TY - JOUR

T1 - The impact of auditor rotation, audit firm rotation and non-audit services on earnings quality, audit quality and investor perceptions: A literature review

AU - Velte, Patrick

AU - Loy, Thomas

PY - 2018/1/1

Y1 - 2018/1/1

N2 - This literature review evaluates 103 empirical research studies on the link between rotation and non audit services on the one hand and their influence on earnings quality, audit quality and investor perceptions on the other hand. After the financial crisis 2007/09, regulators all over the world are aware of decreased stakeholder trust in earnings and audit quality. As a reaction, stricter rules on rotation and non audit services by public interest entities (PIEs) have been implemented (e.g. in the European Union). But the impact of these regulations on earnings and audit quality is still controversial. We briefly introduce the theoretical, normative and empirical audit framework that comprises an adequate structure of the state-of-the-art of empirical research in this field. We summarize the findings in each research area, while we split our rotation analysis in audit firm and audit partner rotation and tenure and our dependent variables in earnings quality, audit quality and investor perception measures. Most of the cited studies are linked to earnings-related measures, especially abnormal accruals models. The mixed results can be explained by the different theoretical impacts of agency- and resource based view. Finally, we will discuss the current limitations of the studies and give useful recommendations for future empirical research activities in this topic.

AB - This literature review evaluates 103 empirical research studies on the link between rotation and non audit services on the one hand and their influence on earnings quality, audit quality and investor perceptions on the other hand. After the financial crisis 2007/09, regulators all over the world are aware of decreased stakeholder trust in earnings and audit quality. As a reaction, stricter rules on rotation and non audit services by public interest entities (PIEs) have been implemented (e.g. in the European Union). But the impact of these regulations on earnings and audit quality is still controversial. We briefly introduce the theoretical, normative and empirical audit framework that comprises an adequate structure of the state-of-the-art of empirical research in this field. We summarize the findings in each research area, while we split our rotation analysis in audit firm and audit partner rotation and tenure and our dependent variables in earnings quality, audit quality and investor perception measures. Most of the cited studies are linked to earnings-related measures, especially abnormal accruals models. The mixed results can be explained by the different theoretical impacts of agency- and resource based view. Finally, we will discuss the current limitations of the studies and give useful recommendations for future empirical research activities in this topic.

KW - Management studies

KW - Audit Partner Rotation

KW - Audit Firm Rotation

KW - Audit Tenure

KW - Audit Quality

KW - Earning Management

KW - Auditor Independence

KW - Earnings Quality

KW - Non-audit Services

UR - https://www.mendeley.com/catalogue/d79336ed-d5de-3dab-b4ef-cc558ab3605c/

U2 - 10.22495/jgr_v7_i2_p7

DO - 10.22495/jgr_v7_i2_p7

M3 - Journal articles

VL - 7

SP - 74

EP - 90

JO - Journal of Governance and Regulation

JF - Journal of Governance and Regulation

SN - 2220-9352

IS - 2

ER -