Developments in France regarding the mandatory rotation of auditors and their impact on independence

What is it about?

Mandatory rotation of auditors or of audit firms has been the subject of extensive debate among academics, professionals, and regulators, especially since the financial crisis of the 2000s. Does rotation enhance auditors’ independence and audit quality? The research evidence on the impact of mandatory audit firm rotation on audit quality and auditor independence is inconclusive. This article offers a historical approach to understanding the implementation of mandatory rotation, based on the French case. The auditing profession in France is strongly regulated, with four main provisions designed to reinforce auditors’ independence: prohibitions on a priori and a posteriori incompatibilities, a 6-year audit tenure, a ban on non-audit services, and the use of joint audit. The rotation of auditors was merely an additional and non-compulsory tool. However, in 2014, the European Commission decided to implement the mandatory rotation of audit firms despite the opposition of the French accounting profession and regulators. Does this suggest that the French model was ineffective? It probably does not. In this specific context of France, a mandatory rotation of audit firms would seem unlikely to enhance audit quality.

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Why is it important?

The introduction in Europe of the mandatory rotation of audit firms does not challenge the French model. First of all, the new proposal concerning mandatory rotation of audit firms is not very restrictive. Indeed, the rotation of audit firms when it is combined with joint audit is mandatory every 24 years. It will not change the current French situation. Moreover, The Green Paper opened a debate on independence of statutory auditing but did not lead to a thorough analysis of the auditing process. With regard to independence, Ben Saad and Lesage (2009) question the durability of legislation which is more about independence in appearance than about independence in fact. Xu and Wang (2008) come to the same conclusion: “the passage of the Sarbanes-Oxley Act will not end the debate over auditor independence and the issue will not go away as the profession continues to assume the role of independent public accountants in an ever changing economic environment” (p. 127). We could probably say the same about the European legislation and its input in the French context.

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