Auditor tenure in Maltese PLCs and its implications on financial statement reliability : an analysis

Abstract

Purpose: This study analyses one aspect of the auditor-client relationship, being the auditor tenure present in a local PLC scenario. It delineates its determinants in an environment where auditor tenure is unregulated (except for the Central Bank of Malta for which there is required a mandatory auditor rotation every 5 years). It also analyses its influence on the reliability of audited financial statements. Design: A sample of 82 local PLCs were contacted through an online questionnaire, out of which 40 valid responses were received. Thirteen complemented their responses through an interview. The users’ perceptions on the auditor tenure matter were also sought through semi-structured interviews. Findings: Even though majority of the participants in the study regard auditor tenure as being beneficial to their relationship, support was shown for short auditor tenure. This was viewed as being of more importance in addressing stakeholder concerns on the grounds of the risks which emerge in a prolonged tenure as the global scandals have implied. Conclusion: The study concludes that even though risks were cited to be inherently present in such relationships, the auditor’s incumbency period was not seen as directly influencing the conduct of audit service but contributing to the reliability of the client’s financial statements. Value: Locally, it seems that this is a first study that addresses the user perceptions on auditor tenure and its implications on financial statement reliability. This analysis could potentially be of value to local regulators responsible to oversee the audit function as they seek to review the need to enhance their quality assurance measures over PLCs.