Exploring the Term of the Auditor-Client Relationship and the Quality of Earnings: a Case for Mandatory Auditor Rotation?

Exploring the Term of the Auditor-Client Relationship and the Quality of Earnings: A Case for Mandatory Auditor Rotation? Author(s): James N. Myers, Linda A. Myers, Thomas C. Omer Source: The Accounting Review, Vol. 78, No. 3 (Jul., 2003), pp. 779-799 Published by: American Accounting Association Stable URL: http://www.jstor.org/stable/3203225 . Accessed: 01/09/2011 07:12

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REVIEW THEACCOUNTING Vol. 78, No. 3 2003 pp. 779-799

of the Term Auditor-Client Exploring the the of Earnings: Quality Relationship and A Case for Rotation? Mandatory Auditor

James N. Myers Linda A. Myers Illinois at Urbana-Champaign Universityof Thomas C. Omer Universityof Illinois at Chicago

In ABSTRACT: this study, we document evidence on the relationbetween auditortenure and earnings qualityusing the dispersion and sign of both absolute Jones-model abnormalaccruals and absolute currentaccruals as proxies for earnings quality.Our auditorrotation," which are based on constudy is motivated by calls for "mandatory cerns that longer auditortenure reduces earnings quality.Multivariate results, controlling for firmage, size, industrygrowth,cash flows, auditortype (Big N versus non-Big N), industry,and year, generally suggest higher earnings qualitywith longer auditor tenure. We interpretour results as suggesting that, in the currentenvironment,longer...