Are There Adverse Consequences of Mandatory Auditor Rotation? Evidence from the Italian Experience

2013 ◽  
Vol 34 (1) ◽  
pp. 1-24 ◽  
Author(s):  
Mara Cameran ◽  
Jere R. Francis ◽  
Antonio Marra ◽  
Angela Pettinicchio
Keyword(s):  
Audit Quality ◽  
Earnings Quality ◽  
The United States ◽  
First Year ◽  
The European Union ◽  
Auditor Rotation ◽  
Italian Experience ◽  
Auditor Tenure ◽  
Mandatory Rotation

SUMMARY Mandatory auditor rotation was recently proposed for the European Union and is also under consideration in the United States. There has been little research into either the benefits or costs of rotation in a true mandatory setting that could inform intelligent policy making. Our paper helps fill this gap by examining Italy, where mandatory rotation of auditors has been required since 1975. We find that outgoing auditors do not shirk on effort (or quality), but final-year fees are 7 percent higher than normal, which may indicate opportunistic pricing. The fees of incoming auditors are discounted by 16 percent even though they have abnormally higher engagement hours in the first year (17 percent), which is suggestive of lowballing. However, subsequent fees are abnormally higher and exceed the initial fee discount. Thus, the costs of mandatory rotation are nontrivial. Higher costs could be acceptable if rotation improves audit quality, but we find evidence of the opposite. Namely, the quality of audited earnings is lower in the first three years following rotation, relative to later years of auditor tenure. Since rotation is costly and earnings quality improves with longer auditor tenure, the evidence from Italy does not support the case for mandatory rotation.

scholarly journals An Analysis of Mandatory Auditor Rotation Requirements in South Africa in light of International Legislative Trends

Obiter ◽  
2019 ◽  
Vol 40 (2) ◽  
Author(s):  
Vela Madlela
Keyword(s):  
South Africa ◽  
Financial Markets ◽  
Audit Quality ◽  
The United States ◽  
Auditor Independence ◽  
Company Law ◽  
The European Union ◽  
External Audit ◽  
Auditor Rotation ◽  
Mandatory Rotation

An independent and objective external audit of companies is an integral element of sound corporate governance and of functional financial markets. The issues relating to auditor independence and objectivity have attracted considerable regulatory and public scrutiny in many leading jurisdictions. This is partly due to a general decrease in audit quality over the years as evidenced by high-profile accounting scandals and audit failures, both locally and internationally, as well as the vital role that an external audit is expected to play in ensuring transparency, accuracy and efficiency in the financial markets. In an attempt to restore confidence in the audit profession and to strengthen the independence of the external audit function for companies, legislatures in some leading jurisdictions have introduced a variety of regulatory strategies, including mandatory rotation of auditors in the form of mandatory audit partner rotation (MAPR) and/or mandatory audit firm rotation (MAFR). In this article, the author examines the adequacy of the current provisions of section 92 of the Companies Act 71 of 2008 regarding MAPR and the recently promulgated rule of the Independent Regulatory Board for Auditors (IRBA) on MAFR (the MAFR rule) in addressing the issue of mandatory auditor rotation in South Africa. The author considers whether the provisions of the Companies Act 71 of 2008 regarding MAPR and the MAFR rule are adequate to promote an independent and objective external audit function for companies, as well as transparency, efficiency and accountability, while providing certainty for companies and auditors. The author first examines some of the key principles and policy considerations relating to the external audit of companies – namely, the significance of audits and auditors in the financial markets as well as the value of auditor independence and objectivity. This is followed by an examination of the provisions of section 92 of the Companies Act 71 of 2008 regarding MAPR and the recently promulgated MAFR rule in light of legislative developments in the United States, Canada, the European Union, Australia and India regarding mandatory rotation of auditors and audit partners. Based on the lessons to be drawn from the experiences of the above jurisdictions, the author then makes recommendations for appropriate reforms for South Africa in this important area of company law. This is followed by some concluding remarks.

scholarly journals The relation of auditor tenure to audit quality: Empirical evidence from the German audit market

2013 ◽  
Vol 2 (1) ◽  
pp. 27-43 ◽  
Author(s):  
Patrick Krauß ◽  
Henning Zülch
Keyword(s):  
Audit Quality ◽  
The European Union ◽  
Short Term ◽  
Audit Firm ◽  
Audit Market ◽  
Auditor Tenure ◽  
Client Relationship ◽  
Mandatory Audit Firm Rotation

This study investigates whether and how the length of an auditor-client relationship affects audit quality. Using a sample of 1,071 firm observations of large listed companies for the sample period of 2005 to 2011, the study is one of the first to empirically analyze this auditing issue for the German audit market. The empirical results demonstrate that neither short term nor long term audit firm tenure seems to be a significant factor with regard to audit quality in Germany. In the wake of the ongoing discussion in the European Union regarding the optimal audit tenure length for the quality of the conducted statutory audits, our findings do not support the idea of a mandatory audit firm rotation rule.

