Books and journals Case studies Expert Briefings Open Access
Advanced search

Mandatory auditor rotation and retention: impact on market share

Christie L. Comunale (School of Professional Accountancy, Long Island University, Brookville, New York, USA)
Thomas R. Sexton (College of Business, Stony Brook University, Stony Brook, New York, USA)

Managerial Auditing Journal

ISSN: 0268-6902

Publication date: 1 April 2005

Abstract

Purpose

–

To explore the effects of mandatory auditor rotation and retention on the long‐term market shares of the accounting firms that audit the members of the Standard and Poor's (S&P) 500.

Design/methodology/approach

–

A Markov model is constructed that depicts the movements of S&P 500 firms in the period 1995 to 1999 among Big 5 accounting firms. Auditor rotation and retention are reflected in the transition probabilities. The impacts of mandatory auditor rotation and retention policies are evaluated by examining the state probabilities after two, five, and nine years.

Findings

–

The paper finds that mandatory auditor rotation will have substantial effects on long‐term market shares, whereas mandatory auditor retention will have very small effects. It shows that a firm's ability to attract new clients, as opposed to retaining current clients, will be the primary factor in determining the firm's long‐term market share under mandatory auditor rotation.

Research limitations/implications

–

The paper assumes that S&P 500 firms will continue their reliance on Big 5 firms and that the estimated transition probabilities will remain stable over time.

Practical implications

–

Excessive market share concentration resulting from such policies should not be a concern of regulators. The paper conjectures that, under mandatory rotation, accounting firms will reallocate resources to attract new clients rather than retain existing clients. This may result in lower audit quality.

Originality/value

–

Interestingly, over the past 25 years, several bodies have considered mandatory auditor rotation and retention. Surprisingly, the authors have found no studies of the effects of mandatory auditor rotation and retention on audit market share.

Keywords

  • Auditors
  • Operations management
  • Retention
  • Market share
  • Freedom

Citation

Comunale, C.L. and Sexton, T.R. (2005), "Mandatory auditor rotation and retention: impact on market share", Managerial Auditing Journal, Vol. 20 No. 3, pp. 235-248. https://doi.org/10.1108/02686900510585582

Download as .RIS

Publisher

:

Emerald Group Publishing Limited

Copyright © 2005, Emerald Group Publishing Limited

Please note you do not have access to teaching notes

You may be able to access teaching notes by logging in via Shibboleth, Open Athens or with your Emerald account.
Login
If you think you should have access to this content, click the button to contact our support team.
Contact us

To read the full version of this content please select one of the options below

You may be able to access this content by logging in via Shibboleth, Open Athens or with your Emerald account.
Login
To rent this content from Deepdyve, please click the button.
Rent from Deepdyve
If you think you should have access to this content, click the button to contact our support team.
Contact us
Emerald Publishing
  • Opens in new window
  • Opens in new window
  • Opens in new window
  • Opens in new window
© 2021 Emerald Publishing Limited

Services

  • Authors Opens in new window
  • Editors Opens in new window
  • Librarians Opens in new window
  • Researchers Opens in new window
  • Reviewers Opens in new window

About

  • About Emerald Opens in new window
  • Working for Emerald Opens in new window
  • Contact us Opens in new window
  • Publication sitemap

Policies and information

  • Privacy notice
  • Site policies
  • Modern Slavery Act Opens in new window
  • Chair of Trustees governance statement Opens in new window
  • COVID-19 policy Opens in new window
Manage cookies

We’re listening — tell us what you think

  • Something didn’t work…

    Report bugs here

  • All feedback is valuable

    Please share your general feedback

  • Member of Emerald Engage?

    You can join in the discussion by joining the community or logging in here.
    You can also find out more about Emerald Engage.

Join us on our journey

  • Platform update page

    Visit emeraldpublishing.com/platformupdate to discover the latest news and updates

  • Questions & More Information

    Answers to the most commonly asked questions here