Why Audit Committees Oppose Mandatory Audit Firm Rotation: Interview Evidence from Canada

Abstract

SUMMARYThis article summarizes our recent study (Fontaine, Khemakhem, and Herda 2016), which investigates audit committee (AC) members' perspectives on mandatory audit firm rotation (MAFR), mandatory audit partner rotation, ways in which AC members monitor auditor independence, and the costs associated with changing audit firms. We conduct in-person interviews with AC members in Canada to explore our research questions. Our findings reveal that AC members view MAFR as an unnecessary threat to their shareholder-granted authority to make audit firm appointment decisions, and believe their professional judgment and observations are the most effective means of ensuring auditor independence. We explain our findings using self-determination theory. Deep insight into the perspectives of AC members, attained by face-to-face interviews and guaranteed anonymity, should interest audit firms and regulators.