Audit Report Lag, Audit Partner Rotation and Audit Firm Rotation: Evidence from Australia

Abstract

This paper examines the effect of audit partner rotation and various types (lateral, cross-up and cross-down) of audit firm rotation on audit report lags (ARL). Using data of 369 companies in 2001 in Australia where each audit report discloses the name of the audit engagement partner and firm, the trade-off between the stringency of audit timeliness and audit provisions suggested by Whittred (1980) is addressed. In particular, the results show that, contrary to the start-up time hypothesis, audit partner rotation and lateral audit firm rotation do not affect ARL significantly. Nor does cross-down audit firm rotation have any considerable effect, though the number of observations is small. However, a positive and significant association between cross-up audit firm rotation and ARL is observed. Taken collectively, the realignment hypothesis seems to play a more influential role in ARL determination comparing with the start-up time and auditor-timeliness difference hypotheses. More importantly, the findings provide an additional piece of information for regulators to assess the effect of audit partner and audit firm rotation policies from the aspect of audit timeliness.

Keywords: Audit report lag, audit timeliness, audit delay, audit partner rotation, audit firm rotation

JEL Classification: M49, G38