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Impact of renewable long-term audit mandates on audit quality


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  • Ann Vanstraelen


Anglo-American countries like the US and the UK allow companies to switch auditors every year. In contrast, some continental European countries restrict auditor switching by allowing only renewable long-term audit mandates. This paper aims to analyse the impact of renewable long-term audit mandates on audit quality. Audit quality is considered from the viewpoint of the external users of the financial statements. It is questioned whether renewable long-term audit mandates have an impact on the auditor's reporting behaviour and on auditor independence. This research is motivated by the lack of consensus in the literature on the impact of the length of the auditor client relationship on audit quality. Moreover, few empirical studies use publicly available secondary data in order to determine whether perceived threats to auditor independence actually compromise auditor independence. Therefore, our research methodology consists in the development of a logistic regression model in which the explanatory variables are measured using publicly available data. The results of the study suggest that long-term auditor client relationships significantly increase the likelihood of an unqualified opinion or significantly reduce the auditor's willingness to qualify audit reports. A significant difference was also found between the auditor's reporting behaviour in the first two years versus the last year of the audit mandate. Auditors are more willing to issue an unqualified audit report in the first two years of their official mandate than in the last year of their mandate. This could be an indication that the decision to renew the auditor's mandate is already taken and known to the auditor before he has issued his last audit report within his current mandate. The policy implications of these findings could be in favour of mandatory auditor rotation to maintain the value of an audit for the external users. However, given recent theoretic evidence on the adverse effects of mandatory auditor rotation, there is a need to develop alternative measures to safeguard auditors' independence.

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Bibliographic Info

Article provided by Taylor & Francis Journals in its journal European Accounting Review.

Volume (Year): 9 (2000)
Issue (Month): 3 ()
Pages: 419-442

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Handle: RePEc:taf:euract:v:9:y:2000:i:3:p:419-442

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  1. Daron Acemoglu & Miles Gietzmann, 1998. "Auditor independence, incomplete contracts and the role of legal liability," European Accounting Review, Taylor & Francis Journals, vol. 6(3), pages 355-375.
  2. Dye, Ronald A, 1993. "Discussion: Limiting Auditors' Liability," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 2(3), pages 435-43, Fall.
  3. Craswell, Allen T. & Francis, Jere R. & Taylor, Stephen L., 1995. "Auditor brand name reputations and industry specializations," Journal of Accounting and Economics, Elsevier, vol. 20(3), pages 297-322, December.
  4. Gietzmann, M. B. & Quick, R., 1998. "Capping auditor liability: The German experience," Accounting, Organizations and Society, Elsevier, vol. 23(1), pages 81-103, January.
  5. Acemoglu, Daron, 1994. "A Dynamic Model of Collusion," CEPR Discussion Papers 1027, C.E.P.R. Discussion Papers.
  6. Arrunada, Benito & Paz-Ares, Candido, 1997. "Mandatory rotation of company auditors: A critical examination," International Review of Law and Economics, Elsevier, vol. 17(1), pages 31-61, March.
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Cited by:
  1. Kym Butcher & Graeme Harrison & Jill McKinnon & Philip Ross, 2011. "Auditor appointment in compulsory audit tendering," Accounting Research Journal, Emerald Group Publishing, vol. 24(2), pages 104-149, September.
  2. Seyed Mahmoud Hosseinniakani & Helena Inacio & Rui Mota, 2014. "A Review on Audit Quality Factors," International Journal of Academic Research in Accounting, Finance and Management Sciences, Human Resource Management Academic Research Society, International Journal of Academic Research in Accounting, Finance and Management Sciences, vol. 4(2), pages 243-254, April.


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