세무와회계저널 | The Quality of Earnings and Auditor－Tenure

The objective of this study is to examine whether discretionary accruals decline in the last year
with the predecessor auditor and increase in the first year with the successor. The full sample is
divided into long versus short auditor tenures sub－samples and the results of the firm－years with
short auditor tenure are generally consistent with those of full sample. My major findings of this
study are as follows：First, discretionary accruals as earings quality are significantly negatively
related with the predecessor auditor in the last year and generally insignificant during the first
year with the successor. Second, for the short auditor tenure sample, I also find discretionary
accruals in the last years highly significantly negatively related with the predecessor auditor.
Meanwhile for the long auditor tenure sample, there are no significant changes in discretionary
accruals in the last year with predecessor auditor or first year with successor auditor. Third, for
the short predecessor auditor tenure, predecessor auditor tenure affects the magnitude of changes
in discretionary accruals around auditor switch year. The magnitude of the decrease on
discretionary accruals during the last year with the predecessor auditor appears to decline
depending on predecessor auditor tenure. On the other hand, for long predecessor auditor tenure,
predecessor auditor tenure do not seem to affect the magnitude of changes in discretionary
accruals during the last year with the predecessor auditor and during the first year with the
successor. These results show the influence pattern of auditor tenure on the association between
audit quality and auditor switch.
In conclustion, his study suggests that current regulations of minimum retention of audit contract
and mandatory auditor rotation be reasonable and supportive in Korea.