DOES AUDIT QUALITY IMPROVE AFTER THE IMPLEMENTATION OF MANDATORY AUDIT PARTNER ROTATION

Abstract

We investigate whether audit partner tenure and audit quality associations remain significant after the implementation of mandatory audit partner rotation. Carey and Simnett (2006) report a significant negative association between long audit partner tenure and the propensity to issue qualified going-concern opinions for financially distressed companies. However, their study uses data from a period when there was no restriction on the length of audit partner tenure, i.e., from a period before there was mandatory audit partner rotation after a fixed period of time. We revisit this issue using Australian data from a period after the introduction of mandatory audit partner rotation. We find a significant positive association between audit partner tenure when tenure is five years or more and the likelihood of an auditor issuing a going-concern opinion for a financially distressed company. Our findings provide evidence that auditors are more likely to issue qualified going-concern opinions for financially distressed companies when there is mandatory audit partner rotation after a fixed period of time. Our findings suggest that the implementation of mandatory audit partner rotation has improved audit quality.

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