Does Mandatory Rotation of Audit Partners Improve Audit Quality?

• 成果类型: Article
• 署名作者: Lennox, Clive S.; Wu, Xi; Zhang, Tianyu
• 署名单位: Nanyang Technological University; Central University of Finance & Economics; Chinese University of Hong Kong
• 刊物名称: ACCOUNTING REVIEW
• ISSN/ISSBN: 0001-4826
• DOI: 10.2308/accr-50800
• 发表日期: 2014
• 页码: 1775-1803
• 关键词: market perception evidence; firm tenure; detected misstatements; independence evidence; earnings management

摘要

Opponents of mandatory rotation argue that a change of partner is bad for audit quality, as it results in a loss of client-specific knowledge. On the other hand, proponents argue that a change of partner is beneficial, as it results in a positive peer review effect and a fresh perspective on the audit. We test the impact of mandatory partner rotation on audit quality using a unique dataset of audit adjustments in China. Our results suggest that mandatory rotation of engagement partners results in higher quality audits in the years immediately surrounding rotation. Specifically, we find a significantly higher frequency of audit adjustments during the departing partner's final year of tenure prior to mandatory rotation and during the incoming partner's first year of tenure following mandatory rotation.