6,798
Views
1
CrossRef citations to date
0
Altmetric
FINANCIAL ECONOMICS

Audit partner rotation, and its impact on audit quality: Evidence from India

, , ORCID Icon & | (Reviewing editor)
Article: 1938379 | Received 14 Jan 2021, Accepted 29 May 2021, Published online: 18 Jul 2021

References

  • Allen, F., Qian, J., & Qian, M. (2005). Law, finance, and economic growth in China. Journal of Financial Economics, 77(1), 57–20. https://doi.org/10.1016/j.jfineco.2004.06.010
  • American Institute of Certified Public Accountants (AICPA). (1992). Statement of position regarding mandatory rotation of audit firms of publicly held companies. AICPA.
  • Arthur, N., Endrawes, M., & Ho, S. (2017). Impact of partner change on audit quality: An analysis of partner and firm specialization effects: Impact of partner change on audit quality. Australian Accounting Review, 27(4), 368–381. https://doi.org/10.1111/auar.12150
  • Azizkhani, M., Hossain, S., Jiang, A., & Yap, W. (2021). Mandatory partner rotation, audit timeliness and audit pricing. Managerial Auditing Journal, 36(1), 105–131. https://doi.org/10.1108/MAJ-12-2019-2506
  • Bamber, M. E., & Bamber, S. L. (2009). Discussion of “mandatory audit partner rotation, audit quality, and market perception: Evidence from Taiwan. Contemporary Accounting Research, 26(2), 393–402. https://doi.org/10.1506/car.26.2.3
  • Bamber, M. E., & Iyer, M. V. (2007). Auditors’ identification with their clients and its effect on auditors’ objectivity. AUDITING: A Journal of Practice & Theory, 26(2), 1–24. https://doi.org/10.2308/aud.2007.26.2.1
  • Bandyopadhay, S. P., Chen, C., & Yu, Y. (2014). Mandatory audit partner rotation, audit market concentration, and audit quality: Evidence from China. Advances in Accounting, 30(1), 18–31. https://doi.org/10.1016/j.adiac.2013.12.001
  • Bazerman, M. H., Morgan, K. P., & Loewenstein, G. F. (1997). The impossibility of auditor independence. Sloan Management Review, 38(4), 89–94. https://sloanreview.mit.edu/article/the-impossibility-of-auditor-independence/
  • Bedard, C. J., & Johnstone, M. K. (2010). Audit Partner tenure and Auditing planning and pricing. AUDITING: A Journal of Practice & Theory, 29(2), 45–70. https://doi.org/10.2308/aud.2010.29.2.45
  • Cameran, M., Campa, D., & Francis, J. R. (2020). The relative importance of auditor characteristics versus client factors in explaining audit quality. Journal of Accounting, Auditing & Finance, 1–26. https://doi.org/10.1177/2F0148558X20953059
  • Carey, P., & Simnett, R. (2006). Audit partner tenure and audit quality. The Accounting Review, 81(3), 653–676. https://doi.org/10.2308/accr.2006.81.3.653
  • Catanach, H. A., & Walker, L. P. (1999). The international debate over mandatory auditor rotation: A conceptual research framework. Journal of International Accounting, Auditing and Taxation, 8(1), 43–46. https://doi.org/10.1016/S1061-9518(99)00004-X
  • Chen, C. Y., Lin, C. J., & Lin, Y. C. (2008). Audit partner tenure, audit firm tenure, and discretionary accruals: Does long auditor tenure impair earnings quality? Contemporary Accounting Research, 25(2), 415–445. https://doi.org/10.1506/car.25.2.5
  • Chi, W., & Huang, H. (2005). Discretionary accruals, audit-firm tenure and audit-partner tenure: Empirical evidence from Taiwan. Journal of Contemporary Accounting and Economics, 1(1), 65–92. https://doi.org/10.1016/S1815-5669(10)70003-5
  • Chi, W., Huang, H., Liao, Y., & Xie, H. (2009). Mandatory audit partner rotation, audit quality, and market perception: Evidence from Taiwan. Contemporary Accounting Research, 26(2), 359–391. https://doi.org/10.1506/car.26.2.2
  • Chi, W., Myers, L. A., Omer, T. C., & Xie, H. (2017). The effects of audit partner pre-client and client-specific experience on audit quality and on perceptions of audit quality. Review of Accounting Studies, 22(1), 361–391. https://doi.org/10.1007/s11142-016-9376-9
  • Cunningham, L. M., Li, C., Stein, S. E., & Wright, N. S. (2019). What’s in a name? Initial evidence of US audit partner identification using difference-in-differences analyses. The Accounting Review, 94(5), 139–163. https://doi.org/10.2308/accr-52305
  • Daugherty, B., Dickens, D., Hatfield, R., & Higgs, J. (2012). An examination of partner perceptions of partner rotation: Direct and indirect consequences to audit quality. AUDITING: A Journal of Practice & Theory, 31(1), 97–114. https://doi.org/10.2308/ajpt-10193
  • Dayanandan, A., Malik, S., & Verma, V. (2013). Earnings management in India. DRG Study No. 2, Securities and Exchange Board of India.
