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  • Jennifer M Mueller-Phillips
    U.S. Audit Partner Rotations
    research summary posted June 26, 2017 by Jennifer M Mueller-Phillips, tagged 04.0 Independence and Ethics, 05.03 Partner Rotation 
    Title:
    U.S. Audit Partner Rotations
    Practical Implications:

    This study helps to inform about the effects of audit partner rotations. The evidence suggests that partner rotation does add a fresh look at U.S. audit engagements. The results can also be applied to the U.S. debate over audit firm rotation. It demonstrates that firm rotation is not the only way to add a fresh look to audit engagements and that the current system of audit partner rotation already has a measurable effect.

    Citation:

    Laurion, Henry, A. Lawrence, and J. Ryans. 2017. “U.S. Audit Partner Rotations”. The Accounting Review. 92.3 (2017): 209. 

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  • Jennifer M Mueller-Phillips
    Costs of Mandatory Periodic Audit Partner Rotation: Evidence...
    research summary posted April 19, 2017 by Jennifer M Mueller-Phillips, tagged 05.0 Audit Team Composition, 05.03 Partner Rotation 
    Title:
    Costs of Mandatory Periodic Audit Partner Rotation: Evidence from Audit Fees and Audit Timeliness
    Practical Implications:

    These findings provide valuable insight on the implications of mandatory periodic audit partner rotation in the U.S. First, partner rotation has an adverse effect as it increases both audit fees and audit timeliness. Second, the incremental costs of partner rotation are felt more by non-Big 4 city industry non-specialist auditors and their clients. Third, the results suggest these audit fees and audit report lag implications are similar for the second and third incoming audit partners following rotation. 

    Citation:

    Sharma, D. S., P. N. Tanyi, and B. A. Litt. 2017. Costs of Mandatory Periodic Audit Partner Rotation: Evidence from Audit Fees and Audit Timeliness. Auditing: A Journal of Practice and Theory 36 (1): 129 – 149. 

  • Jennifer M Mueller-Phillips
    The Association Between Audit Partner Rotation and Audit...
    research summary posted August 31, 2016 by Jennifer M Mueller-Phillips, tagged 01.0 Standard Setting, 01.05 Impact of SOX, 05.0 Audit Team Composition, 05.03 Partner Rotation 
    Title:
    The Association Between Audit Partner Rotation and Audit Fees: Empirical Evidence from the Australian Market
    Practical Implications:

     The results of the study have important implications for regulators, auditors, and companies. In recent years, audit partner rotation has increased due to mandatory rotation legislation in Australia and has led to increased monetary and social costs. This study identifies the extent to which auditors pass on these costs and the relative bargaining power between an audit firm and a client, which varies across different segments of the market. This study also makes several contributions to existing literature. Specifically, this study informs the debate on the costs and benefits of audit partner rotation by focusing on the financial costs of partner rotation in the form of increased audit fees. Further, this study extends prior research that examines the impact of mandatory and voluntary partner rotation and the association between audit fees and partner rotation in different market segments. In addition, this study informs policy makers and regulators on whether and in which context the costs of audit partner rotation are passed on to clients as increased audit fees.

    Citation:

     Stewart, J., P. Kent and J. Routledge. 2016. The Association Between Audit Partner Rotation and Audit Fees: Empirical Evidence from the Australian Market. Auditing, A Journal of Practice and Theory 35 (2): 181-197.

  • Jennifer M Mueller-Phillips
    Benefits and Costs of Appointing Joint Audit Engagement...
    research summary posted May 31, 2016 by Jennifer M Mueller-Phillips, tagged 04.0 Independence and Ethics, 04.07 Audit Firm Rotation, 05.0 Audit Team Composition, 05.03 Partner Rotation, 15.0 International Matters, 15.03 Audit Partner Rotation 
    Title:
    Benefits and Costs of Appointing Joint Audit Engagement Partners
    Practical Implications:

     The results of this study are important to understanding the potential benefits of joint engagement partner audits compared to single-partner audits. The results of this study identify an association between the type of partner audit (joint vs. single) and audit quality and audit fees. As regulators consider the association between joint audits and audit quality, the results of this study suggest there are benefits to joint-partner audits, particularly when the partners are located in the same office. Compared to single-partner audits, joint-partner audits are associated with higher audit quality. Compared to joint audit firms, joint-partner audits appear to provide the same benefits without the increased cost.

    Citation:

    Ittonen, K., and P. C. Trønnes. 2015. Benefits and costs of appointing joint audit engagement partners. Auditing: A Journal of Practice & Theory 34 (3): 23-46.

