Audit Tenure, Rotation and Accounting Conservatism: Empirical Evidences from Nigeria

Babatolu Ayorinde; Oyewo Babajide; Adewumi Ademola

doi:doi:10.11648/j.ijber.20150406.19

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Audit Tenure, Rotation and Accounting Conservatism: Empirical Evidences from Nigeria

Babatolu Ayorinde, Oyewo Babajide, Adewumi Ademola

Published in International Journal of Business and Economics Research (Volume 4, Issue 6)

Received: 12 December 2015 Accepted: 25 December 2015 Published: 4 January 2016

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Abstract

Accounting regulators have, for many years, had concerns about the possible lack of Independence between auditors and their clients, which arises from a long-standing professional relationship between the two parties. The reservation stems from a widely-held belief that the risk of audit failure increases when an auditor and a client remain together for a long period of time. The possibility exists that auditors might get too familiar with their clients and in consequence loses professional scepticism and objectivity when the relationship goes on for too long. Stakeholders are therefore interested in if long-term relationship between companies and their auditors gives rise to closeness that impairs auditors’ independence and reduces quality of audit work. With these in view, an attempt was made by the research to examine the link between audit tenure, rotation, and accounting conservatism using empirical data from Nigeria. Secondary data were randomly gathered by drawing 100 observations from the published financial statements of sample companies operating in the financial and non-financial sectors. Quantitative methods such as descriptive statistics, correlation, and multiple- regression analysis were used for data analyses. Findings were that; the tenure of auditor has a significant positive influence on firms accounting conservatism; the rotation of audit firms also significantly influences accounting conservatism. The study recommends the mandatory rotation of audit firms’ lead engagement partner and the review partner on an engagement for publicly listed companies, and the strict prohibition of providing non-audit services by auditors to their clients to enhance auditors’ independence and the quality of audit services.

Published in	International Journal of Business and Economics Research (Volume 4, Issue 6)
DOI	10.11648/j.ijber.20150406.19
Page(s)	328-336
Creative Commons	This is an Open Access article, distributed under the terms of the Creative Commons Attribution 4.0 International License (http://creativecommons.org/licenses/by/4.0/), which permits unrestricted use, distribution and reproduction in any medium or format, provided the original work is properly cited.
Copyright	Copyright © The Author(s), 2016. Published by Science Publishing Group

Keywords

Audit Failure, Audit Tenure, Auditor Rotation, Conservatism, Nigeria

References

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APA Style

Babatolu Ayorinde, Oyewo Babajide, Adewumi Ademola. (2016). Audit Tenure, Rotation and Accounting Conservatism: Empirical Evidences from Nigeria. International Journal of Business and Economics Research, 4(6), 328-336. https://doi.org/10.11648/j.ijber.20150406.19

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ACS Style

Babatolu Ayorinde; Oyewo Babajide; Adewumi Ademola. Audit Tenure, Rotation and Accounting Conservatism: Empirical Evidences from Nigeria. Int. J. Bus. Econ. Res. 2016, 4(6), 328-336. doi: 10.11648/j.ijber.20150406.19

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AMA Style

Babatolu Ayorinde, Oyewo Babajide, Adewumi Ademola. Audit Tenure, Rotation and Accounting Conservatism: Empirical Evidences from Nigeria. Int J Bus Econ Res. 2016;4(6):328-336. doi: 10.11648/j.ijber.20150406.19