  • Dayanandan, A., & Sra, J. (2016). Determinants of earnings management in India: 2002–2011. International Journal of Accounting and Finance, 6(3), 235–253. https://doi.org/10.1504/IJAF.2016.081703
  • DeAngelo, L. E. (1981). Auditor size and audit quality. Journal of Accounting and Economics, 3(3), 183–199. https://doi.org/10.1016/0165-4101(81)90002-1
  • Dechow, P. M., & Dichev, D. I. (2002). The quality of accruals and earnings: The role of accrual estimation errors. The Accounting Review, 77(s–1), 35–59. https://doi.org/10.2308/accr.2002.77.s-1.35
  • Dechow, P. M., Sloan, R. G., & Sweeney, A. P. (1995). Detecting earnings management. The Accounting Review, 70(2), 193–225. https://www.jstor.org/stable/248303
  • DeFond, M., & Zhang, J. (2014). A review of archival auditing research. Journal of Accounting and Economics, 58(2–3), 275–326. https://doi.org/10.1016/j.jacceco.2014.09.002
  • DeFond, M. L., & Francis, J. R. (2005). Audit research after Sarbanes-Oxley. AUDITING: A Journal of Practice & Theory, 24(1), 5–30. https://doi.org/10.2308/aud.2005.24.s-1.5
  • Dodgson, M. K., Agoglia, C. P., Bennett, G. B., & Cohen, J. (2020). Managing the auditor-client relationsip through partner rotations: The experiences of audit firm partners. The Accounting Review, 95(2), 89–111. https://doi.org/10.2308/accr-52556
  • Esplin, A., Jamal, K., & Sunder, S. (2018). Demand for and assessment of Audit quality in private companies. Journal of Accounting, Finance and Business Studies, 54(3), 319–352. https://doi.org/10.1111/abac.12138
  • Fargher, N., Lee, H. Y., & Mande, V. (2008). The effect of audit partner tenure on client managers’ accounting discretion. Managerial Auditing Journal, 23(2), 161–186. https://doi.org/10.1108/02686900810839857
  • Ferguson, A., Lam, P., Ma, N., & Smith, T. (2019). Further evidence on mandatory partner rotation and audit pricing: A supply-side perspective. Accounting & Finance, 59(2), 1055–1100. https://doi.org/10.1111/acfi.12269
  • Firth, M., Rui, O. M., & Wu, X. (2012). How do various forms of audit rotation affect audit quality? Evidence from China. The International Journal of Accounting, 47(1), 109–138. https://doi.org/10.1016/j.intacc.2011.12.006
  • Fitzgerald, B. C., Omer, T. C., & Thompson, A. M. (2018). Audit partner tenure and internal control reporting quality: US evidence from the not For Profit sector. Contemporary Accounting Research, 35(1), 334–364. https://doi.org/10.1111/1911-3846.12348
  • Fortin, S., & Pittman, J. (2007). The role of auditor choice in debt pricing in private firms. Contemporary Accounting Research, 24(3), 859–896. https://doi.org/10.1506/car.24.3.8
  • Gabrielsen, G., Gramlich, J., & Plenborg, T. (2002). Managerial ownership, information content of earnings and discretionary accruals in a non-US setting. Journal of Business, Finance & Accounting, 29(7–8), 967–988. https://doi.org/10.1111/1468-5957.00457
  • GAO (General Accounting office). (2003). Public accounting firms: Required study on the potential effects of mandatory audit firm rotation, GAO 042016. General Accounting office.
