Mandatory Audit Firm Rotation: A Review of Stakeholder Perspectives and Prior Research

Ewelt-Knauer, Corinna; Gold, Andreas; Pott, Christiane

doi:10.1080/17449480.2013.772717

Cited by 41 publications

(55 citation statements)

References 41 publications

Supporting

Mentioning

Contrasting

Order By: Relevance

“…While there are costs to switching auditors, such as the time for the auditor to deliberate on the industry and acquire firm-specific knowledge in addition to the potential for audit failure, investors will bear the cost if the audit provides a better outcome [5]. For example, investors prefer audit services from BIG 4 audit firms, even under higher audit costs compared to non-BIG 4 audit firms, because investors perceive that they provide better audit quality [31].…”

Section: Hypothesis Developmentmentioning

confidence: 99%

“…Second, our study contributes to the literature on the economic consequences of mandatory audit firm rotation, which focuses primarily on the costs of implementing mandatory audit firm rotation [7,[25][26][27]. Ewelt-Kauner et al [5] state that only a few empirical studies document beneficial effects, whereas our study attempts to present the potential benefits of implementing mandatory audit firm rotation in terms of the cost of equity capital.…”

Section: Introductionmentioning

confidence: 99%

“…After the enormous accounting scandals and global financial crisis, policy makers were concerned that close relationships between auditors and clients would lower auditor independence and thus ultimately harm audit quality [5,6]. The implementation of mandatory audit firm rotation is one solution to improve not only audit quality, but also perceived audit quality.…”

Section: Introductionmentioning

confidence: 99%

“…Internationally, 28 of 69 countries have adopted or implemented mandatory audit firm rotation [5]. Even if countries do not implement mandatory audit firm rotation, most countries have grappled with whether to adopt the regime or not.…”

Section: Introductionmentioning

confidence: 99%

See 3 more Smart Citations

How Investors Perceive Mandatory Audit Firm Rotation in Korea

Kim¹,

Kim

Lee

et al. 2019

Sustainability

View full text Add to dashboard Cite

Credible audit quality is a precondition for a firm’s sustainability. External auditors offer assurance with regard to the uncertain factors that can jeopardize a firm’s sustainability and provide audit opinions that help investors assess risk. After the global crisis and accounting scandals, mandatory audit firm rotation has been implemented globally. However, few studies have investigated either the cost or the benefit of mandatory audit firm rotation. Prior studies provide only indirect evidence on the effects of audit firm tenure on audit quality/perceived audit quality. By discussing prior arguments, we examine how investors perceive the implementation of mandatory audit firm rotation in Korea. Using a unique and direct setting to examine our research question, we analyze the relationship between firms with mandatorily switched audit firms and the cost of equity capital from 2006 to 2008. We find that the mandatory change in the auditors has a negative association with the cost of equity capital. The results are robust to using the arithmetic mean of the cost of equity capital, lagged control variables, and the manufacturing industry effect. The results indicate that investors perceive that mandatory audit firm rotation provides an environment for qualified audits by enhancing auditor independence and skepticism, and thus decreases the cost of equity capital. This study helps to improve our understanding of the impact of mandatory audit firm rotation the information risk evaluations and provides political implications for policy makers by showing the benefit of mandatory audit firm rotation.

show abstract

Section: Hypothesis Developmentmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

See 2 more Smart Citations

How Investors Perceive Mandatory Audit Firm Rotation in Korea

Kim¹,

Kim

Lee

et al. 2019

Sustainability

View full text Add to dashboard Cite

show abstract

“…There are a number of other studies on the auditor rotation issue that do not examine audit fees, and so are not captured here. Review articles summarizing these studies include Casterella and Johnston (2013), Ewelt-Knauer, Gold, and Pott (2013), and Jenkins and Vermeer (2013).…”

Section: Lowballingmentioning

confidence: 99%

Audit Fee Research on Issues Related to Ethics

Hay

2017

Current Issues in Auditing

View full text Add to dashboard Cite

SUMMARY Audit fees are related to important ethical issues for auditors. There has been increasing research on audit fees recently, including research on potential ethical risks regarding audit fees, which helps to illuminate some of these professional issues. The International Ethics Standards Board for Accountants (IESBA) is very interested in this area and asked me to prepare a paper reviewing the relevant research. This summary reviews research that became available from 2006 to 2016 on four issues related to audit fees—fee level, dependence, non-audit fees, and firms that have a significant non-audit services business. Examining the research shows consistent evidence about two issues, namely that audit fees for new engagements are lower and that non-audit services affect independence in appearance. There are two further issues about which there is some concern. First, there are occasional studies reporting evidence that non-audit services provided by an auditor are associated with a loss of independence indicated by lower audit quality, even though most research does not support this conclusion. Second, there has been recent concern about growth in non-audit services to non-audit clients and there is some preliminary evidence that audit quality is lower in firms that have more extensive non-audit businesses. In general, although audit fee research does not convey a message that there are widespread ethical problems, the body of research shows that there are some risk areas.

show abstract

A structured literature review of empirical research on mandatory auditor rotation

Florio

2024

Journal of International Accounting, Auditing and Taxation

View full text Add to dashboard Cite

Mandatory Audit Firm Rotation: A Review of Stakeholder Perspectives and Prior Research

Cited by 41 publications

References 41 publications

How Investors Perceive Mandatory Audit Firm Rotation in Korea

How Investors Perceive Mandatory Audit Firm Rotation in Korea

Audit Fee Research on Issues Related to Ethics

A structured literature review of empirical research on mandatory auditor rotation

Contact Info

Product

Resources

About