Exploring the Term of the Auditor-Client Relationship and the Quality of Earnings: A Case for Mandatory Auditor Rotation?

2003 ◽  
Vol 78 (3) ◽  
pp. 779-799 ◽  
Author(s):  
James N. Myers ◽  
Linda A. Myers ◽  
Thomas C. Omer
Keyword(s):  
Financial Performance ◽  
Earnings Quality ◽  
Cash Flows ◽  
Firm Age ◽  
Management Decisions ◽  
Industry Growth ◽  
Auditor Rotation ◽  
Auditor Tenure ◽  
Client Relationship

In this study, we document evidence on the relation between auditor tenure and earnings quality using the dispersion and sign of both absolute Jones-model abnormal accruals and absolute current accruals as proxies for earnings quality. Our study is motivated by calls for “mandatory auditor rotation,” which are based on concerns that longer auditor tenure reduces earnings quality. Multivariate results, controlling for firm age, size, industry growth, cash flows, auditor type (Big N versus non-Big N), industry, and year, generally suggest higher earnings quality with longer auditor tenure. We interpret our results as suggesting that, in the current environment, longer auditor tenure, on average, results in auditors placing greater constraints on extreme management decisions in the reporting of financial performance.

scholarly journals Effects Of Rotation On Auditor Independence And Quality Of Audit Service In Malaysian Banking Industry

2012 ◽  
Vol 6 (2) ◽  
pp. 249 ◽  
Author(s):  
Kabiru Isa Dandago ◽  
Nur Diyana Binti Zamro
Keyword(s):  
Audit Quality ◽  
Banking Industry ◽  
Auditor Independence ◽  
Primary Data ◽  
Auditor Rotation ◽  
Mandatory Requirement ◽  
Banking Institutions ◽  
Mandatory Rotation ◽  
The Impact

This study highlights the nature of auditor rotation in the Malaysian banking industry and its effects on auditor independence and quality of audit service in the industry. To generate primary data for analysis, interviews were conducted on officials of two banking institutions and one accounting/audit firm. The study finds that there have not been significant changes in the annual appointment of auditors in the Malaysian banking institutions over the last ten years, suggesting that there is a good working relationship between the auditors (especially the Big4) and the banks. This allows room for continuous debate on the need for mandatory rotation as a<br />means for ensuring auditor independence and high audit quality in the Malaysian banking industry. In the absence of statutory/mandatory requirement for auditor rotation, it is recommended that the Malaysian banking institutions should be carefully evaluating the impact auditor rotation would have on the quality of audit work on their current and future financial statements, as they decide whether to rotate their auditors or not.

scholarly journals Disciplining Role of Auditor Tenure and Mandatory Auditor Rotation

2021 ◽  
Author(s):  
Aysa Dordzhieva
Keyword(s):  
The United States ◽  
Auditor Independence ◽  
The European Union ◽  
International Debate ◽  
Auditor Tenure ◽  
Audit Firms ◽  
Client Relationship ◽  
Popular View ◽  
Mandatory Rotation

This study addresses the international debate over whether the rotation of audit firms should be mandatory. Mandatory rotation rules have been adopted by the European Union, but these rules have not been established in the United States. Proponents of the policy believe that a long-tenure auditor-client relationship leads to the auditor building an excessive economic bond with the client which may then erode auditor independence. Motivated by this claim, I build a theoretical model that compares auditor incentives to issue independent reports under regimes with and without mandatory rotation. The model demonstrates conditions under which mandatory rotation could actually impair auditor independence, contrary to the popular view.