  • Geiger, M. A., & Raghunandan, K. (2002). Auditor tenure and audit reporting failures. Auding: A Journal of Practice & Theory, 21(1), 67–78. https://doi.org/10.2308/aud.2002.21.1.67
  • Gipper, B., Hail, L., & Leuz, C. (2019). On the economics of audit partner tenure and rotation: Evidence from PCAOB data. Stanford University Graduate School of Business, Research Paper (17–56). https://ssrn.com/abstract=3023725.
  • Hamilton, J. M., Ruddock, C., Stokes, D., & Taylor, S. L. (2005). Audit partner rotation, earnings quality, and earnings conservatism. SSRN: https://ssrn.com/abstract=740846
  • Horton, J., Livne, G., & Pettinicchio, A. (2021). Empirical evidence on audit quality under a dual mandatory audit rotation rule. European Accounting Review, 30(1), 1–29. https://doi.org/10.1080/09638180.2020.1747513
  • Jacob, J., Desai, N., & Agarwalla, S. K. (2019). Are Big4 audit fee premiums related to superior audit quality? Evidence from India’s unique audit market. Accounting Horizons, 33(2), 43–58. https://doi.org/10.2308/acch-52347
  • Jenkins, S. D., & Vermeer, E. T. (2013). Audit firm rotation and audit quality: Evidence from academic research. Accounting Research Journal, 26(1), 75–84. https://doi.org/10.1108/ARJ-11-2012-0087
  • Jensen, M. C., & Meckling, W. H. (1976). Theory of the firm: Managerial behavior, agency costs and the ownership structure. Journal of Financial Economics, 3(4), 305–360. https://doi.org/10.1016/0304-405X(76)90026-X
  • Krishnan, G. V. (2003). Does big 6 auditor industry expertise constrain earnings management? Accounting Horizons, 17(Supplement), 1–16. https://doi.org/10.2308/acch.2003.17.s-1.1
  • Kuang, H., Li, H., Sherwood, M. G., & Whited, R. L. (2020). Mandatory audit partner rotations and audit quality in the United States. Auditing: A Journal of Practice & Theory, 39(3), 161–184. https://doi.org/10.2308/ajpt-18-152
  • Laurion, H., Lawrence, A., & Ryans, P. J. (2017). US Audit partner rotations. The Accounting Review, 92(3), 209–237. https://doi.org/10.2308/accr-51552
  • Lennox, C. S., & Wu, X. (2018). A review of the archival literature on audit partners. Accounting Horizons, 32(2), 1–35. https://doi.org/10.2308/acch-51942
  • Lennox, C. S., Wu, X., & Zhang, T. (2014). Does mandatory rotation of audit partners improve audit quality? The Accounting Review, 89(5), 1775–1803. https://doi.org/10.2308/accr-50800
  • Lys, T., & Watts, R. L. (1994). Lawsuits against auditors. Journal of Accounting Research, 32, 65–93. https://doi.org/10.2307/2491440
  • Manry, D., Mock, T., & Turner, J. (2008). Does increased audit partner tenure reduce audit quality? Journal of Accounting, Auditing and Finance, 23(4), 553–572. https://doi.org/10.1177/0148558X0802300406
  • Miller, T. (1992). Do we need to consider the individual auditor when discussing auditor independence? Accounting, Auditing & Accountability Journal, 5(2), 74–84. https://doi.org/10.1108/09513579210011871
  • Mohapatra, S. P., Graham, A., & Nadialath, A. (2015). Did PwC lose reputation post audit failure at Satyam Computer Services? Evidence from the Indian audit market. International Journal of Accounting and Finance, 5(1), 48–61. https://doi.org/10.1504/IJAF.2015.067687
  • Myers, J., Myers, L., & Omer, T. (2003). The exploring the term of the auditor-client relationship and the quality of earnings: A case of mandatory auditor rotation? The Accounting Review, 77(3), 33–57. https://www.jstor.org/stable/3203225
  • Narayanaswamy, R., & Raghunandan, K. (2019). The effect of mandatory audit firm rotation on audit quality, audit fees and audit market concentration: Evidence from India. Working paper no. 582, Indian Institute of Management, Bangalore.
