The Impact of Audit Partner Rotation and Provision of Non-Audit Services on Bank Loan Officers’ Independence-Related Perceptions

• In Event: Breakfast and Research Forum
  In Roundtable Session: Table 14: Auditor Independence

Abstract

In an attempt to reduce auditor independence threats, recent regulatory initiatives mandate periodic audit partner rotation and prohibit the provision of non-audit services (NAS). Opinions regarding the effectiveness of such policies vary widely. This study contributes to this debate by reporting the results of an experiment that provides evidence on the impact of (1) audit partner rotation, (2) the provision of NAS and (3) their interaction on the appearance of independence, as reflected in bank loan officers independence-related perceptions and decisions. We find that both rotation and the provision of NAS favorably influence bankers’ perceptions of auditor independence, as well as their willingness to issue a bank loan to the audited company. For bankers’ audit quality perceptions and perceived usefulness of the audited financial statements we observe a ceiling effect, such that the effect of NAS provision is significant only when no audit partner rotation takes place.

Author

• Anna Gold, VU University Amsterdam