Mandatory partner rotation, audit timeliness and audit pricing
ISSN: 0268-6902
Article publication date: 8 February 2021
Issue publication date: 9 April 2021
Abstract
Purpose
The purpose of this study is to provide further evidence on the ongoing debate on the costs and benefits of mandatory audit partner rotation (MPR). Specifically, this study examines how MPR simultaneously affects audit reporting lag (ARL) and audit fees (AFs).
Design/methodology/approach
A simultaneous approach was adopted to further shed light on the findings currently documented by this line of research.
Findings
Using Australian data, it was found that MPRs increase AFs but do not affect ARL simultaneously in the year of MPRs. It was also found that the departing audit partners do not charge higher fees or delay the completion of the audits in the final year before their departure and that neither AFs nor ARL changes significantly for the second round of MPRs.
Originality/value
To the best of the authors’ knowledge, no prior study on MPR has examined the issue using a simultaneous approach although failure to consider the simultaneous effect of interrelated variables may lead to estimation biases and problems of parameter identification. The results herein provide further evidence that the clients do not bear both costs of paying higher AFs and having the delayed audits and that the costs associated with MPRs do not occur earlier and the costs associated with MPRs may dissipate over time.
Keywords
Acknowledgements
The authors are grateful for comments from Gary Monroe, Neil Fargher, seminar participants at the Australian National University and participants at the European Accounting Association Annual Congress (EAA) 2016. They are also grateful for the financial support from the AFAANZ.
Data availability: All data are publicly available from the sources mentioned in the paper.
Citation
Azizkhani, M., Hossain, S., Jiang, A. and Yap, W. (2021), "Mandatory partner rotation, audit timeliness and audit pricing", Managerial Auditing Journal, Vol. 36 No. 1, pp. 105-131. https://doi.org/10.1108/MAJ-12-2019-2506
Publisher
:Emerald Publishing Limited
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