Mandatory audit firm rotation in a Big 4 audit firm

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Mandatory Audit Firm Rotation (MAFR) has recently been given prominence in the Netherlands, when it took effect January 2016, to improve audit quality directly and to enhance auditor independence which subsequently leads to better audit quality. Previous studies show that evidence on the impact of MAFR on audit quality and auditor independence is inconclusive. On top of this, the measures used in these researches are often only proxies of these real constructs. Through a case study in a Big 4 audit firm located in the Netherlands, this thesis therefore examines how and why MAFR affects audit quality and how independence ‘in fact’ plays a role in this. The results of the case study deepens our understanding into the actual relationship between MAFR and the constructs: audit quality and auditor independence ‘in fact’. The outcomes of research demonstrate that MAFR affects four key themes which are related to these constructs: fresh perspective, altering your opinion and audit approach, work attitude in the year before rotating, and behavior in the interpersonal relationship. Additionally, four factors are identified that impact the extent to which MAFR influences these key themes: internal Partner and Senior Manager rotation, awareness of MAFR by lower level auditors, number of public interest entities, and natural rotation. The results of this research provide input for the ongoing discussion related to MAFR and should be of interest to policy makers and regulators in other countries who are considering to implement this policy.
Faculteit der Managementwetenschappen