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This study aims to examine the effects of allocation of audit hours to year-round audits and audit partners on audit quality when a new partner is appointed.

Using proprietary data of partners’ names and audit hours in the year-round context, the authors build a model testing input factors related to audit production and new partner assignment in 1,209 Korean listed firms during the period of 2015–2018.

The results show that in the partner rotation, the more audit hours spent, the more audit hours are allocated to the year-round audit, or more nonpartners’ audit hours are allocated to the year-round audit, the higher the audit quality. Subsample analyses show that these findings are concentrated in firms with longer audit tenure or low audit risk.

The findings may provide regulatory authorities with practical guidelines concerning partner rotation and how to allocate audit hours to different audit stages and ranks (partner vs staff).

To the best of the authors’ knowledge, this study provides the first evidence of the joint effects of partner rotation and audit hour allocation on audit quality.

This paper aims to investigate whether close auditor-client relationships affect audit quality over the tenure of the audit partner and the potential role of partner rotation in mitigating this effect.

Using the Chinese mandatory audit partner rotation setting, the authors identify the existence of a close auditor-client relationship if the audit partner tenure with a client is larger than the audit firm tenure with that client. The sample period (1998–2009) is divided into voluntary and mandatory rotation periods when examining the effects of audit partner tenure on audit quality for the normal and close auditor-client relationship subsamples, respectively. The authors also conduct a propensity score matching analysis to address a selection issue.

The paper finds that under the voluntary partner rotation regime, audit quality decreases with audit partner tenure for the subsample with close auditor-client relationships, whereas this effect is not shown in the normal relationship subsample. However, audit quality no longer declines with audit partner tenure under the mandatory partner rotation regime.

This is the first study that directly examines the effect of audit partner tenure on audit quality associated with close auditor-client relationships under the voluntary and mandatory partner rotation regimes.

The purpose of this paper is to investigate the association between audit rotation – at the audit partner and audit firm level – and audit quality. As mentioned in the literature, audit rotation has several benefits, and one of them is it can bring a fresh look to audit tasks and subsequently improve audit quality. Moreover, audit itself can help a client to improve its financial reporting. However, ineffective communication between predecessor and successor audit partners or audit firms, and pseudo-rotation can hamper that benefit.

This study uses multivariate regression analysis to test its hypotheses. Using data from companies listed on the Indonesia Stock Exchange, the sample consists of 688 company-year observations covering the period 2003–2016.

This study finds that the cumulative number of audit partner rotations is positively associated with audit quality, indicating that rotations at the audit partner level will enhance audit quality. Conversely, it finds that the cumulative number of audit firm rotations is negatively associated with audit quality.

The study’s findings may assist regulators in crafting standards regarding audit rotation. As the findings show, audit partner rotation will improve audit quality, but the audit firm rotation will decrease audit quality. As this study tries to explain the decreasing audit quality from audit firm rotation could be a consequence of ineffective communication or pseudo audit firm rotation. Regulators should try to tackle these problems.

Instead of using tenure as a proxy for a rotation, this study creates a new proxy named the cumulative number of audit partner and audit firm rotations to provide evidence on the benefits of audit rotation.

The purpose of this paper is to examine how audit partner rotation impacts the negotiation strategies client management intends to use to resolve a financial reporting issue.

An experiment that manipulates between participants on whether the audit partner rotates from the prior fiscal year (rotation versus non-rotation) is conducted to test the theoretical implications of rapport. Participants with a high level of business and managerial experience indicate their intended use of 25 reliable negotiation tactics that client management may use to resolve a financial reporting issue with the external auditor. These tactics underlie three distributive (contending, compromising, conceding) and two integrative (problem solving, expanding the agenda) negotiation strategies.

The results of the study indicate that client management is less contentious and more concessionary (i.e. accommodating) to a newly rotated audit partner, as compared to an audit partner that has established rapport with client management. Further, client management is more willing to intend using integrative and compromising (i.e. co-operative) negotiation strategies when negotiating with an audit partner with established rapport in contrast to a newly rotated audit partner.

These findings underscore the merits and costs of audit partner rotation in auditor-client management (ACM) negotiations and document that partner rotation affects not only auditor behaviour, but also the behaviour of client management.

This paper is the first that considers how developing and maintaining rapport impacts ACM negotiations. The study provides empirical evidence to further inform debates over auditor rotation.

This paper aims to examine the effect of audit partner tenure (PARTEN) on client managers' accounting discretion.

The authors contend that, when a new audit partner is from the same audit firm as the outgoing audit partner (audit partner rotation), audit quality increases because the new audit partner brings “fresh eyes” to the engagement.

The results confirm this conjecture. The authors find that, in the initial years of tenure of a new audit partner, client managers' accounting discretion decreases when the new partner is from the same audit firm as the outgoing partner. However, when the new audit partner is from a different audit firm as the outgoing partner (audit firm rotation), it is found that client managers' accounting discretion increases in those initial years.

The results provide support for recent legislation in the US restricting audit PARTEN and should be of interest to other regulatory bodies contemplating mandatory audit partner rotation.

This study aims to investigate the impact of mandatory audit partner rotation (MAPR) on Chinese listed firms’ insider trading, as well as the moderating effects of firm characteristics on this impact. The economic mechanism behind this impact is also explored.

This study conducts a regression analysis on firms associated with mandatory and voluntary audit partner rotation based on 2009–2019 firm data and examines whether corporate insiders of these two types of firms increase their share sales within 12 months before their financial statements are submitted to a new rotated auditor.

