The Audit Mandatory Rotation Rule: The State of the Art

Journal of Financial Perspectives, Forthcoming

Posted: 20 Apr 2015

See all articles by Mara Cameran

Mara Cameran

Bocconi University - Department of Accounting

Giulia Negri

SDA Bocconi

Angela Kate Pettinicchio

SDA Bocconi School of Management

Multiple version iconThere are 2 versions of this paper

Date Written: April 20, 2015

Abstract

Mandatory audit rotation imposes periodical breaks to audit engagements and is intended to avoid excessively long relationships between the auditor and the client. The E.U. has finally introduced mandatory rotation for the audit firm in addition to the already existing audit partner rotation rules. The U.S., however, has for now decided to retain the partner rotation rule without introducing mandatory audit firm rotations. After an overview of the experience of a number of countries, we summarize the pros and cons of a compulsory change in the audit firm. Moreover, we focus on the empirical evidence collected on the benefits and costs of the rule. So far, investigations into the impact of the rule at corporate and market level have not been able to prove that the benefits outweigh the costs.

Keywords: Audit rotation, Audit firm rotation, partner rotation

JEL Classification: M40

Suggested Citation

Cameran, Mara and Negri, Giulia and Pettinicchio, Angela Kate, The Audit Mandatory Rotation Rule: The State of the Art (April 20, 2015). Journal of Financial Perspectives, Forthcoming, Available at SSRN: https://ssrn.com/abstract=2596492

Mara Cameran (Contact Author)

Bocconi University - Department of Accounting ( email )

Via Roentgen 1
Milan, 20136
Italy

Giulia Negri

SDA Bocconi ( email )

Via Bocconi 8
Milan, Milan 20136
Italy

Angela Kate Pettinicchio

SDA Bocconi School of Management ( email )

Via Sarfatti 10
Milan, 20136
Italy

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