A Comprehensive Review of Spirit Drink Safety Standards and Regulations from an International Perspective

2017 ◽  
Vol 80 (3) ◽  
pp. 431-442 ◽  
Author(s):  
Xiao-Na Pang ◽  
Zhao-Jie Li ◽  
Jing-Yu Chen ◽  
Li-Juan Gao ◽  
Bei-Zhong Han
Keyword(s):  
Maximum Level ◽  
The United States ◽  
International Perspective ◽  
Control Measures ◽  
Alcoholic Beverages ◽  
Hydrocyanic Acid ◽  
The European Union ◽  
Safety Standards ◽  
Standards And Regulations

ABSTRACT Standards and regulations related to spirit drinks have been established by different countries and international organizations to ensure the safety and quality of spirits. Here, we introduce the principles of food safety and quality standards for alcoholic beverages and then compare the key indicators used in the distinct standards of the Codex Alimentarius Commission, the European Union, the People's Republic of China, the United States, Canada, and Australia. We also discuss in detail the “maximum level” of the following main contaminants of spirit drinks: methanol, higher alcohols, ethyl carbamate, hydrocyanic acid, heavy metals, mycotoxins, phthalates, and aldehydes. Furthermore, the control measures used for potential hazards are introduced. Harmonization of the current requirements based on comprehensive scope analysis and the risk assessment approach will enhance both the trade and quality of distilled spirits. This review article provides valuable information that will enable producers, traders, governments, and researchers to increase their knowledge of spirit drink safety requirements, control measures, and research trends.

scholarly journals Relative Influences of Review and Engagement Auditor Rotation on Audit Quality: Evidence from China

2021 ◽  
Vol 14 (1) ◽  
pp. 171-206
Author(s):  
Sang Ho Kim ◽  
Jianqun Xi
Keyword(s):  
Regression Model ◽  
Logit Model ◽  
Audit Quality ◽  
Discretionary Accruals ◽  
Shared Responsibility ◽  
First Year ◽  
Audit Firm ◽  
Auditor Rotation ◽  
Audit Partner Rotation ◽  
The Relationship

Manuscript type: Research paper Research aims: This study focuses on the effects of audit partner rotation on audit quality (AQ) in China. In particular, we examine the effects of review auditors (RAs) and engagement auditors (EAs) on AQ when they voluntarily and mandatorily rotate. Design/Methodology/Approach: The data in this study are retrieved from the Chinese Stock Market and Accounting Research (CSMAR) database. We develop an OLS regression model and logit model respectively to test the hypotheses developed. Finally, we have 13,856 firm-year observations collected for the first regression model, and 16,893 firm-year observations gathered for the second logit model from 2003 to 2015. Research findings: Findings show that RAs are more likely to behave opportunistically to retain clients by weighing up the benefits and costs of compromising audit quality in the first year after a rotation. The results imply that RAs may have an incentive to acquiesce the clients’ accounting irregularities in their first year of audit engagement when they are mandatorily rotated. However, we do not find this trend in terms of EAs’ rotation, suggesting that EAs are less affected by the auditor-client relationship compared to RAs. In addition, we find that RAs are less likely to issue modified audit opinions (MOPI) as the magnitude of negative discretionary accruals (DA) increases when they are voluntarily rotated. Theoretical contribution/Originality: Previous studies have investigated the relationship between mandatory audit partner rotation and audit quality. The results are mixed and inconclusive. Our study contributes to the extant literature by considering RAs’ opportunistic behaviour after mandatory rotation, which has not been explored in previous studies. In China, only a few studies have examined the relationship between mandatory audit partner rotation and audit quality. Our study is one of the first study focusing on the RA’s influence on AQ. Practitioner/Policy implication: The findings of our study can help Chinese authorities, listed firms and academics gain more understanding on whether mandatory audit partner rotation improves audit quality in practice. Since RAs have greater incentive to retain the existing client, we propose that RAs should bear more responsibility for the audit work, instead of the equally shared responsibility with EAs. Research limitation/Implications: Our study is subject to some limitations. First, our study adopts the performance-adjusted discretionary accruals as a proxy for audit quality. However, there can be a measurement error in estimating discretionary accruals. Second, we focus on the auditor rotation and exclude the case of audit firm rotation. Since the AQ can be affected by various factors, audit firm rotation can also affect AQ. Third, although we test the relative effects of RAs and EAs in audit work, we do not examine the effect of RAs’ characteristics such as their professional experience, educational background, and years of service. AQ can be affected by RAs’ characteristics.

scholarly journals To the issue of prospects and problems of organic production of agricultural products in Ukraine

2021 ◽  
Author(s):  
A. V. Salnikova ◽  
◽  
N. A. Makarenko ◽  
Keyword(s):  
Soil Contamination ◽  
Agricultural Production ◽  
The United States ◽  
Organic Production ◽  
Agricultural Products ◽  
The European Union ◽  
State Certification ◽  
Certification System ◽  
Organic Products

