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Mandatory partner rotation, audit timeliness and audit pricing

Mandatory partner rotation, audit timeliness and audit pricing The purpose of this study is to provide further evidence on the ongoing debate on the costs and benefits of mandatory audit partner rotation (MPR). Specifically, this study examines how MPR simultaneously affects audit reporting lag (ARL) and audit fees (AFs).Design/methodology/approachA simultaneous approach was adopted to further shed light on the findings currently documented by this line of research.FindingsUsing Australian data, it was found that MPRs increase AFs but do not affect ARL simultaneously in the year of MPRs. It was also found that the departing audit partners do not charge higher fees or delay the completion of the audits in the final year before their departure and that neither AFs nor ARL changes significantly for the second round of MPRs.Originality/valueTo the best of the authors’ knowledge, no prior study on MPR has examined the issue using a simultaneous approach although failure to consider the simultaneous effect of interrelated variables may lead to estimation biases and problems of parameter identification. The results herein provide further evidence that the clients do not bear both costs of paying higher AFs and having the delayed audits and that the costs associated with MPRs do not occur earlier and the costs associated with MPRs may dissipate over time. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Managerial Auditing Journal Emerald Publishing

Mandatory partner rotation, audit timeliness and audit pricing

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References (50)

Publisher
Emerald Publishing
Copyright
© Emerald Publishing Limited
ISSN
0268-6902
DOI
10.1108/maj-12-2019-2506
Publisher site
See Article on Publisher Site

Abstract

The purpose of this study is to provide further evidence on the ongoing debate on the costs and benefits of mandatory audit partner rotation (MPR). Specifically, this study examines how MPR simultaneously affects audit reporting lag (ARL) and audit fees (AFs).Design/methodology/approachA simultaneous approach was adopted to further shed light on the findings currently documented by this line of research.FindingsUsing Australian data, it was found that MPRs increase AFs but do not affect ARL simultaneously in the year of MPRs. It was also found that the departing audit partners do not charge higher fees or delay the completion of the audits in the final year before their departure and that neither AFs nor ARL changes significantly for the second round of MPRs.Originality/valueTo the best of the authors’ knowledge, no prior study on MPR has examined the issue using a simultaneous approach although failure to consider the simultaneous effect of interrelated variables may lead to estimation biases and problems of parameter identification. The results herein provide further evidence that the clients do not bear both costs of paying higher AFs and having the delayed audits and that the costs associated with MPRs do not occur earlier and the costs associated with MPRs may dissipate over time.

Journal

Managerial Auditing Journal – Emerald Publishing

Published: Feb 8, 2021

Keywords: Audit fees; Audit reporting lag; Auditor independence; Mandatory audit partner rotation; M42; M48

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