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Mandatory auditor rotation : Australian evidence

Chapple, Larelle & Hossain, Sarowar (2011) Mandatory auditor rotation : Australian evidence. Australian Journal of Corporate Law, 25, pp. 303-317.

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Abstract

A key part of the auditor independence reforms in Australia, as represented by Corporate Law Economic Reform Program (Audit Reform and Corporate Disclosure) Act 2004 (Cth) (CLERP 9), mandates audit partner rotation. The change was criticised predominantly due to the costs imposed on both the audit firms and the audit clients. This study examines the Australian experience post-CLERP 9 with mandated auditor rotation. Based on data of audit partner rotation over 2003–2009 (on average 1200 listed Australian companies over the sample period), we show that audit partner tenure sat at a median of 2–3 years, but that the maximum audit partner tenure was as high as 20 years in the pre-CLERP 9 period. For around 85% of the market, audit partner rotation occurred voluntarily at between 1–5 years. The interesting result is that for 15% of the market, the mandated audit partner rotation had a significant impact on corporate governance practice. There is also a greater observed impact of mandatory rotation on audit engagements involving the non-global auditing firms. These findings inform the debate as to the ‘costliness’ of the law reform.

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ID Code: 50806
Item Type: Journal Article
ISSN: 1037-4124
Subjects: Australian and New Zealand Standard Research Classification > LAW AND LEGAL STUDIES (180000)
Divisions: Current > QUT Faculties and Divisions > QUT Business School
Current > Schools > School of Accountancy
Deposited On: 08 Jun 2012 08:41
Last Modified: 08 Jun 2012 08:41

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