Organizational production of agricultural products is used to preserve the natural environment and to preserve the quality of the products. The development of organic wines in the light of 100 years and over the course of the period has become insane, as for the correct organization of it, you can preserve ecological, social, and commercial transfers. The organizational structure has become a warehouse part of the bio-economy and circular economy, which is a priority for the economic development of the European Union, the USA, Great Britain, the Great Britain, the Republic of Korea, Japan, and the United States of America. For determining the prospects and problems of organic production of agricultural products, general scientific methods were used such as publicity, systematization, analysis, and synthesis, of the scientific literature and normative documents. For an additional analysis of regulatory documents, a procedure for certifying the authorities of the United States, the European Union and Ukraine has been established. Ukraine, in turn, began to take the first steps towards organic production in the late 1990s. It was at this time that she began to grow organic grain and opened export lines for its transportation to other countries, mainly Europe. Ukraine remains a leader in the production and export of organic cereals. Export competitive advantages of national agar products are lower production costs and logistics support. Ukraine continues to increase its organic production capacity - an increasing number of operators are appearing in this sector of agricultural production. As of 2019, the share of organic production of crop products in Ukraine is 1.4% (5th place in the world in terms of growth rate of organic agriculture), which is 467.9 thousand hectares of the total area of agricultural land in 32, 7 million hectares, as well as 470 operators of organic production. The dynamics of changes in organic agricultural production in Ukraine indicates a general trend of increasing their number, but in some periods, there is a decrease due to the economic and political situation in the country and changes in legislation in this area. Ukraine has significant advantages of organic production, which include a high level of soil fertility, favorable climatic conditions, traditional orientation as an agrarian state. Also, the price of Ukrainian products is lower than the minimum price of organic products of European countries. In the organic production of crops use methods that optimize the biological activity of soils, provide a balanced supply of nutrients to plants. At the same time, there are problems in Ukraine that hinder the development of organic production. In particular, the diversity of the territory in terms of the level of pollution of environmental components, lack of practical application of innovations and modern technologies of agricultural production. The lack of state support for organic producers and state certification system (including qualified specialists for its implementation). Resolution of the Cabinet of Ministers of Ukraine of October 21, 2020, № 1032 "On approval of the Procedure for certification of organic production and / or circulation of organic products and amendments to the resolution of the Cabinet of Ministers of Ukraine of October 23, 2019, № 970" approved the stages of certification. Was made the comparison of approaches to the certification of agricultural enterprises in Ukraine shows that they meet European and American standards. However, the absence of a state certification body that certifies organic producers and accredits private certification bodies makes it impossible for state control over organic market operators and the functioning of state certification. The current certification system in Ukraine does not cover the issue of soil contamination or other components of environment, which may affect the quality and safety of organic products. In Ukraine, enterprises in various sectors of the economy use outdated technologies, which can cause soil contamination of agricultural lands, and, accordingly, affect the quality of organic products. Currently, the Laws of Ukraine and the Cabinet of Ministers do not require: the location of the organic agricultural enterprise; content of harmful substances in the soil (including the content of radionuclides and pesticide residues); content in the soil of nutrients that can ensure the production of quality agricultural products and confirm the activities of the farm aimed at maintaining soil fertility. To guarantee the quality of organic products, it is advisable in the certification procedure to consider the level of fertility and soil contamination of agricultural lands, as well as the availability of sources of environmental pollution in the location of the organic producer. Given the above, it is advisable to introduce criteria for assessing the compliance of soils with the requirements of organic production. This approach can guarantee the safety and quality of organic products. During the organization of organic production of agricultural products in Ukraine, the issues of criteria for assessing compliance with regulatory requirements, documentation to be kept by the operator of organic production, etc.

An Examination of Variables Related to Student Employment in Campus Recreation Programs

2012 ◽  
Vol 36 (2) ◽  
pp. 78-90 ◽  
Author(s):  
James E. Johnson ◽  
Ashlee N. Kaiser ◽  
Robert J. Bell
Keyword(s):  
Work Experience ◽  
The United States ◽  
Student Employment ◽  
First Year ◽  
Campus Recreation ◽  
Ability To Work ◽  
Related Factors ◽  
Work Related ◽  
Student Employees

Previous literature on student employment within campus recreation departments has focused on a variety of work-related factors, but has been limited by examining single institutions. The current study extended this area of research by examining 290 recreation student employees at 11 institutions located throughout the United States to determine how important five work-related variables were to student employment. Results indicated all variables were rated high in importance, but ability to work around class schedules was most important. Results also indicated that females believe pay rate is more important than males, first year employees do not desire supervisory roles as much as students with more work experience, and students who have supervisory responsibilities find these roles more important than students without such roles. These results can be used by recreation administrators to better understand the priorities of their employees, which ultimately could impact quality of work.

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