Mandatory Audit Partner Rotation in Non-Big 4 Audit Firms

• In Event: Auditor Rotation

Abstract

I examine the impact of mandatory audit partner rotation on audit quality and audit firm dismissals for clients of non-Big 4 audit firms. Prior literature suggests that audit firms lose significant client-specific knowledge following partner rotation, and non-Big 4 audit firms may lack the resources to effectively mitigate this loss. I hypothesize and find that mandatory rotation is negatively associated with audit quality and positively associated with audit firm dismissals for clients of non-Big 4 audit firms. These results are concentrated in larger and more complex clients where the loss of client-specific knowledge is greatest. I find no association between mandatory rotation and audit quality in a sample of Big 4 clients, suggesting that mandatory audit partner rotation may disproportionately negatively affect smaller audit firms. My findings should be of interest to researchers and regulators concerned with audit quality and audit market concentration.

Author

• William Docimo, University of Pittsburgh