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ISSN: 2167-0234

Journal of Business & Financial Affairs
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Research Article

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

Babatolu Ayorinde1 and Oyewo Babajide2*

1Department of Accounting, Federal University of Agriculture, Abeokuta, Ogun State, Nigeria

2Department of Accounting, University of Lagos, Nigeria

*Corresponding Author:
Oyewo Babajide
Department of Accounting
University ofLagos, Nigeria
Tel: +2348060651309
E-mail: [email protected]

Received June 15, 2015; Accepted September 21, 2015; Published October15, 2015

Citation: Ayorinde B, Babajide O (2015) Audit Tenure, Rotation and Accounting Conservatism: Empirical Evidences from Nigeria. J Bus Fin Aff 4:150.doi:10.4172/2167-0234.1000150

Copyright: © 2015 Ayorinde B, et al. This is an open-access article distributed under the terms of the Creative Commons Attribution License, which permits unrestricted use, distribution, and reproduction in any medium, provided the original author and source are credited.

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.

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