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Auditor appointment in compulsory audit tendering

Author

Listed:
  • Kym Butcher
  • Graeme Harrison
  • Jill McKinnon
  • Philip Ross

Abstract

Purpose - The purpose of this paper is to examine what auditor and audit environmental attributes affect auditor appointment decisions in compulsory audit tendering, and whether the attributes affecting appointment of a new auditor (rotation) are consistent with or different from those affecting reappointment of the incumbent (retention). Design/methodology/approach - New South Wales (NSW) local council finance managers were surveyed for importance ratings of 48 attributes. An hypothesis for differential ratings between rotators and retainers was formulated. Confirmatory factor analysis, tests of mean differences and logistic regression were used. Findings - Consistent with the sample's high retention rate, the most important attributes for all respondents related to the quality of previous experience with the incumbent. Consistent with hypothesis, attributes proxying for a quality auditor (technical competence, independence and reputation) were more important for rotators. Research limitations/implications - The authors proxied rotation/retention by intention. Given the importance of audit quality attributes in the appointment decision and the high retention rate in compulsory audit tendering, future research could examine the relation between audit service quality attributes and retention. Originality/value - This is the first study to examine attributes affecting auditor appointment decisions in a mandatory choice setting. NSW local councils provide a unique opportunity to do so as it is one of few jurisdictions in which compulsory audit tendering operates. Compulsory tendering may be implemented if current legislation aimed at improving audit independence and quality through mandatory partner rotation proves infeasible.

Suggested Citation

  • Kym Butcher & Graeme Harrison & Jill McKinnon & Philip Ross, 2011. "Auditor appointment in compulsory audit tendering," Accounting Research Journal, Emerald Group Publishing Limited, vol. 24(2), pages 104-149, September.
    • Handle: RePEc:eme:arjpps:v:24:y:2011:i:2:p:104-149
    DOI: 10.1108/10309611111163682
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    References listed on IDEAS

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    1. Ann Vanstraelen, 2000. "Impact of renewable long-term audit mandates on audit quality," European Accounting Review, Taylor & Francis Journals, vol. 9(3), pages 419-442.
    2. Healy, Paul & Lys, Thomas, 1986. "Auditor changes following big eight mergers with non-big eight audit firms," Journal of Accounting and Public Policy, Elsevier, vol. 5(4), pages 251-265.
    3. Kym Boon & Jill McKinnon & Philip Ross, 2008. "Audit service quality in compulsory audit tendering," Accounting Research Journal, Emerald Group Publishing Limited, vol. 21(2), pages 93-122, September.
    4. Cripps, Martin & Ireland, Norman, 1994. "The Design of Auctions and Tenders with Quality Thresholds: The Symmetric Case," Economic Journal, Royal Economic Society, vol. 104(423), pages 316-326, March.
    5. Craswell, Allen T. & Francis, Jere R. & Taylor, Stephen L., 1995. "Auditor brand name reputations and industry specializations," Journal of Accounting and Economics, Elsevier, vol. 20(3), pages 297-322, December.
    6. Chrystelle Richard, 2006. "Why an auditor can't be competent and independent: A french case study," European Accounting Review, Taylor & Francis Journals, vol. 15(2), pages 153-179.
    7. Kym Boon & Jill McKinnon & Philip Ross, 2008. "Audit service quality in compulsory audit tendering," Accounting Research Journal, Emerald Group Publishing Limited, vol. 21(2), pages 93-122, September.
    8. DeAngelo, Linda Elizabeth, 1981. "Auditor size and audit quality," Journal of Accounting and Economics, Elsevier, vol. 3(3), pages 183-199, December.
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    Cited by:

    1. Karen Benson & Peter M Clarkson & Tom Smith & Irene Tutticci, 2015. "A review of accounting research in the Asia Pacific region," Australian Journal of Management, Australian School of Business, vol. 40(1), pages 36-88, February.

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