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    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 
    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.


     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.

    Audit partner rotation, audit fees, voluntary partner rotation, mandatory partner rotation, audit markets
    Purpose of the Study:

     Audit partner rotation has become an accepted practice in many jurisdictions as a means of enhancing audit independence. Both regulators and professional bodies believe that greater auditor independence should lead to improved audit quality and hence improved financial reporting quality. A number of studies have examined the benefits of partner rotation in terms of its impact on audit quality, but these studies have produced mixed results and the benefits of the practice have been questioned. Given the concern that audit partner rotation may not improve audit quality, it is appropriate to consider the impact of partner rotation on audit costs and whether any increased costs are passed on to the client. This study seeks to examine the direct relation between audit fees and partner rotation using data from Australia where mandatory partner rotation after 5 years was introduced in 2006.

    Design/Method/ Approach:

     The authors used a sample of publicly traded companies selected from those listed on the Australian Securities Exchange (ASX) in 2007 for this study. Details of audit partner rotation and financial and nonfinancial data were then collected from Morningstar DatAnalysis, Connect 4 Annual Reports Collection, or company annual reports for the years 2007-2010. The authors used this information to evaluate the relation between audit partner rotation and audit fees in the year of rotation and the two years post rotation. The impact of audit partner rotation was examined as either mandatory or voluntary. The data was also examined based on stratification into three groups: large global clients, mid-level clients, and small local clients.


    The results indicate that audit fees are higher in the year of partner rotation and the higher fees persist in the first year post rotation and, to a lesser extent, in the second year post rotation. Further, the results indicate the following:

    • Higher audit fees are associated with both mandatory and voluntary rotations in the year of rotation and with voluntary rotation in the first year post rotation.
    • Stratification of the sample shows that mandatory and voluntary rotations are associated with higher audit fees for the large global segment but only voluntary rotation is associated with higher audit fees for the small local segment. No association between audit fees and rotation was found for the mid-level market segment. 
    Audit Team Composition, Standard Setting
    Audit Partner Rotation, Impact of SOX