Does the rotation of auditors improve the quality of auditing Essay - 1

Does the rotation of auditors improve the quality of auditing - Essay Example Australia is collecting more empirical data on the subject to make a decision to make it mandatory or not. India recently envisaged that audit partner should be rotated compulsorily and there should be atleast 50% rotation of the audit team compulsorily. For listed companies, auditor rotation is made compulsory in Portugal on an explain or comply basis. Public companies in Slovenia are given a choice to choose either to rotate partner or audit firm rotation once in five years. Audit partner rotation instead of audit firm rotation is made mandatory by countries like Netherlands, Germany and UK. Administrators in Germany, US and UK are of the view that possible advantages of compulsory rotation of auditors do not overshadow its perils and costs. (Ewelt-Knauer, Gold & Pott 2012:5) The research study will analyse in detail whether the rotation of auditors improves the quality of auditing or not with available literature evidence on the subject. What is the problem? The main issue is whet her mandatory auditor rotation will result in enhancing the auditor’s independence or not and does the rotation of auditors improve the quality of auditing? How are you going to answer it? For answering the research question, this research essay will make use of secondary research evidence available on the subject like information available in the books, journals, previous empirical studies, etc. Coherent development of arguments: According to Lee Metcalf report, it was a great concern that big audit firms lacked independence, which has created doubt about their certification of financial data to public and investors. Further, long association of an auditor and a company may result in aligning with company’s management and hence, the independence of such an auditor has become really doubtful. Thus, Metcalf report recommended to the Congress of USA to introduce mandatory auditor rotation to minimise the corporate frauds. (PCAOB 2011:10). What is audit quality? Some stud y suggests that there is a direct association between audit quality and audit tenure. According to Simon & France (1988), long run audit tenures enhance the audit quality, mainly because of auditee-specific knowledge benefited by the auditors over the time. Daly, Hamilton and Strokes (2003) investigated whether audit partner rotation is linked with transformation in audit quality and found that a partner change or rotation is not poignantly linked with a change in the audit opinion released. Further, rotation of a partner does not result in more chances to issue a qualified audit report. Thus, this study report suggests either the rotation of the firm or a partner does not have required audit quality advantages that supporters vehemently argue. (Campbell & Houghton 2005:78). Vanstraelen (2000) found that long-term audit tenures resulted in high audit quality. Deis & Giroux (1992) found that long run audit tenure lessens the adherence with GAAS. Copley & Doucet (1993) found the audit tenure, and the audit firm association has a direct effect on audit quality. Knapp (1991) exposed that audit committee members observed that long audit tenure erodes audit report quality and their independence. Dopuch, King and