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@article{10.11648/j.ijber.20150406.19,
  author = {Babatolu Ayorinde and Oyewo Babajide and Adewumi Ademola},
  title = {Audit Tenure, Rotation and Accounting Conservatism: Empirical Evidences from Nigeria},
  journal = {International Journal of Business and Economics Research},
  volume = {4},
  number = {6},
  pages = {328-336},
  doi = {10.11648/j.ijber.20150406.19},
  url = {https://doi.org/10.11648/j.ijber.20150406.19},
  eprint = {https://article.sciencepublishinggroup.com/pdf/10.11648.j.ijber.20150406.19},
  abstract = {Accounting regulators have, for many years, had concerns about the possible lack of Independence between auditors and their clients, which arises from a long-standing professional relationship between the two parties. The reservation stems from a widely-held belief that the risk of audit failure increases when an auditor and a client remain together for a long period of time. The possibility exists that auditors might get too familiar with their clients and in consequence loses professional scepticism and objectivity when the relationship goes on for too long. Stakeholders are therefore interested in if long-term relationship between companies and their auditors gives rise to closeness that impairs auditors’ independence and reduces quality of audit work. With these in view, an attempt was made by the research to examine the link between audit tenure, rotation, and accounting conservatism using empirical data from Nigeria. Secondary data were randomly gathered by drawing 100 observations from the published financial statements of sample companies operating in the financial and non-financial sectors. Quantitative methods such as descriptive statistics, correlation, and multiple- regression analysis were used for data analyses. Findings were that; the tenure of auditor has a significant positive influence on firms accounting conservatism; the rotation of audit firms also significantly influences accounting conservatism. The study recommends the mandatory rotation of audit firms’ lead engagement partner and the review partner on an engagement for publicly listed companies, and the strict prohibition of providing non-audit services by auditors to their clients to enhance auditors’ independence and the quality of audit services.},
 year = {2016}
}

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TY  - JOUR
T1  - Audit Tenure, Rotation and Accounting Conservatism: Empirical Evidences from Nigeria
AU  - Babatolu Ayorinde
AU  - Oyewo Babajide
AU  - Adewumi Ademola
Y1  - 2016/01/04
PY  - 2016
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DO  - 10.11648/j.ijber.20150406.19
T2  - International Journal of Business and Economics Research
JF  - International Journal of Business and Economics Research
JO  - International Journal of Business and Economics Research
SP  - 328
EP  - 336
PB  - Science Publishing Group
SN  - 2328-756X
UR  - https://doi.org/10.11648/j.ijber.20150406.19
AB  - Accounting regulators have, for many years, had concerns about the possible lack of Independence between auditors and their clients, which arises from a long-standing professional relationship between the two parties. The reservation stems from a widely-held belief that the risk of audit failure increases when an auditor and a client remain together for a long period of time. The possibility exists that auditors might get too familiar with their clients and in consequence loses professional scepticism and objectivity when the relationship goes on for too long. Stakeholders are therefore interested in if long-term relationship between companies and their auditors gives rise to closeness that impairs auditors’ independence and reduces quality of audit work. With these in view, an attempt was made by the research to examine the link between audit tenure, rotation, and accounting conservatism using empirical data from Nigeria. Secondary data were randomly gathered by drawing 100 observations from the published financial statements of sample companies operating in the financial and non-financial sectors. Quantitative methods such as descriptive statistics, correlation, and multiple- regression analysis were used for data analyses. Findings were that; the tenure of auditor has a significant positive influence on firms accounting conservatism; the rotation of audit firms also significantly influences accounting conservatism. The study recommends the mandatory rotation of audit firms’ lead engagement partner and the review partner on an engagement for publicly listed companies, and the strict prohibition of providing non-audit services by auditors to their clients to enhance auditors’ independence and the quality of audit services.
VL  - 4
IS  - 6
ER  -

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Author Information

Babatolu Ayorinde

Department of Accounting, Federal University of Agriculture, Abeokuta, Ogun State, Nigeria
Oyewo Babajide

Department of Accounting, University of Lagos, Akoka, Nigeria
Adewumi Ademola

Department of Accounting, Federal University of Agriculture, Abeokuta, Ogun State, Nigeria

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APA Style

Babatolu Ayorinde, Oyewo Babajide, Adewumi Ademola. (2016). Audit Tenure, Rotation and Accounting Conservatism: Empirical Evidences from Nigeria. International Journal of Business and Economics Research, 4(6), 328-336. https://doi.org/10.11648/j.ijber.20150406.19

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ACS Style

Babatolu Ayorinde; Oyewo Babajide; Adewumi Ademola. Audit Tenure, Rotation and Accounting Conservatism: Empirical Evidences from Nigeria. Int. J. Bus. Econ. Res. 2016, 4(6), 328-336. doi: 10.11648/j.ijber.20150406.19

