The perceived financial effects of mandatory audit firm rotation

Michael Harber, Ben Marx, Phillip De Jager

Research output: Contribution to journalArticlepeer-review

10 Citations (Scopus)


This paper explores the perceptions of key audit industry stakeholders concerning the direct and indirect financial effects of the implementation of mandatory audit firm rotation (MAFR) in South Africa. Globally, concerns over audit quality, in response to corporate failures, have resulted in renewed debate over MAFR as a solution. The European Union and South Africa have recently ruled in its favor, while other countries have rejected it on grounds that the benefits do not exceed the costs. Using structured surveys, the informed perspectives of experienced auditors, chief financial officers, audit committee chairs, and equity fund managers are explored and contrasted. We find that considerable costs will be imposed on audit firms in the form of “setup and transition costs,” as well as costs incurred to submit and present competitive tenders to secure appointment. Although auditors will try to recoup these costs with fee increases, this will likely not be allowed by the clients, resulting in a squeeze of audit firm profits. The Big 4 firm fee premium, relative to non-Big 4 firms, will decrease due to increased competition. From the clients' perspective, the costs will be in the form of audit inefficiency translating into staff time and disruption, caused by the incoming auditors being less familiar with the complexities of the business. We contribute to the literature detailed descriptions and estimations of the nature and extent of potential cost implications, as expressed by experienced practitioners. The findings inform audit industry regulators, standard-setters, and practitioners to more effectively mitigate potential unintended consequences of the regulation.

Original languageEnglish
Pages (from-to)215-234
Number of pages20
JournalJournal of International Financial Management and Accounting
Issue number2
Publication statusPublished - 1 Jun 2020


  • audit fees
  • auditing
  • auditor regulation
  • auditor rotation
  • mandatory audit firm rotation

ASJC Scopus subject areas

  • Accounting
  • Business, Management and Accounting (miscellaneous)
  • Finance


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