Costs of Mandatory Audit firm Rotation: Evidence from Audit Fees and Audit Timeliness

Subject Areas :

Mohammad Bagher Rasoulkhani ¹ (Department of Accounting, Allameh Tabatabai University, Tehran, Iran.)
Ghasem Blue ² (Department of Accounting, Allameh Tabatabai University, Tehran, Iran.)
Parastoo Dehpour ³ (Department of Accounting, Shahid Beheshti University, Tehran, Iran.)

Received: 2023-01-05 Accepted : 2024-01-16 Published : 2024-07-02

Keywords: audit fees, Audit Report Lag, audit firm rotation, partner rotation, audit delay,

Abstract :

Concerns about the destructive effects of long-term relationships between auditors and business owners on auditor independence and audit quality have led to the formulation of laws limiting these relationships; Therefore, the policy of mandatory rotation, in order to improve the independence of accountants and as a result to increase the quality of auditing, has attracted the opinion of legislators. Critics of this policy believe that the implementation of such a policy will lead to an increase in audit costs as well as a delay in submitting the audit report. Indeed, critics focus on the cost of forced rotation. Therefore, the aim of the current research is to investigate the price of forced rotation by considering two direct consequences including; The audit fee and the timeliness of the audit report. For this purpose, a sample of 120 companies listed on the Tehran Stock Exchange during the period of 2017-2022 has been selected. The ordinary least squares regression model was also used to test the research hypotheses. The obtained results show; During the mandatory rotation period, the audit costs increased and the audit report was delayed. The results of this research support the accounting profession's arguments that mandatory turnover is not without cost to various stakeholders, including clients, auditors, and investors.