International Journal of Business and Social Science

ISSN 2219-1933 (Print), 2219-6021 (Online) DOI: 10.30845/ijbss

Does Audit Tenure Impair Auditor Independence? Evidence from Option Backdating Scandals
Bo Ouyang, Huishan Wan

In 2011, U.S Public Company Accounting Oversight Board (PCAOB) voted to explore whether to propose mandating auditor rotation with a concept release to solicit public comment on this issue, which rekindled the debate of whether long audit tenure impairs audit quality. This study explores the relationship between audit tenure and likelihood of stock option backdating, a form of compensation fraud. The empirical evidence in this study suggests that firms with long audit tenure, particularly those with audit tenure longer than ten years, are more likely to backdate. However, the detrimental effect of long audit tenure on audit quality only exits in clients with small firm size. This study provides support to some, but not all, concerns of the regulator.

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