Analysis Of The Relationship Between Mandatory Auditor Rotation And Audit Quality

The audit industry has been exploring how to improve audit quality since the born of Certified Public Accountant.A series of fraudulent financial reports were brought up in domestic and international stock market since the 21st century.As one of the top five accounting firms,the Arthur Andersen Accounting Firm went bankrupt due to the collapse of Enron.And the job qualification of the Zhongtianqin Accounting Firm was revoked by the government because of the case Guangxia Yinchuan.So were two auditors who sign the audit report.This series of cases made it doubtful to all the people whether the CPA could be able to maintain independence and objectivity.It is also doubtful whether we could get high audit quality by auditing..According to the theoretical analysis,audit tenure is an important factor which affecting the audit quality.In order to prevent auditing collusion caused by long audit tenure,many countries began to implement mandatory auditor rotation.Mandatory auditor rotation was introduced in 2004 in China.However,the mandatory auditor rotation has been controversial both in theory and in practice.It's not getting all the people's approval that long audit tenure will damage the audit quality.This study firstly introduces the background of mandatory auditor rotation.And then analyzes the mandatory rotation of audit,the concepts of audit quality and the use of theoretical argument with a description of the mandatory rotation of audit quality are two important factors of professional competence and independence of certified public accountants.Then regulation satisfied the domestic and foreign scholars mandatory rotation of audit quality and the relationship between the relevant point of view.Then analyze the implementation of mandatory auditor rotation from 2004 to 2013.This paper measures audit quality by the type of audit opinion,and analyze the relationship between mandatory auditor rotation and audit quality.Then find out the effectiveness of the mandatory auditor rotation policy which has been carried out so as to determine the feasibility of the policy.This study finds that there is probably not relationship between mandatory auditor rotation and modified audit opinions.Compare with the listed companies which didn't rotate the CPA and rotate the CPA on their own free will,the listed companies have already rotated the CPA didn't receive more modified audit opinions.And there is no significant difference between the first three year of rotation and the year before rotation on the possibility of receiving modified audit opinions.These results show that there may not relationship between mandatory auditor rotation policy and audit quality.And the mandatory auditor rotation policy has no effect on the possibility of receiving modified audit opinions.Therefore,the policy which is implemented to improve audit quality may not achieve the desired effect.According to these conclusions,we propose corresponding countermeasures.On one hand,we should improve the governance structure of listed companies to achieve the balance of the audit entrustment pattern.On the other hand,we should develop the mandatory auditor rotation policy so as to achieve the expected results.