The European Accounting Review 2000, 9:3, 419 442 Impact of renewable long-term audit mandates on audit quality

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 ® nancial 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 signi ® cantly increase the likelihood of an unquali ® ed opinion or signi ® cantly reduce the auditor ’ s willingness to qualify audit reports.A signi ® cant diŒerence was also found between the auditor’s reporting behaviour in the ® rst two years versus the last year of the audit mandate. Auditors are more willing to issue an unquali ® ed audit report in the ® rst two years of their o cial 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 ® ndings 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 eŒects of mandatory auditor rotation, there is a need to develop alternative measures to safeguard auditors ’ independence. 1