The effects of joint tenure between auditor and chief financial officer on audit quality, audit fees, and non-audit services

Abstract

Audit services play an important monitoring role in capital markets by reducing information asymmetry between corporate managers and firm stakeholders through independent verification of financial statements. Because auditor independence is fundamental to audit quality, the professional relationships between audit partners and client executives has important implications. However, prior research provides inconclusive evidence on whether such relationships enhance audit effectiveness through improved client-specific knowledge or impair auditor independence through excessive familiarity. This study examines the effects of joint tenure between the engagement audit partner (EAP) and the chief financial officer (CFO), measured as the number of consecutive years in which both parties hold their respective positions concurrently, on audit quality, audit fees, and non-audit service fees. Using a six-year panel dataset of publicly listed firms on the Stock Exchange of Thailand from 2016 to 2021, this study examines these relationships in an emerging market setting. The results show that EAP–CFO joint tenure is not significantly associated with audit quality, measured by the absolute value of discretionary accruals. Additional analyses shows that longer EAP–CFO joint tenure is associated with lower levels of income-decreasing discretionary accruals, suggesting that EAPs may constrain clients’ downward earnings management. The results also indicate that longer joint tenure is positively associated with audit fees. In addition, the study provides weak evidence that EAP–CFO joint tenure is marginally negatively associated with non-audit service fees, suggesting that longer professional continuity between EAPs and CFOs does not necessarily lead to greater provision of non-audit services. Overall, the findings are more consistent with the efficient information-sharing explanation than with the collusion-based explanation, indicating that longer EAP–CFO joint tenure does not necessarily impair auditor independence. This study contributes to the audit literature by providing partner-level evidence on how interpersonal continuity between audit partners and client executives affects audit outcomes in an emerging market setting.