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Empirical evidence on audit quality under a dual mandatory auditor rotation rule
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Horton, Joanne, Livne, Gilad and Pettinicchio, Angela (2021) Empirical evidence on audit quality under a dual mandatory auditor rotation rule. European Accounting Review, 30 (1). pp. 1-29. doi:10.1080/09638180.2020.1747513 ISSN 0963-8180.
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Official URL: https://doi.org/10.1080/09638180.2020.1747513
Abstract
Regulators in the US ruled against introducing mandatory firm rotations in addition to the existing rule for periodic partner rotations. In contrast, European regulators ruled in favor of a dual mandatory rotation rule in which both audit firm and audit partner rotations are required. Employing a unique setting where a dual regime of audit and firm rotations are required, we assess the net benefit (cost), of audit firm rotation incrementally to partner rotation. Specifically, we analyze several earnings-based measures of audit quality along with the market perception of audit quality. Controlling for partner rotation, we do not find that firm rotations have a positive incremental effect. In contrast, we find audit partner rotation under the dual regime appears to improve both the earnings-based measures of audit quality, and market perceptions of earnings. Our evidence suggests that any benefit arising from dual rotation is likely to be driven by the change in partner. However, whether the audit firm rotation should still be required is unclear, given that the observed benefits arising from the audit partner rotation could potentially be preconditioned on audit firm rotation.
| Item Type: | Journal Article | ||||||||
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| Subjects: | H Social Sciences > HF Commerce | ||||||||
| Divisions: | Faculty of Social Sciences > Warwick Business School | ||||||||
| Library of Congress Subject Headings (LCSH): | Auditing, Business enterprises, Governors | ||||||||
| Journal or Publication Title: | European Accounting Review | ||||||||
| Publisher: | Routledge | ||||||||
| ISSN: | 0963-8180 | ||||||||
| Official Date: | 2021 | ||||||||
| Dates: |
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| Volume: | 30 | ||||||||
| Number: | 1 | ||||||||
| Page Range: | pp. 1-29 | ||||||||
| DOI: | 10.1080/09638180.2020.1747513 | ||||||||
| Status: | Peer Reviewed | ||||||||
| Publication Status: | Published | ||||||||
| Reuse Statement (publisher, data, author rights): | โThis is an Accepted Manuscript of an article published by Taylor & Francis in European Accounting Review on 21/04/2020, available online: http://www.tandfonline.com/10.1080/09638180.2020.1747513 | ||||||||
| Access rights to Published version: | Restricted or Subscription Access | ||||||||
| Date of first compliant deposit: | 25 March 2020 | ||||||||
| Date of first compliant Open Access: | 21 October 2021 | ||||||||
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