The potential effects of auditor rotation: consideration of both pre- and postrotation periods in the Chinese setting

Hui Liu, Charles Cullinan, Jiongzhi Wang and Junrui Zhang

Managerial Auditing Journal, 2025, vol. 41, issue 3, 533-556

Abstract: PurposeThe impact of mandatory audit partner rotation and audit firm rotation on audit performance is a longstanding academic and practitioner debate. This paper aims to explore the effects of both audit firm and audit partner rotation (dual rotation) on audit quality and timeliness in the pre- and postrotation periods.Design/methodology/approachIn China, government regulations mandate audit partner rotation every five years for all listed companies and audit firm rotation every five years for certain designated companies. Moreover, this paper can distinguish clearly whether an auditor change is associated with a mandatory rotation policy. Therefore, this paper can examine the potential effects of dual rotation in the pre- and postrotation in the Chinese setting.FindingsThis paper find mixed results regarding postrotation audit quality, and this paper observes that postaudit firm rotation audits take longer to complete. This paper also considers the prerotation effects of both the audit firm rotation and audit partner rotation, and finds that the prerotation effects mainly occur before the audit firm rotation. Specifically, departing audit firms provide higher audit quality and take longer to perform the audit in the final year of the engagement, suggesting that these departing audit firms may be less susceptible to management pressure when they know their term is ending.Originality/valueThis paper explores the potential implications for audit performance in both the pre- and postrotation periods, which contribute to the limited literature on rotation-period auditor behaviors. The findings suggest that policymakers in China and similar settings may need to consider the effects of auditor rotation policies on both the departing auditor and incoming auditor.

Keywords: Audit firm rotation; Audit partner rotation; Audit quality; Audit report lag (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eme:majpps:maj-03-2024-4270

DOI: 10.1108/MAJ-03-2024-4270

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