Auditors and Corporate Governance: Evidence from the Public Sector

35 Pages Posted: 27 Jan 2007 Last revised: 25 Mar 2008

See all articles by Mark Schelker

Mark Schelker

University of Fribourg; CREMA; CESifo (Center for Economic Studies and Ifo Institute); SIAW, University of St. Gallen

Multiple version iconThere are 2 versions of this paper

Date Written: March 2008

Abstract

Corporate auditors review financial statements and evaluate the accuracy of the provided information. Several institutional details such as selection mechanisms and auditor tenure length are important for independence. New corporate governance rules require board committees appointing the auditor to be more independent from management. In order to enhance independence, provisions calling for mandatory auditor rotation have been debated intensively, but the available empirical evidence is not conclusive. We review the literature and argue that the available empirical evidence on auditor rotation in the corporate sector suffers from serious problems of endogeneity. We propose learning from the public sector in which auditors play a similar role. We present empirical evidence on the impact of auditor term length and rotation requirements on government performance at the US State level. We find a quadratic relationship between auditor term length and state credit ratings. This implies that auditor performance is weaker in the beginning of a mandate as well as in extended auditor-client relationships. Furthermore, in States that adopted term limits for auditors our evidence suggests beneficial effects of mandatory auditor rotation.

Keywords: corporate governance, auditor, mandatory auditor rotation, public auditor

JEL Classification: G30, G34, M49

Suggested Citation

Schelker, Mark, Auditors and Corporate Governance: Evidence from the Public Sector (March 2008). Available at SSRN: https://ssrn.com/abstract=959392 or http://dx.doi.org/10.2139/ssrn.959392

Mark Schelker (Contact Author)

University of Fribourg ( email )

Fribourg
Switzerland

CREMA ( email )

Gellertstrasse 18
Basel
Zurich, CH 8006
Switzerland

CESifo (Center for Economic Studies and Ifo Institute) ( email )

Poschinger Str. 5
Munich, DE-81679
Germany

SIAW, University of St. Gallen ( email )

Bodanstrasse 8
Saint Gallen, St. Gallen CH-9000
Switzerland

Register to save articles to
your library

Register

Paper statistics

Downloads
810
rank
28,618
Abstract Views
3,256
PlumX Metrics
!

Under construction: SSRN citations while be offline until July when we will launch a brand new and improved citations service, check here for more details.

For more information