THE EFFECT OF MANDATORY AUDIT FIRM ROTATION ON AUDIT QUALITY

Abstract

The discussions about whether the manner of application of mandatory rotation affects the audit quality still continue in developing countries and EU countries, notably the USA. Therefore, we investigate whether Mandatory Audit Firm Rotation (MROT) enhances audit quality in Turkey for the years 2010-2016. The findings show that companies audited by mandatorily rotated new auditors have less discretionary accruals and thus higher audit quality than those non-rotated audit firms (NROT). In addition, we find that the audit quality in companies that are subjected to the mandatory rotation is higher than the audit quality of the same companies one year ago under old audit firms. Thus, our findings support the idea that mandatory audit firm rotation enhances audit quality.