Earnings Quality: Some Evidence on the Role of Auditor Tenure and Auditors' Industry Expertise

Abstract

Prior studies suggest that auditors with short tenure are associated with lower earnings quality because of the lack of client-specific knowledge and/or low balling. In this study, we examine whether industry specialization of auditors and low balling affect the association between auditor tenure and earnings quality. We find that the association between shorter auditor tenure and lower earnings quality is weaker for firms audited by industry specialists compared to non-specialists. In addition, we do not find results consistent with the low balling explanation.

Keywords: auditor tenure, auditor industry specialization, low balling, earnings quality

JEL Classification: M43, M49