  • Jennifer M Mueller-Phillips
    Audit Partner Tenure and Cost of Equity Capital
    research summary posted May 28, 2014 by Jennifer M Mueller-Phillips, tagged 01.0 Standard Setting, 01.02 Changes in Audit Standards, 05.0 Audit Team Composition, 05.03 Partner Rotation 
    Title:
    Audit Partner Tenure and Cost of Equity Capital
    Practical Implications:

    Prior research suggests that the length of auditor-client relationship affects audit quality, and, therefore, the integrity and information risk associated with a clients’ financial reporting. This study attempts to examine the effects of audit engagement partner tenure and rotation on investors’ perceptions. The results of this study raise important questions for future research. It is not known to what extent investors or analysts are aware of the audit partner’s identity or pay attention to audit partner tenure. If investors or analysts do not consider partner tenure, future research may identify omitted variables that have the same nonlinear relationship with the ex ante cost of capital that we observe for non-Big 4 audit partner tenure.  

    Citation:

    Azizkhani, M., G. S. Monroe, and G. Shailer. 2013. Audit Partner Tenure and Cost of Equity Capital. Auditing 32 (1).

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  • Jennifer M Mueller-Phillips
    Does Audit Fee Homogeneity Exist? Premiums and Discounts...
    research summary posted October 29, 2013 by Jennifer M Mueller-Phillips, tagged 02.0 Client Acceptance and Continuance, 02.01 Audit Fee Decisions, 03.0 Auditor Selection and Auditor Changes, 03.01 Auditor Qualifications, 05.0 Audit Team Composition, 05.03 Partner Rotation 
    Title:
    Does Audit Fee Homogeneity Exist? Premiums and Discounts Attributable to Individual Partners
    Practical Implications:

    The results of this study point to further complications that could arise from mandatory partner rotation policies. Because the assumption underlying this policy is that all partners from any given firm are interchangeable and that the benefits of enhanced auditor independence are not expected to lead to negative consequences for the client, this study creates a conflict. The author found that different partners from the same firm do provide different levels of quality in the eyes of the client which lead to discounts and premiums in audit fees. As a result, partner rotations could lead to unforeseen costs including clients having to switch audit firms to find the preferred level of quality as well as audit firms trying to poach partners from competitors in order to satisfy clients. These added costs should be considered when assessing the value of partner rotation policies.

    For more information on this study, please contact Stuart D. Taylor.
     

    Citation:

    Taylor, S. 2011. Does audit fee homogeneity exist? Premiums and discounts attributable to individual partners. Auditing: A Journal of Practice and Theory 30 (4): 249-272.

  • Jennifer M Mueller-Phillips
    Audit Report Lags after Voluntary and Involuntary Auditor...
    research summary posted June 22, 2013 by Jennifer M Mueller-Phillips, tagged 04.0 Independence and Ethics, 04.07 Audit Firm Rotation, 05.0 Audit Team Composition, 05.03 Partner Rotation 
    Title:
    Audit Report Lags after Voluntary and Involuntary Auditor Changes
    Practical Implications:

    Regulators have long debated mandating auditor rotation. This study quantifies some of the costs of auditor rotation, specifically its impact on audit report lag. The findings lend support to opponents of mandatory rotation, since the first year after rotation requires more audit effort. The study also highlights one benefit that partner-firm familiarity can have (in decreasing audit report lag).

    Citation:

    Tanyi P., K. Raghunandan, and A. Barua. 2010. Audit Report Lags after Voluntary and Involuntary Auditor Changes. Accounting Horizons 24 (4): 671-688.

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  • The Auditing Section
    Audit Partner Tenure and Audit Quality
    research summary posted May 7, 2012 by The Auditing Section, tagged 04.0 Independence and Ethics, 04.07 Audit Firm Rotation, 05.0 Audit Team Composition, 05.03 Partner Rotation, 15.0 International Matters, 15.03 Audit Partner Rotation 
    Title:
    Audit Partner Tenure and Audit Quality
    Practical Implications:

    The results of this study are limited to the debate concerning individual audit partner rotation and do not support the argument for, or negate the prior studies that examine, audit firm rotation.  Combining the results of this study with the prior studies suggests that audit firms develop, over time, client and industry-specific knowledge that increases their ability to provide quality audits, and if quality control procedures within the firm are adequate (such as might be expected at a Big 6 firm), then rotating audit partners periodically helps maintain the auditor’s independence and objectivity while minimizing the loss of client-specific knowledge and rtise.

    Citation:

    Carey, P. and R. Simnett 2006. Audit Partner Tenure and Audit Quality. The Accounting Review 81 (3): 653-676.

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