  • Palepu, K. G. (1986). Predicting takeover targets: A methodological and empirical analysis. Journal of Accounting and Economics, 8(1), 3–35. https://doi.org/10.1016/0165-4101(86)90008-X
  • Press, E. G., & Weintrop, J. B. (1990). Accounting-based constraints in public and private debt agreements: Their association with leverage and impact on accounting choice. Journal of Accounting and Economics, 12(1–3), 65–95. https://doi.org/10.1016/0165-4101(90)90042–3
  • PricewaterhouseCoopers (PwC). (2002). Mandatory rotation of audit firms: Will it improve audit quality? PricewaterhousesCoopers LLP.
  • Salehi, M., Mahmoudi, F. R. M., & Gah, D. A. (2018). A meta-analysis approach for determinants of effective factors on audit quality Evidence from emerging markets. Journal of Accounting in Emerging Economies, 9(2), 287–312. https://doi.org/10.1108/JAEE-03-2018-0025
  • Sanders, C., Steward, M. D., & Bridges, S. (2009). Facilitating knowledge transfer during SOX-mandated audit partner rotation. Business Horizons, 52(6), 573–582. https://doi.org/10.1016/j.bushor.2009.07.004
  • Sharma, S. D., Tanvi, N. P., & Litt, A. B. (2017). Costs of mandatory periodic audit partner rotation: Evidence from audit fees and audit timeliness. AUDITING: A Journal of Practice & Theory, 36(1), 129–149. https://doi.org/10.2308/ajpt-51515
  • Shette, R., Kuntluru, S., & Korivi, S. R. (2016). Opportunistic earnings management during initial public offerings: Evidence from India. Review of Accounting and Finance, 15(3), 352–371. https://doi.org/10.1108/RAF-03-2015-0048
  • Simunic, D. A. (1980). The pricing of audit services: Theory and Evidence. Journal of Accounting Research, 18(1), 161–190. https://doi.org/10.2307/2490397
  • Simunic, D. A. (1984). Auditing consulting and auditor independence. Journal of Accounting Research, 22(2), 679–702. https://doi.org/10.2307/2490671
  • Siregar, S. V., Amarullah, F., Wibowo, A., & Anggraita, V. (2012). Audit tenure, auditor rotation, and audit quality: The case of Indonesia. Asian Journal of Business and Accounting, 5(1), 55–74. https://ajba.um.edu.my/article/view/2653
  • Skinner, D. J., & Sloan, R. G. (2002). Earnings surprises, growth expectations, and stock returns or don’t let an earnings torpedo sink your portfolio. Review of Accounting Studies, 7(2), 289–312. https://doi.org/10.1023/A:1020294523516
  • Stewart, J., Kent, P., & Routledge, J. (2016). The association between audit partner rotation and audit fees: Empirical evidence from the Australian Market. A Journal of Practice and Theory, 35(1), 81–197. https://doi.org/10.2308/ajpt-51173
  • Warfield, T., Wild, J., & Wild, K. (1995). Managerial ownership, accounting choices and informativeness of earnings. Journal of Accounting and Economics, 20(1), 61–91. https://doi.org/10.1016/0165-4101(94)00393-J
  • Wingate, M. (1997). An examination of cultural influence on audit environment. Research in Accounting Regulation, 11(Suppl.), 129–148.
  • Young, M. N., Peng, M. W., Ahlstrom, D., Bruton, G. D., & Jiang, Y. (2008). Corporate governance in emerging economies: A review of the principal–principal perspective. Journal of Management Studies, 45(1), 196–220. https://doi.org/10.1111/j.1467-6486.2007.00752.x
  • Yu, K., Hagigi, M., & Stewart, S. D. (2018). Income smoothing may result in increased perceived riskiness: Evidence from bid-ask spreads around loss announcements. Journal of Corporate Finance, 48, 442–459. https://doi.org/10.1016/j.jcorpfin.2017.11.007
  • Zhao, Y., Xu, N., Zhou, D., & Chan, C. K. (2020). Audit partner rotation and negative information hoarding: Evidence from China. Accounting & Finance, 60(5), 4693–4722. https://doi.org/10.1111/acfi.12676