Auditor Rotation Policies and Their Influence on Audit Effectiveness

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ID: 311389
2023
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Abstract
This study investigates the influence of auditor rotation policies on audit effectiveness through a mixed-methods approach integrating both quantitative and qualitative analyses. Using archival financial data and survey evidence, the research demonstrates that mandatory auditor rotation enhances independence and professional skepticism, contributing positively to audit quality indicators such as reduced discretionary accruals, improved transparency, and lower cost of debt. Regression analyses revealed a statistically significant association between auditor rotation and improved audit quality, while thematic insights from interviews highlighted auditors’ perceptions of increased objectivity and accountability. However, the study also found that the transition period following rotation may temporarily reduce audit quality due to the loss of client-specific knowledge. This challenge was observed to be mitigated by the presence of robust audit committees and structured handover mechanisms. The integration of results confirms that while auditor rotation is not a universal remedy, when complemented by governance safeguards and contextualized within jurisdictional frameworks, it can significantly strengthen trust in financial reporting and bolster the overall effectiveness of audits.
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Authors Nadya Qamar Chishty
Journal Economic Trends and Business Review
Year 2023
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