The Effect of the Auditors’ Rotation on the Accounting Quality in the Case of Romanian Listed Companies under the Transition to IFRS

Abstract

In assuring the quality of the financial information issued by the listed companies, the role of the financial auditor is to express his own opinion regarding the compliance of the financial statements with a financial reporting framework. In order for this opinion to be a reliable one, the auditor has to develop it considering the specific requirements of competence, ethic judgment and professional ethics. Meeting these requirements supposes significant efforts from the auditors, and also from the professional organization they are affiliated to, as well as the audited companies. We appreciate that the financial auditors' financial independence and objectivity are also assured by their periodical rotation. The scope of this study is to analyze and evaluate the influence of the auditor's rotation on the information value relevance from the individual financial statements and from the consolidated statements that make the subject of financial auditing. The study was carried out on a number of 64 Romanian companies, listed on the Bucharest Stock Exchange, between 2006 and 2014. The research objectives considered the estimation of the auditor's rotation influence on the value relevance of the reported information of the Romanian BSE listed companies. The results of the study show the fact that the auditor's rotation significantly contributes to the change of the value relevance degree.

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“…Furthermore, Popa et al [52] and Robu et al [53] highlight auditors' professional judgment, ethical judgment as well as professional ethics as key elements in their decision-making process. Moreover, the authors of [53] showed that an auditor's rotation can significantly contribute to a shift in the relevance degree of the value of the data disclosed by Romanian companies that are quoted on the BVB.…”

The Value Relevance of Financial Information Under the Influence of Country Risks. The Case of the Indian Listed Companies

“…In order to improve the quality of estimated results and eliminate the influence of scale effects (Robu et al, 2016), in equation 1, we use financial ratios as shown below:…”

Do (Audit Firm and Key Audit Partner) Rotations Affect Value Relevance? Empirical Evidence from the Italian Context

“…In this regard, Robu et al (2016) focused on 64 Romanian companies listed on the Bucharest Stock Exchange between 2006 and 2014. They found that the auditor's rotation significantly contributes to the change of the value relevance degree.…”

“…This signal should convince them that an independent auditor analyses, reviews, and develops an auditing opinion asserting the relevance and the faithfulness of the audit firm's financial statements for external users. Thanks to audit firm rotation, investors should perceive accounting amounts to be value relevant (Robu et al, 2016). Key partner rotation also acts as a signal.…”

“…A limited number of studies deepen the contribution that such information provides to the weight that investors place on accounting amounts. Few papers focus on audit firm rotations (Robu et al, 2016) or test whether they affect the value relevance of accounting amounts. Conversely, to the best of our knowledge, no papers have investigated whether the key audit partner rotations affect value relevance or to what extent it is interchangeable with audit firm rotation.…”