Document Type

Honors Thesis


The Public Company Accounting Oversight Board (PCAOB) recently made a significant change to the audit report standard (Accounting Standard 3101). It requires auditors to disclose their tenure, known as the auditor tenure disclosure, with the company under audit. It also requires auditors to disclose Critical Audit Matter (CAMs). The auditor tenure disclosure became effective December 15, 2017, and the CAM disclosure became effective June 30, 2019, for large accelerated filers and December 15, 2020, for all other filers. The purpose of this research is to investigate whether and how the implementation of Accounting Standard 3101 (AS 3101) affects audit quality. The focus of the study is on the auditor tenure disclosure requirement because financial data was not yet available to evaluate the CAM disclosure requirement. The study required researching AS 3101 on the internet and downloading financial statement data from the Compustat database. The study uses an estimate of abnormal accruals as a proxy for audit quality and compares this measure before and after the implementation of the auditor tenure disclosure requirement. The study uses univariate and multivariate analyses. The results indicate absolute abnormal accruals are lower after the auditor tenure disclosure requirement became effective, and the decrease is highly significant (p-value less than 0.01). This provides evidence that the disclosure of auditor tenure improved audit quality.

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