Does mandatory rotation of audit partners improve audit quality?

Clive S. Lennox, Xi Wu, Tianyu Zhang

Research output: Contribution to journalArticlepeer-review

98 Citations (Scopus)

Abstract

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.
Original languageEnglish
Pages (from-to)1775-1803
Number of pages28
JournalAccounting Review
Volume89
Issue number5
Early online date1 Apr 2014
DOIs
Publication statusPublished - 1 Sep 2014

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