English

Said Kousay,Khasharmeh Hussein

doi:10.5897/jat2013.0127

Abstract

The current study examined several issues regarding auditor independence from the perspective of an emerging market such as Bahrain. Factors affecting the ability of auditors to remain independent include long audit tenure, financial dependence on a single audit client, non-audit services provided to audit clients, ex-auditor employment with an audit client and the existence of audit committees. It is therefore timely to examine the importance of auditor independence in the provision of reliable and credible financial information. The current study uses a questionnaire survey to examine auditors’ perceptions of the impact of mandatory audit firm rotation on auditor independence. The results of the study revealed that the majority of auditors agreed that MAR could safeguard auditor independence. The results also reveal that there is a significant relationship between mandatory audit firm rotation and auditor independence. Analyses of variance (ANOVA) were also conducted to test for the possibility of confounding effects arising from participants’ background and experience. None of these variables were found to have a confounding effect on the experimental results. The results also reveal that the adoption of rotation rules wasn’t given enough attention among the auditing firms in Bahrain. Keywords: Mandatory audit firm rotation (MAR), auditor independence, Gulf Cooperation Countries (GCC), European Commission (EC) Government Accounting Office (GAO), Company Accounting Oversight Board (PCAOB).

Highlights

The concept of mandatory audit rotation (MAR) is not new
The results reveal that, perceptions of auditor independence were not affected by respondents’ qualifications only on some statement
As this study focused on the impact of mandatory audit rotation on auditor independence in Bahrain, further research may be directed towards examining the impact of MAR upon audit quality and on the cost of audit rotation

Summary

Introduction

There has been considerable interest in MAR as a means of strengthening auditor independence, reducing the incidence of audit failure, improving the quality of audit and protecting investors and other users of financial statements. Mandatory audit firm rotation sets a limit on the number of years a public accounting firm may audit a company’s financial statements. A mandatory audit rotation rule which sets a limit on the maximum number of years an audit firm can audit a given company’s financial statements has been proposed as a means to preserve auditor independence and possibly to increase investors’

Objectives

Results

Conclusion