’) imposed mandatory rotation at both firm and partner levels.