In 2010, the European Commission released a public consultation, Green Paper on Audit Policy, and a year later the Public Company Accounting Oversight Board in the US also published a public consultation, Concept Release on Auditor Independence and Audit Firm Rotation, which both included questions about whether mandatory rotation of audit firms should be implemented or not. The main suggestion in both public consultations was that the rotation would enhance auditor independence and increase audit quality.

However, in 2013 the legislators in the US decided to prohibit a regulation on mandatory rotation of audit firms whereas the EU legislators, in 2014, decided to adopt the regulation to force public interest entities to change audit firms within a maximum period of ten years. These two different decisions by the EU legislators and the US legislators are interesting since they both wish to achieve the same purpose; to improve audit quality and auditor independence.

Still, they used two approaches that are contradictory to each other.

And you, as investor, would you support a mandatory audit firm rotation or not?


Source: Jönköping International Business School, Fredrik Jönsson & Johan Ottosson