Melbourne Accounting Research Seminar - David Lont

David Lont from Otago University will present a MARS seminar.

Topic: The Association between Mandatory Audit Partner Rotation and Non-Audit Services Fee Components: The Effect of Fresh Eyes

Abstract: One of the most controversial auditor independence issues is the provision of Non-Audit Services (NAS) by audit firms. However, audit independence might be mitigated by the fresh eyes effect of audit partner rotation and depends on the type of NAS provided. We contribute to this debate by showing a reduction in NAS fees in the year of audit partner rotation. We further extend the literature by considering whether mandatory audit partner rotation has differential impacts on the magnitudes of different types of NAS fees. Consistent with the Securities and Exchange Commission’s concern that specific categories of NAS may be more problematic, we find a 27.2 percent decline in the sum of tax and other fees in the year of audit partner rotation, but we find no effect for audit-related fees. Our result highlights the importance of understanding the effect of undertaking different types of NAS when considering the possible impacts on perceived or actual impacts on audit independence.

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