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AMA Style

Babatolu Ayorinde, Oyewo Babajide, Adewumi Ademola. Audit Tenure, Rotation and Accounting Conservatism: Empirical Evidences from Nigeria. Int J Bus Econ Res. 2016;4(6):328-336. doi: 10.11648/j.ijber.20150406.19

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@article{10.11648/j.ijber.20150406.19,
  author = {Babatolu Ayorinde and Oyewo Babajide and Adewumi Ademola},
  title = {Audit Tenure, Rotation and Accounting Conservatism: Empirical Evidences from Nigeria},
  journal = {International Journal of Business and Economics Research},
  volume = {4},
  number = {6},
  pages = {328-336},
  doi = {10.11648/j.ijber.20150406.19},
  url = {https://doi.org/10.11648/j.ijber.20150406.19},
  eprint = {https://article.sciencepublishinggroup.com/pdf/10.11648.j.ijber.20150406.19},
  abstract = {Accounting regulators have, for many years, had concerns about the possible lack of Independence between auditors and their clients, which arises from a long-standing professional relationship between the two parties. The reservation stems from a widely-held belief that the risk of audit failure increases when an auditor and a client remain together for a long period of time. The possibility exists that auditors might get too familiar with their clients and in consequence loses professional scepticism and objectivity when the relationship goes on for too long. Stakeholders are therefore interested in if long-term relationship between companies and their auditors gives rise to closeness that impairs auditors’ independence and reduces quality of audit work. With these in view, an attempt was made by the research to examine the link between audit tenure, rotation, and accounting conservatism using empirical data from Nigeria. Secondary data were randomly gathered by drawing 100 observations from the published financial statements of sample companies operating in the financial and non-financial sectors. Quantitative methods such as descriptive statistics, correlation, and multiple- regression analysis were used for data analyses. Findings were that; the tenure of auditor has a significant positive influence on firms accounting conservatism; the rotation of audit firms also significantly influences accounting conservatism. The study recommends the mandatory rotation of audit firms’ lead engagement partner and the review partner on an engagement for publicly listed companies, and the strict prohibition of providing non-audit services by auditors to their clients to enhance auditors’ independence and the quality of audit services.},
 year = {2016}
}

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TY  - JOUR
T1  - Audit Tenure, Rotation and Accounting Conservatism: Empirical Evidences from Nigeria
AU  - Babatolu Ayorinde
AU  - Oyewo Babajide
AU  - Adewumi Ademola
Y1  - 2016/01/04
PY  - 2016
N1  - https://doi.org/10.11648/j.ijber.20150406.19
DO  - 10.11648/j.ijber.20150406.19
T2  - International Journal of Business and Economics Research
JF  - International Journal of Business and Economics Research
JO  - International Journal of Business and Economics Research
SP  - 328
EP  - 336
PB  - Science Publishing Group
SN  - 2328-756X
UR  - https://doi.org/10.11648/j.ijber.20150406.19
AB  - Accounting regulators have, for many years, had concerns about the possible lack of Independence between auditors and their clients, which arises from a long-standing professional relationship between the two parties. The reservation stems from a widely-held belief that the risk of audit failure increases when an auditor and a client remain together for a long period of time. The possibility exists that auditors might get too familiar with their clients and in consequence loses professional scepticism and objectivity when the relationship goes on for too long. Stakeholders are therefore interested in if long-term relationship between companies and their auditors gives rise to closeness that impairs auditors’ independence and reduces quality of audit work. With these in view, an attempt was made by the research to examine the link between audit tenure, rotation, and accounting conservatism using empirical data from Nigeria. Secondary data were randomly gathered by drawing 100 observations from the published financial statements of sample companies operating in the financial and non-financial sectors. Quantitative methods such as descriptive statistics, correlation, and multiple- regression analysis were used for data analyses. Findings were that; the tenure of auditor has a significant positive influence on firms accounting conservatism; the rotation of audit firms also significantly influences accounting conservatism. The study recommends the mandatory rotation of audit firms’ lead engagement partner and the review partner on an engagement for publicly listed companies, and the strict prohibition of providing non-audit services by auditors to their clients to enhance auditors’ independence and the quality of audit services.
VL  - 4
IS  - 6
ER  -

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