Client firms’ corporate insiders increase their share sales within 12 months before their financial statements are submitted to a new mandatory rotated auditor. In addition, such an association is less pronounced for client firms that changed from Big 4 auditors to those with higher financial constraints. This is more pronounced for client firms with higher information asymmetry. The economic mechanism of the finding is that is the MAPR implementation reduces earnings management activities from client firms. Moreover, client firms’ buy-and-hold stock returns decline in the first year after MAPR.

This study should assist investors, corporate shareholders and Chinese policymakers. Investors can be well protected through the adoption of MAPR because upcoming auditors enhance the audit quality of clients by restraining managers’ manipulation of reported earnings and declining firms’ insider trading afterwards. Investors, Chinese policymakers and corporate shareholders should pay more attention to firms’ financial report quality, auditor selection, financial situation, corporate governance and the information environment. Explicitly, firms with less transparent financial report quality, non-big 4 auditors and fewer financial constraints are more likely to be involved in insider trading.

To the best of the authors’ knowledge, none of the extant studies have examined the impact of MAPR on insider sales. This study extends the research on the effect of the audit process on firm market performance by investigating the impact of audit partner rotation policy on insider trading behaviors.

This study aims to address an acknowledged gap in the literature for the analysis of experienced practitioner views on the effects and implications of mandatory audit firm rotation (MAFR).

Using an exploratory and sequential design, data was collected from South African regulatory policy documents, organisational comment letters and semi-structured interviews of practitioners. These findings informed a field survey, administered to auditors, investors, chief financial officers (CFOs) and audit committee members of Johannesburg Stock Exchange (JSE) listed companies.

Practitioners expressed considerable pushback against the potential efficacy of MAFR to improve audit quality due to various “switching costs”, notably the loss of client-specific knowledge and expertise upon rotation. In addition, the cost and disruption to both the client and audit firm are considered significant and unnecessary, compared to audit partner rotation. The audit industry may suffer reduced profitability and increased strain on partners, leading to a decline in the appeal of the profession as a career of choice. This is likely to have negative implications for audit industry diversity objectives. Furthermore, the industry may become more supplier-concentrated amongst the Big 4 firms.

The findings have policy implications for regulators deciding whether to adopt the regulation, as well as guiding the design of policies and procedures to mitigate the negative effects of adoption.

The participants are experienced with diverse roles concerning the use, preparation and audit of financial statements of large exchange-listed multinational companies, as well as engagement in the auditor appointment process. The extant literature presents mixed results on the link between MAFR and audit quality, with most studies relying on archival and experimental designs. These have a limited ability to identify and critique the potential’s witching costs and unintended consequences of the regulation. Experienced participants responsible for decision-making within the audit, audit oversight and auditor appointment process, are best suited to provide perspective on these effects, contrasted against the audit regulator’s position.

Mandatory auditor firm rotation (mandatory rotation) has been a controversial issue in the United States for many decades. Mandatory rotation has been considered at various times as a means of improving auditor independence. For example, in the United States, the Public Company Accounting Oversight Board (PCAOB) has considered mandatory rotation as a solution to the independence problem (PCAOB, 2011) and the European Parliament approved legislation that will require mandatory rotation in the near future (Council of European Union, 2014). The concept of implementing a mandatory rotation policy has been encouraged by some constituents of audited financial statements and rejected by other constituents of audited financial statements. Although there are apparent pros and cons of such a policy, the developmental process of such a policy in this country has not necessarily been an open-democratic, objective process. Universal mandatory rotation may or may not be the ideal solution; however, an open-democratic, objective process is needed to facilitate the development of a solution that considers the needs of all major stakeholders of audited financial statements – not simply accounting firms and public companies, but also investors. The purpose of this paper is to critically examine key issues relating to mandatory rotation and to encourage and stimulate future research and ongoing dialogue regarding this issue, in spite of efforts by certain constituents to silence the issue. This paper provides an overview of the various reasons, including practical, theoretical, political, and self-motivated reasons, why a mandatory rotation policy has not been implemented in the United States in order to address the potential conflict of interest between the auditor and client. This paper will also discuss how some deliberations of mandatory rotation have been flawed. The paper concludes with a summary of key issues along with two approaches for regulators, policy makers, and academics to consider as ways to improve the process and address auditor independence. The authors are not advocating for any specific solution; however, we are advocating for a more objective, unified approach and for the dialogue regarding auditor rotation to continue.

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).

A simultaneous approach was adopted to further shed light on the findings currently documented by this line of research.

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.

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.

To determine the effect of audit firm rotation and/or audit partner rotation on individuals' confidence in the quality of audited financial statements.

Two separate behavioral studies were conducted with participants from the business and legal community (MBA and law students). In each study, one‐way analysis of variance was conducted using a between‐subjects approach. The independent measure was auditor rotation; the dependent measure was participants' responses to questions regarding company earnings. Because an experimental approach was utilized, the stimulus materials excluded potentially relevant information for this task. In addition, the participants were not held accountable for their decisions, nor was there any explicit motivation provided. Future research could explore other richer more complex case scenarios that provides some explicit motivation for participants.

Results revealed that even in an environment of strong controls for corporate governance, audit firm rotation incrementally influenced individuals' confidence in financial statements. However, audit partner rotation did not have a similar effect.

Little if any research examines both audit firm rotation and audit partner rotation. This research fills this void by addressing both concepts. The results suggest that rotating the audit firm will, contrary to GAO assumptions, better advance the goal to enhance auditor independence and audit quality and to restore investor confidence in the capital markets.