Are There Adverse Consequences of Mandatory Auditor Rotation? Evidence from the Italian Experience

Cameran, Mara; Francis, Jere R.; Marra, Antonio; Pettinicchio, Angela Kate

doi:10.2308/ajpt-50663

Cited by 135 publications

(114 citation statements)

References 27 publications

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“…Opponents to mandatory firm rotation also have a considerable amount of research to provide support for their perspective. Several studies (Arrunada & Paz-Ares, 1997;Cameran, Francis, Marra, & Pettinicchio, 2013;Daugherty, Dickins, Hatfield, & Higgs, 2012;Geiger & Raghunandan, 2002;Ghosh & Moon, 2005;Johnson et al, 2002;Mansi et al, 2004;Myers et al, 2003;Palmrose, 1987Palmrose, , 1991Petty & Cuganesan, 1996;Stice, 1991) propose that audit firm rotation is counterproductive due to the loss of specific client knowledge possessed by long-tenured audit firms. Jackson, Moldrich, and Roebuck (2008) found that when going concern was used as a proxy, firm tenure increased audit quality.…”

Section: Mandatory Audit Firm Rotationmentioning

confidence: 99%

Audit firm tenure, auditor familiarity, and trust: Effect on auditee whistleblowing reporting intentions

2018

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Mandatory audit firm rotation has been researched for decades with resulting opposition as well as support. Research has mainly treated mandatory auditor rotation at the firm macro level. We submit the client relationship length is comprised of firm tenure and audit team continuity, or auditor familiarity. Increased tenure, at the interorganizational or firm level and interpersonal or individual level, has been shown to increase trust; and further, trust is positively related to employee voice, such as speaking up about fraud (whistleblowing). We conduct an experiment examining whether increased audit firm tenure and auditor familiarity leads to increased trust, which enhances the willingness to whistleblow. We find evidence that suggests auditor familiarity enhances trust, which, in turn, positively influences an employee's intentions to whistleblow. This has important implications for the profession and for future research exploring mandatory audit firm rotation; in particular, the need to include auditor familiarity as a construct.

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Section: Mandatory Audit Firm Rotationmentioning

confidence: 99%

Audit firm tenure, auditor familiarity, and trust: Effect on auditee whistleblowing reporting intentions

2018

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“…Therefore, the 7 Other countries that also mandate auditor rotation are Italia and South Korea. Italia has enacted the regulation since 1975 (Cameran et al, 2015). European Union has also considered it even though it is still not enacted.…”

Section: Research Importancementioning

confidence: 99%

“…For example, a study in South Korea conducted by Kwon et al (2014) indicates that the audit quality did not change there. Meanwhile, investigation from other perspective conducted by Cameran et al (2015) shows that replaced auditor (or in its final year before rotation) does not decrease its audit quality. However, the audit fee is raised by 7% compared to previous years.…”

Section: Introductionmentioning

confidence: 99%

The Influence of Pseudo Auditor Rotation on Audit Quality: New Evidence

Febrianto¹,

Dini²,

Dela³

et al. 2017

AABFJ

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The objectives of this research are twofold, to test the audit quality of companies that change their auditors either voluntarily or mandatorily and to test the financial characteristics as a factor for an accounting firm to engage in pseudo mandatory rotation. Since 2002, Indonesia has had legislation mandating companies to rotate their auditor after six years of consecutive engagements (five years prior to 2008). However, auditors sometimes seem to find their own way to deceive the mandatory regulation by a tactic called "pseudo" mandatory rotation. Thus, we divide mandatory rotation into two categories, pure and pseudo mandatory rotation.The results of the data we collected since the Ministerial decree became effective in 2003 indicate companies that rotate their auditors mandatorily have higher audit quality than that of companies voluntarily rotating auditors. However, we cannot find evidence that pseudo and pure mandatory rotation have different audit qualities. The results also indicate that switching among bigger accounting firms have the highest audit quality rather than switching between smaller audit firms which have lower audit quality. Lastly, the motives of an accounting firm to engage in pseudo or pure mandatory rotation are related to the financial size of their clients. Future research must consider the limitation stated in this study. AbstractThe objectives of this research are twofold, to test the audit quality of companies that change their auditors either voluntarily or mandatorily and to test the financial characteristics as a factor for an accounting firm to engage in pseudo mandatory rotation. Since 2002, Indonesia has had legislation mandating companies to rotate their auditor after six years of consecutive engagements (five years prior to 2008). However, auditors sometimes seem to find their own way to deceive the mandatory regulation by a tactic called "pseudo" mandatory rotation. Thus, we divide mandatory rotation into two categories, pure and pseudo mandatory rotation.The results of the data we collected since the Ministerial decree became effective in 2003 indicate companies that rotate their auditors mandatorily have higher audit quality than that of companies voluntarily rotating auditors. However, we cannot find evidence that pseudo and pure mandatory rotation have different audit qualities. The results also indicate that switching among bigger accounting firms have the highest audit quality rather than switching between smaller audit firms which have lower audit quality. Lastly, the motives of an accounting firm to engage in pseudo or pure mandatory rotation are related to the financial size of their clients. Future research must consider the limitation stated in this study. 6JEL Classification: G38, M42, L51.

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“…This need not be the case, as prior research has reported mixed results regarding the relationship between audit firm tenure and audit quality. 2 Evidence from Italy, the only EU Member State to apply an external rotation of audit firms previously, even indicates a decline in audit quality after the change in audit firm (Cameran et al, 2015;Cameran, Prencipe, & Trombetta, 2016).…”

Section: Mandatory Audit Firm Rotationmentioning

confidence: 99%

The New European Audit Regulation Arena: Discussion of New Rules and Ideas for Future Research

2016

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Are There Adverse Consequences of Mandatory Auditor Rotation? Evidence from the Italian Experience

Cited by 135 publications

References 27 publications

Audit firm tenure, auditor familiarity, and trust: Effect on auditee whistleblowing reporting intentions

Audit firm tenure, auditor familiarity, and trust: Effect on auditee whistleblowing reporting intentions

The Influence of Pseudo Auditor Rotation on Audit Quality: New Evidence

The New European Audit Regulation Arena: Discussion of New Rules and Ideas for Future Research

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