Abstract

http://ssrn.com/abstract=1914557
 
 

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The Effects of Auditor Rotation, Professional Skepticism, and Interactions with Managers on Audit Quality


Kendall Bowlin


University of Mississippi - Patterson School of Accountancy

Jessen L. Hobson


University of Illinois at Urbana-Champaign

M. David Piercey


University of Massachusetts at Amherst

February 28, 2014


Abstract:     
We examine whether the effect of mandatory auditor rotation on audit quality depends on the mental frame auditors adopt in evaluating manager representations. In practice, auditors can alternately frame their assessments of manager representations in terms of their potential honesty or potential dishonesty (a skepticism frame). Using psychology theory and a laboratory experiment, we predict and find that mandatory rotation improves audit quality when an auditor takes an honesty frame, but that this effect reverses when an auditor takes a skeptical frame. Thus, the benefit of using a skeptical frame to assess manager representations occurs when auditors do not rotate, and requiring rotation can lead to harmful effects for auditors using a skepticism frame. An implication of our theory and findings is that, given the significant costs associated with rotation, focusing auditors on a skeptical assessment frame without requiring rotation may be a less costly way to improve audit quality.

Number of Pages in PDF File: 50

Keywords: Auditor Rotation; Professional Skepticism; Audit Quality; Game Theory

JEL Classification: C70, C90, G30, M42

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Date posted: August 23, 2011 ; Last revised: February 28, 2014

Suggested Citation

Bowlin, Kendall and Hobson, Jessen L. and Piercey, M. David, The Effects of Auditor Rotation, Professional Skepticism, and Interactions with Managers on Audit Quality (February 28, 2014). Available at SSRN: http://ssrn.com/abstract=1914557 or http://dx.doi.org/10.2139/ssrn.1914557

Contact Information

Kendall O. Bowlin
University of Mississippi - Patterson School of Accountancy ( email )
Oxford, MS 38677
United States
Jessen L. Hobson
University of Illinois at Urbana-Champaign ( email )
4011 Business Instructional Facility
515 East Gregory Drive
Champaign, IL 61820
United States
M. David Piercey (Contact Author)
University of Massachusetts at Amherst ( email )
Dept of Accounting, Isenberg School of Management
121 Presidents Drive
Amherst, MA 01003
United States
413-545-5585 (Phone)
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