The impact of auditor rotation, audit firm rotation and non-audit services on earnings quality, audit quality and investor perceptions: A literature review
Research output: Journal contributions › Journal articles › Research › peer-review
Standard
In: Journal of Governance and Regulation, Vol. 7, No. 2, 01.01.2018, p. 74-90.
Research output: Journal contributions › Journal articles › Research › peer-review
Harvard
APA
Vancouver
Bibtex
}
RIS
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 -