Audit committee perspectives on mandatory audit firm rotation: evidence from Canada

Abstract

This study examines audit committee (AC) members’ perspectives on mandatory audit firm rotation (MAFR), mandatory audit partner rotation, ways in which ACs monitor auditor independence and objectivity, and the costs associated with switching audit firms. In-person interviews with AC members in Canada were conducted to improve our understanding of the reasons underlying AC members’ positions on MAFR. All AC members interviewed in this study were adamantly opposed to MAFR. MAFR was perceived as a threat to their shareholder-granted authority to make audit firm appointment decisions. Participants believe that their professional judgment and observations are the most effective means of ensuring auditor independence and view MAFR as an unnecessary intervention. We explain these results using self-determination theory. Our findings were also used to develop a conceptual model of AC relationships with external auditors and financial management.