Auditor rotation

The chapter explores the mandatory auditor rotation rule, a regulatory requirement to change audit firms or audit partners periodically after a specified tenure. At the international level, this regulatory requirement has been unevenly applied, showing varying approaches to auditor rotation, leading to a lack of regulatory consensus on the effectiveness of the rule. In this chapter, we first present a broad overview of regulatory implementation of the mandatory auditor rotation in the most important economies; we then discuss the benefits and costs that are generally associated with mandatory auditor changes. We further summarize the most relevant studies that have analyzed the effect of the implementation of mandatory auditor rotation rules on audit outcomes. We argue that the most recent literature that has directly assessed the effects of mandatory auditor switches seems to suggest that while mandatory audit firm rotation has limited or negative effects on audit quality, mandatory partner rotation may offer a more balanced solution in fostering auditor independence. In the conclusions, we highlight some possible future research paths that could help in better understanding the effects of imposing mandatory switches on audit outcomes.