Does Audit Quality Improve After the Implementation of Mandatory Audit Partner Rotation?

Gary Monroe () and Sarowar Hossain
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Sarowar Hossain: University of New South Wales, Australia

Journal of Accounting and Management Information Systems, 2013, vol. 12, issue 2, 263-279

Abstract: We investigate whether audit partner tenure and audit quality associations remain significant after the implementation of mandatory audit partner rotation. Carey and Simnett (2006) report a significant negative association between long audit partner tenure and the propensity to issue qualified going-concern opinions for financially distressed companies. However, their study uses data from a period when there was no restriction on the length of audit partner tenure, i.e., from a period before there was mandatory audit partner rotation after a fixed period of time. We revisit this issue using Australian data from a period after the introduction of mandatory audit partner rotation. We find a significant positive association between audit partner tenure when tenure is five years or more and the likelihood of an auditor issuing a going-concern opinion for a financially distressed company. Our findings provide evidence that auditors are more likely to issue qualified going-concern opinions for financially distressed companies when there is mandatory audit partner rotation after a fixed period of time. Our findings suggest that the implementation of mandatory audit partner rotation has improved audit quality.

Keywords: going-concern opinion; audit partner tenure; distressed companies; mandatory rotation (search for similar items in EconPapers)
JEL-codes: G34 M41 M42 (search for similar items in EconPapers)
Date: 2013
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Citations: View citations in EconPapers (8)

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