Audit Retendering and Mandatory Auditor Rotation

• DOI: 10.2139/ssrn.3444676
• Publication Date: 2019-09-11T11:33:39Z
• Authors: Mingcherng Deng; Jing Li; Dan A. Simunic; Nan Zhou
• Keywords: Auditor independence; Chief audit executive

Building on an auction model, we examine the economic consequences of audit retendering, under which incumbent auditor in possesses both information advantage and knowledge over outside auditors. Audit retendering allows firm to retain with positive probability, but expect pay rent due his In equilibrium, switching (or no switching) conveys additional investors, therefore informativeness report is always greater than that mandatory rotation. We identify conditions client firms may benefit from retendering. Our findings shed light recent European Union Reform, adopts as alternative rotation, have implications Public Company Accounting Oversight Board, are evaluating proposed