Prior studies have documented two viewpoints of the effect of audit tenure on the credibility of financial statements; regulators view and economic view (Geiger & Raghunandan, 2002)。 In the point of regulatory view, long association between a client and an audit firm may lead to impair their independence (Geiger & Raghunandan, 2002)。 For example, in the United States, the Metcalf Committee report argued that long association between a corporation and  an accounting firm may lead to such close identification of the accounting firm with the interests of its  client’s management that truly independent action by the accounting firm becomes difficult。 Therefore, the report suggested a mandatory auditor rotation as a way for the accounting profession to bolster their independence from clients (Geiger & Raghunandan, 2002)。 Furthermore, if we go back to 50 years ago, Mautz and Sharaf (1961) noted that long association with the same client can lead to the auditor independence problems due to the fact that a slow, gradual and honest disinterestedness would be the greatest factors that impaired auditor independence。 Therefore, a mandatory auditor rotation regime would improve audit quality by reducing client’s ability to adversely influence the auditor judgments (Brody & Moscove, 1998) and minimize the auditor independence threats。 (Geiger & Raghunandan, 2002)

Deis and Giroux (1992); O’Keefe, Simunic and Stein (1994); and Raghunandan, Lewis and Evans (1994) found that the long auditor tenure would decrease audit quality。 Similarly, Vanstraelen (2000) found negatively relationship between auditor tenure and opinion and then again provide support for a mandatory audit firm rotation。 Also, evidence shows that the shorter auditor tenure the more likely the clients receive a disclaimer going concern opinion (Anandarajan, La Salle & Anandarajan, 2001)。 In an experimental setting, Dopuch, King, and Schwartz (2001) found the auditors are less likely to impose a biased report if rotation is required, but it also increases the magnitude of investment to improve financial reporting quality。 Furthermore, in Malaysia, Teoh and Lim (1996) found that retention of auditors for over five years would influence and impair audit independence。 The Malaysian perceived audit firm rotation would improve auditor independence。 (Teoh & Lim, 1996)

However, more recently, in the United States, the General Accounting Office (GAO) states, “mandatory audit firm rotation may not be the most efficient way to strengthen auditor independence” (GAO 2003, Highlights)。 Yet, the GAO leaves a flexibility to revisit the mandatory audit firm rotation if the Sarbanes-Oxley Act’s requirements do not lead to improved audit quality (GAO 2003, 5)。 Moreover, other regulators report in the United States, suggest that a voluntary basis for the clients to change their auditors for a specific of time (New York Stock Exchange, 2003, 11; Commission on Public Trust and Private Enterprise, 2003, 33; and TIAA-CREF, 2004, 9)。 Under the Sarbanes-Oxley Act, the auditor independence is regulated through audit partner rotation but not for the case of audit firm rotation。 The lead audit or coordinating partner and the reviewing partner must be rotated in every 5 years。 Similarly, in Malaysia, the MIA only regulated all public listed companies’ lead audit partner to be rotated every 5 years。

In the second viewpoint, maintaining the same audit firm for a long period is considered more economic to the clients due to high start up cost when the clients rotate the auditors。 According to Geiger and Raghunandan (2002), audit firms tend to reduce their audit fees in the early year of engagement to attract clients。 The practice of low-balling requires audit firm to seek for longer audit engagement with their clients so that they could recover back their loss in the early year。 Long association between audit firm and its client does not really impair auditor independence。 Auditor’s independence was impaired only in the early year of audit engagement and not for the whole audit engagement。 (Geiger & Raghunandan, 2002)