The Audit Firm Rotation Rule: A Review of the Literature

67 Pages Posted: 24 Oct 2005 Last revised: 23 Dec 2011

See all articles by Mara Cameran

Mara Cameran

Bocconi University - Department of Accounting

Emilia Merlotti

Bocconi University

Dino Di Vincenzo

SDA Bocconi

Date Written: September 1, 2005


The European Union's response to recent financial reporting scandals on both sides of the Atlantic reached a crucial stage recently when the European Parliament voted to accept the new 8th Company Law Directive. It takes the minimum harmonisation route to set the basic standards that Member States need to enforce to protect audit quality whilst allowing them the freedom to add specific national requirements where they see fit. One practical example stems from the position reached on the topics of the mandatory rotation of audit firms. The 8th Directive suggests the rotation of individual audit partners, albeit one that leaves Member States the freedom to decide whether to enforce mandatory firm rotation at the national level (Amendment 101 - 26 Sep. 05).

In this paper the evidence on mandatory audit firm rotation from around the world are examined in order to offer a global perspective on this regulatory hot topic. Our research supports the idea that benefits of mandatory audit firm rotation are largely unproven.

First of all this study reviews the conclusions and findings of 26 reports by regulators or other representative bodies from around the world. Of the 26 reports, 22 conclude against the benefits of mandatory audit firm rotation and while 4 are in favour. The study also looked at 33 academic studies (9 opinion based and 24 based on empirical evidence). The majority did not support mandatory audit firm rotation.

Keywords: Audit market, EU regulation, rotation, audit firms, tenure

JEL Classification: M41, M47, M49, G38

Suggested Citation

Cameran, Mara and Merlotti, Emilia and Di Vincenzo, Dino, The Audit Firm Rotation Rule: A Review of the Literature (September 1, 2005). SDA Bocconi Research Paper, Available at SSRN: or

Mara Cameran (Contact Author)

Bocconi University - Department of Accounting ( email )

Via Roentgen 1
Milan, 20136

Emilia Merlotti

Bocconi University ( email )

Via Sarfatti 25
20136 Milan, MI 20136

Dino Di Vincenzo

SDA Bocconi ( email )

Via Bocconi 8
Milan, Milan 20136

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