Zimbabwean Stakeholder Perceptive of How Mandatory Audit Firm Rotation Contribute to Audit Quality

Olubukola Adegbola Otekunrin,Kudzanai Matowanyika

doi:10.13189/ujaf.2021.090613

Abstract

There is a consistent debate in the literature on how mandatory rotation of audit firms (MAFR) contributes to audit quality (AQ). For a reason, some have adopted MAFR while others did not. This study examined MAFR to AQ based on stakeholder perceptions. Theoretical insights were established to explore on existing evidence. A descriptive survey design was carried out with a triangulation approach. Interviews were conducted while at the same time questionnaires were administered to accountants, auditors, investors, and management. A population of 71 listed and audit firms were chosen, of which 29 firms were selected using simple random, systematic and purposive sampling. Correlation and regression analysis were used to examine and interpret the quantitative data. The study's findings indicated that MAFR has a positive relationship with AQ from the linear logistic regression computed; therefore, the null hypothesis is rejected. Meanwhile, having firm audit rotation is compulsory for all listed firms, which increases competition and improves independence and new idea development which ultimately results in improved audit quality. The study, therefore, concludes that MAFR is essential. The study recommends that a further study must be done to address other factors that can enhance AQ constituting 67% shown by the ANOVA test results.

Highlights

Researchers have continued to find out factors behind corporate firms failure and to find an appropriate remedy to forestall numerous accounting as well as auditing scandals involved in such corporate firms failure, and it becomes intense not too long after the downfall big firms like Enron, WorldCom as well as Qwest after the well-known Enron scandal, WorldCom as well as Qwest [45]; [41]; [40]; [42]
Irrespective of the debate, this study's justification lies in the argument that, if the MAFRm is much desired, why should it be restricted to the Universal Journal of Accounting and Finance 9(6): 1342-1354, 2021 banking sector alone as questioned by stakeholders? Does it affect audit quality? If developed countries like the USA and UK root for audit firm rotation, why not attempt it? Before we expose ourselves to such consequences, the study sought to investigate the effect of mandatory rotation of audit firms (MAFR) on AQ by establishing different perceptions regarding the relationship between the two
As shown by 0.117, the results reveal that an adjustment by 0.117 in audit fees lead to an increase in the AQ, ceteris paribus

Summary

Introduction

Researchers have continued to find out factors behind corporate firms failure and to find an appropriate remedy to forestall numerous accounting as well as auditing scandals involved in such corporate firms failure, and it becomes intense not too long after the downfall big firms like Enron, WorldCom as well as Qwest after the well-known Enron scandal, WorldCom as well as Qwest [45]; [41]; [40]; [42]. Part of the factors under consideration is audit firms’ involvement in numerous corporate failures and the issues of long term audit contracts. This is how the relationship between MAFR and AQ has been focussed on by scholar as part finding a remedy to audit firms’ involvement in numerous corporate failures. Irrespective of the debate, this study's justification lies in the argument that, if the MAFRm is much desired, why should it be restricted to the Universal Journal of Accounting and Finance 9(6): 1342-1354, 2021 banking sector alone as questioned by stakeholders? Does it affect audit quality? If developed countries like the USA and UK root for audit firm rotation, why not attempt it? Before we expose ourselves to such consequences, the study sought to investigate the effect of MAFR on AQ by establishing different perceptions regarding the relationship between the two

Objectives

Methods

Findings

Conclusion