External rotation of the auditor

Velte, Patrick

doi:10.1007/s00187-012-0149-8

Cited by 10 publications

(3 citation statements)

References 30 publications

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“…Then, the proxies for estimating accounting and audit quality (e.g. discretionary accruals, restriction of going concern opinions) have a limited value (Velte 2012;Quick 2012). Insofar the EC is requested to perform cross-national empirical studies before starting a huge intervention on the European audit market by mandatory audit firm rotation.…”

Section: Discussionmentioning

confidence: 99%

The link between in- and external rotation of the auditor and the quality of financial accounting and external audit

Velte

Freidank

2012

Eur J Law Econ

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The European Commission (EC) regulation draft of 2011 contains the external mandatory auditor rotation (audit firm rotation) as a reform measure to increase auditor independence. The external auditor firm rotation could supplement the internal mandatory rotation (auditor rotation) by the 8th EC directive. This article presents an agency theoretical foundation of rotation. In this context, the main influences on low balling and on the expectation gap will be presented. The total effect of the rotation on financial accounting and audit quality is theoretically uncertain, because the rotation can also lead to a decreased independence in a low balling situation and is connected with interrupted or lost learning and knowledge effects by the auditor or the audit firm. Then, a state of the art analysis of empirical research results with regard to auditor and audit firm rotation is focused. In contrast to the assumption of the EC, the majority of the empirical results don't lead to an increased financial accounting and audit quality by audit firm rotations. Furthermore, the positive effects of the internal rotation period of 7 years and the cooling off period of 2 years by the 8th EC directive are not empirically proved yet.

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Section: Discussionmentioning

confidence: 99%

The link between in- and external rotation of the auditor and the quality of financial accounting and external audit

Velte

Freidank

2012

Eur J Law Econ

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“…Members of the big-4 are less likely to concede to compromises over audit procedures and outcomes (DeFond & Subramanyam, 1998;Palmrose, 1988) and are more likely to avoid excessive risk in audit engagements (Brandon, Carver, Hollingsworth, & Stanley, 2012). Prior studies report a significant deterioration in financial quality when corporations switch from a big-4 to a non-big-4 auditor (see Carver, Hollingsworth, & Stanley, 2011;Velte, 2012). In the case of the football industry, we expect that, in the first two years of the FFPR application (2011)(2012)(2013)(2014), clubs are more prone to switching from a big-4 to a non-big-4 auditor.…”

Section: Hypotheses Developmentmentioning

confidence: 91%

Managing the European football industry: UEFA’s regulatory intervention and the impact on accounting quality

Dimitropoulos

Leventis

Dedoulis

2016

European Sport Management Quarterly

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Research question: European football clubs are known for an institutionalized management culture which prioritizes on-field success over financial performance. This creates an extremely competitive context within which most clubs operate, producing debts and deficits. However, in order to secure clubs' long-term financial viability, Union of European Football Association (UEFA) has introduced regulatory and monitoring processes tied to accounting data in order to assess clubs' financial performance. This study aims to determine whether UEFA's framework has an impact on clubs' management policies with regard to accounting quality. Research methods:The study employs a sample of 109 European football clubs for a seven-year period, 2008-2014 (three years before and four years after the regulatory intervention), to investigate the impact of the reform upon management practices related to accounting. Following prior literature, we employ the three most commonly used proxies of accounting quality: earnings management, conditional accounting conservatism and auditor switching. Results and findings: This study demonstrates that, at the expense of accounting quality, club management seeks to promote the image of a financially robust organization in order to secure licensing and, consequently, much needed funding from UEFA. In this manner, the dominance of a management culture which impairs financial performance is further cemented. Implications: UEFA should take into consideration that, in a financially distressed industry focused on achieving success on the field of play, the imposition of regulatory monitoring tied to accounting data inevitably leads to a loss of organizational credibility and transparency. Hence, UEFA's intervention should be accompanied by the imposition of a corporate governance framework which would aim to rearrange club management priorities by facilitating a change in institutionalized mentalities. ARTICLE HISTORY

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“…The rotation of auditors has been studied for many years: we can highlight authors such as Burton and Roberts (), Carpenter and Strawser (), Eichenseher and Shields (), Beattie and Fearnley (), García‐Benau, Ruiz‐Barbadillo and Vico‐Martínez (), and Gómez‐Aguilar and Ruíz‐Barbadillo (), among others. Auditor rotation has been used to explain the quality of the audit report, for example by Chow and Rice (), Craswell (), Citron and Taffler (), Lennox () and Ruiz‐Barbadillo and Gómez‐Aguilar () and, more recently, Kwon, Lim and Simnett (), Daniels and Booker (), Firth, Rui and Wu () and Velte (). In addition, it has been related to reduced auditing fees (see Simon & Francis, ; Johnson & Lys, ; Gregory & Collier, ) and the existence of opinion shopping practices (Ruiz‐Barbadillo & Gómez‐Aguilar, ; Stefaniak, Robertson & Houston, ).…”

Section: Introductionmentioning

confidence: 99%

Rotation of Auditing Firms and Political Costs: Evidence from Spanish Listed Companies

et al. 2014

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This study analyses a potential factor behind a change in auditor -that is, the minimization of political costs -given that the most important companies are more closely scrutinized and will attempt to prevent political costs resulting from unfavourable changes in the regulation of auditing activities. For that purpose, we analyse 82 Spanish non-financial companies during the period from 1996 to 2009. The results obtained emphasize that the rotation of auditing firms takes place mainly when new regulations modifying or abolishing the current norms for auditing are discussed and enacted. These findings suggest that the real objective of these firms is to send out signals of good conduct to the public administration in order to avoid stricter regulation.

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External rotation of the auditor

Cited by 10 publications

References 30 publications

The link between in- and external rotation of the auditor and the quality of financial accounting and external audit

The link between in- and external rotation of the auditor and the quality of financial accounting and external audit

Managing the European football industry: UEFA’s regulatory intervention and the impact on accounting quality

Rotation of Auditing Firms and Political Costs: Evidence from Spanish Listed Companies

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