Abstract
Purpose: The purpose of this study is to test the relationship between auditor rotation and the level of auditor independency, and to investigate, the impact of auditor rotation, audit fees, audit tenure and the relationship with client on the auditor independency in Jordanian audit firms. Furthermore, to identify the reasons behind rotating the auditor and the advantages/disadvantages of auditor rotation. Design/methodology/approach: The study has been carried out through a questionnaire survey that aimed to collect data about the auditor independency in Jordan, and through a developed model to test the mandatory auditor rotation in the Jordanian audit firms. Findings: After defining the four independent main variables of the auditor independency (auditor-client relationship, audit tenure, audit fees, and mandatory auditor rotation). The findings of the study revealed that there is a significant positive relationship between the auditor independency and auditor-client relationship and mandatory rotation. A negative one with the audit fees and there is no relationship with audit tenure. Research limitations/implications: This paper has some limitations such as, some audit firms refused to allow researchers to distribute the questionnaire which is not familiar in Jordan. Originality Value: This paper contributes to the understandings of the nature and characteristics of the auditor independency by empirically exploring the nature and characteristics of mandatory auditor rotation in Jordan.
Highlights
Prospective investors are a very important part of users as they need to assess the viability of investing in a specific company; they are looking to maximize their wealth through investing in profitable companies
There was a positive significant relationship between the auditor rotation and the auditor independency, in general when the auditor rotation increases the auditor independency increases, sometimes auditors use the same methods and the same techniques in auditing a specific firm which sometimes may lead to some misstatements and can increase the chances of firm fraud or manipulation and that is consistent with (Hoyle, 1978; McLaren, 1958) studies
In the researchers personal point of view, encouraging firms to use the auditor rotation every set of years because auditor rotation is an essential factor which enhances the auditor independency due to the apprehension of the auditor that the auditor or audit firm may discover some misstatements made by him, so usually the auditor will try to do his job in a perfect way, the auditor rotation may prevent relationships between auditors and the audited firm which means that auditor rotation will play a main role in maintaining auditor independency and enhancing the audit quality
Summary
Prospective investors are a very important part of users as they need to assess the viability of investing in a specific company; they are looking to maximize their wealth through investing in profitable companies. The main and the most important objective of financial statements is providing useful information about the financial position of the company that can be used by a wide range of users in making decisions; it provides useful information to a very huge and wide range of potential users such as: Shareholders who use the financial statements to decrease the risk and assess the return of their investment in a specific company as they use it to take important investment decisions based on their own analysis. When these audited statements published with free or little misstatements the auditor grant credibility and positive reputation to the clients company, external auditing is more credible than internal auditing (Jack Ori, 2009)
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