Auditor Rotation and Conservatism

한정희,; 문상혁,

doi:10.21073/kiar.2009..27.007

koreainternationalaccountingreview

2009

DOI: 10.21073/kiar.2009..27.007

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Auditor Rotation and Conservatism

한정희 한정희¹,

문상혁 문상혁²

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2015

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Mandatory Audit Firm Rotation and Audit Quality

Kim¹,

Lee²,

Lee³

2015

JABR

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Recently, regulators and policy makers who witnessed the global financial crisis during 20072009 began considering a variety of ways to enhance auditor independence and financial reporting quality, ultimately aiming at investor protection. Since the enactment of the SarbanesOxley Act of 2002 (SOX), the Mandatory Audit Firm Rotation (MAFR) requirement has once again received significant attention from regulators and policy makers around the world, including the European Union (EU) and the U.S. Public Companies Accounting Oversight Board (PCAOB). In this paper, we investigate whether MAFR enhances audit quality in Korea. We find that under MAFR, newly rotated auditors are more likely to issue first-time going-concern audit opinions to financially distressed firms during their initial (first-year) financial statement audit compared with under the Voluntary Audit Firm Change (VAFC). Moreover, firms audited by mandatorily rotated new auditors have less discretionary accruals and higher accrual quality than those audited by voluntarily switched new auditors during the initial audit engagement. These results of earnings quality are more pronounced for firms that received a first-time going-concern audit opinion during the initial financial statement audit under MAFR. Taken together, the findings suggest that MAFR produces better audit quality than the VAFC. Further, our study provides implications for regulators and policy makers of countries considering the adoption of MAFR.

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Mandatory Audit Firm Rotation and Audit Quality

Kim¹,

Lee²,

Lee³

2015

JABR

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show abstract

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Auditor Rotation and Conservatism

Cited by 1 publication

References 9 publications

Mandatory Audit Firm Rotation and Audit Quality

Mandatory Audit Firm Rotation and Audit Quality

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