The Effects of Mandatory Audit Firm Rotation on Client Importance and Audit Industry Concentration
| Autor: | Ulrike Stefani, Christopher Bleibtreu |
|---|---|
| Rok vydání: | 2017 |
| Předmět: |
Economics and Econometrics
050208 finance business.industry 05 social sciences Walk-through test Accounting 050201 accounting Audit plan Audit Performance audit Internal audit Joint audit 0502 economics and business media_common.cataloged_instance Information technology audit European union business Finance media_common |
| Zdroj: | The Accounting Review. 93:1-27 |
| ISSN: | 1558-7967 0001-4826 |
| DOI: | 10.2308/accr-51728 |
| Popis: | Recently, a system of audit firm rotation has been implemented for the audits of listed companies conducted in the European Union (EU). In the U.S., in contrast, the regulator decided against such rotation. Whereas proponents argue that rotation would strengthen independence and decrease audit market concentration, opponents stress the importance of auditors' learning effects, which would be eliminated by a change in auditors. In extending the market matching model of Salop (1979), we provide an analysis that integrates these contradictory views. We assume that both auditors' industry expertise and their experience in auditing a client decrease audit costs. We investigate the bidding strategies applied to re-acquire clients that were lost due to rotation, auditors' profit contributions, the equilibrium number of auditors (i.e., audit market concentration), and the economic importance of specific clients. Our findings indicate that the regulators' goals of simultaneously decreasing client importance and audit market concentration are in direct conflict and, therefore, the rotation system might have unintended consequences. Our model, thus, suggests how different institutional parameters give rise to economic forces that can support diverging decisions regarding the implementation of MAR. |
| Databáze: | OpenAIRE |
| Externí odkaz: |
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