Image of Business Instructional Facility

Jul 29, 2015 2015-07 Accountancy Faculty

Study: Mandatory rotation inhibits rather than encourages auditor skepticism

  Jessen Hobson Jessen Hobson A paper co-authored by Assistant Professor of Accountancy and PwC Faculty Fellow, Jessen Hobson, in the new issue of an American Accounting Association (AAA) journal The Accounting Review casts doubt on the long held belief that mandatory auditor rotation promotes skepticism.
An intricate experiment reported in a leading accounting journal has cast new light on what may be the most contentious issue regarding the auditing of corporate financial reports -- namely, whether companies should be required to periodically change their auditors, as currently mandated to varying degrees in the U.S. and Europe.  calls the entire practice into question with the surprising discovery that rotation inhibits skepticism, a perspective universally viewed as essential to effective auditing. The primary reason traditionally advanced to require rotation is that it encourages skepticism. In the words of the study, "Professional skepticism requirements are intended to elevate auditors' skepticism of their clients and, ultimately, audit quality...This benefit disappears and even reverses when auditors rotate. That is, rotation and a skeptical mindset interact to the detriment of audit effort and financial reporting quality."
You can read a press release and download the full research paper on the AAA website.   In the News: The findings have been featured in a variety of other publications as well. Questions remain about rotation of audit firms | Accounting Weekly Study Says Auditor Rotation Inhibits Skepticism | AccountingWEB Rotation May Hinder Audit Quality, Study Says | Compliance Week Mandatory audit rotation big threat to scepticism, say academics | Accountancy Age Study Questions Impact of Audit Firm Rotation on Auditor Skepticism | Accounting Today News Blog: Does Auditor Rotation Impair Professional Skepticism? | Cooley LLP - JDSupra Mandatory audit rotation big threat to scepticism, say academics | Financial Director News Auditor Rotation May Actually Inhibit Skepticism | CFO Magazine