What is it about?
This research uses an experiment to examine whether the type of auditor rotations (audit firm rotation versus audit partner rotation) influences investor perception of auditor competence and independence. The results show that participants appear to be indifferent to whether it is a firm rotation or a partner rotation. Rather, participants concern more about the changes in audit fees and auditor industry specialization status upon rotations. In particular, participants perceive auditor independence to be higher when fees increase rather than decrease significantly at the time of a rotation, and perceive auditor competence to be higher when the rotation is to an industry specialist rather than a non-industry specialist.
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Why is it important?
While auditor rotation has been introduced to improve audit quality, there is no consensus on whether audit firm rotation or audit partner rotation should be implemented. As regulators look to implement firm rotation in preference to partner rotation in some jurisdictions, this study provides timely evidence regarding investor views on whether either has a greater impact on auditor competence and independence.
Perspectives
It is interesting and meaningful to conduct an experiment on this important issue. Specifically, the experiment allows us to examine the details of investor perception and to mitigate the concerns on endogeneity that may arise when using public data to do the research.
Ting-Chiao Huang
Monash University
Read the Original
This page is a summary of: Auditor Rotation and Perceived Competence and Independence: The Effect of Fees and Industry Specialization, Journal of International Accounting Research, December 2018, American Accounting Association,
DOI: 10.2308/jiar-52227.
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