Audit Quality Under Mandatory Audit Rotation: Empirical Evidence In Vietnam

Abstract

According to agency theory, auditors are crucial in improving disclosure quality. Audit rotation is the suggested remedy since it is believed that the auditor's independence is compromised by their extended relationship with their client. Many countries have issued regulations regarding the rotation of auditors; however, these regulations have led to many debates among researchers, managers, and professional associations. Using quantitative research methods, this study contributes empirical evidence to the literature on the relationship between audit quality and audit rotation. We used three proxies of audit quality in this study including the absolute abnormal working capital accruals (AAWCA), the current accruals (ADD), and the absolute discretionary revenues (ARESREV). Results show that audit partner rotation negatively impacts audit quality based on ADD measurement. Otherwise, the impact of audit firm quality on audit quality is regarded as insignificant.