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Auditor appointment in compulsory audit tendering

Auditor appointment in compulsory audit tendering Purpose – The purpose of this paper is to examine what auditor and audit environmental attributes affect auditor appointment decisions in compulsory audit tendering, and whether the attributes affecting appointment of a new auditor (rotation) are consistent with or different from those affecting reappointment of the incumbent (retention). Design/methodology/approach – New South Wales (NSW) local council finance managers were surveyed for importance ratings of 48 attributes. An hypothesis for differential ratings between rotators and retainers was formulated. Confirmatory factor analysis, tests of mean differences and logistic regression were used. Findings – Consistent with the sample's high retention rate, the most important attributes for all respondents related to the quality of previous experience with the incumbent. Consistent with hypothesis, attributes proxying for a quality auditor (technical competence, independence and reputation) were more important for rotators. Research limitations/implications – The authors proxied rotation/retention by intention. Given the importance of audit quality attributes in the appointment decision and the high retention rate in compulsory audit tendering, future research could examine the relation between audit service quality attributes and retention. Originality/value – This is the first study to examine attributes affecting auditor appointment decisions in a mandatory choice setting. NSW local councils provide a unique opportunity to do so as it is one of few jurisdictions in which compulsory audit tendering operates. Compulsory tendering may be implemented if current legislation aimed at improving audit independence and quality through mandatory partner rotation proves infeasible. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Accounting Research Journal Emerald Publishing

Auditor appointment in compulsory audit tendering

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Publisher
Emerald Publishing
Copyright
Copyright © 2011 Emerald Group Publishing Limited. All rights reserved.
ISSN
1030-9616
DOI
10.1108/10309611111163682
Publisher site
See Article on Publisher Site

Abstract

Purpose – The purpose of this paper is to examine what auditor and audit environmental attributes affect auditor appointment decisions in compulsory audit tendering, and whether the attributes affecting appointment of a new auditor (rotation) are consistent with or different from those affecting reappointment of the incumbent (retention). Design/methodology/approach – New South Wales (NSW) local council finance managers were surveyed for importance ratings of 48 attributes. An hypothesis for differential ratings between rotators and retainers was formulated. Confirmatory factor analysis, tests of mean differences and logistic regression were used. Findings – Consistent with the sample's high retention rate, the most important attributes for all respondents related to the quality of previous experience with the incumbent. Consistent with hypothesis, attributes proxying for a quality auditor (technical competence, independence and reputation) were more important for rotators. Research limitations/implications – The authors proxied rotation/retention by intention. Given the importance of audit quality attributes in the appointment decision and the high retention rate in compulsory audit tendering, future research could examine the relation between audit service quality attributes and retention. Originality/value – This is the first study to examine attributes affecting auditor appointment decisions in a mandatory choice setting. NSW local councils provide a unique opportunity to do so as it is one of few jurisdictions in which compulsory audit tendering operates. Compulsory tendering may be implemented if current legislation aimed at improving audit independence and quality through mandatory partner rotation proves infeasible.

Journal

Accounting Research JournalEmerald Publishing

Published: Sep 13, 2011

Keywords: Australia; Compulsory audit tendering; Auditor appointment; Auditor choice; Auditor rotation; Auditor retention; Local government audit; Auditors

References