Skip to main content
SpringerLink
Log in

Mandatory rotation of audit firms and auditors in Greece

  • Original Article
  • Published:
International Journal of Disclosure and Governance Aims and scope Submit manuscript

Abstract

This paper aims to examine the question of whether the mandatory rotation of audit firms and auditors, which is part of the new European Audit Reform, is a desirable measure in Greece. A comprehensive literature review of related studies from Europe and around the world was performed to study the issue. We conduct an empirical analysis focusing on auditors working in Greek audit firms and present the results of the responses from 115 members of the Institute of Certified Public Accountants of Greece. Empirical findings provide mixed results with regard to the implications of mandatory rotation. Most of the respondents agree that mandatory rotation will increase the overall costs of the audit process. However, they also conclude that it will increase both auditor independence and resistance to the management of audited firms. The findings of the study should be of interest to policymakers, regulators and audit firms in Greece and Europe. This is the first study that investigates the effects of mandatory rotation on audit quality in Greece since the establishment of the new regulatory audit framework. The study focuses on auditors’ views considering their decisive role in achieving audit quality. The conclusions of this study are generally in line with those indicated in the literature.

This is a preview of subscription content, log in via an institution to check access.

Access this article

Log in via an institution

Price excludes VAT (USA)
Tax calculation will be finalised during checkout.

Instant access to the full article PDF.

Similar content being viewed by others

Notes

  1. More specifically, in 2010, the European Commission released a green paper entitled: ‘Audit Policy: Lessons from the Crisis’, while the European Parliament reacted to the Commission’s 2010 green paper with its own report (available at: https://www.europarl.europa.eu/sides/getDoc.do?type=TA&language=EN&reference=P7-TA-2011-359).

  2. According to the Greek Audit Law, the definition of PIEs is identical to that provided by the EU legislation, referring to listed entities and entities with listed debt, credit institutions and insurance undertakings. Also, the Minister of Finance has the right to designate other entities as PIEs.

  3. For systemically important financial institutions, the maximum initial duration of engagement is 5 years.

  4. According to Greek Law, the international auditing standards are applicable provided that they are relevant to statutory audit; they have been approved by the Hellenic Accounting and Auditing Standards Oversight Board (HAASOB) and they have been published in the Official Government Gazette.

  5. The Big 4 refers to the four largest accounting and auditing firms in the world, namely Deloitte Touche Tohmatsu, Ernst & Young, KPMG, and PricewaterhouseCoopers.

References

  • Arel, B., R. Brody, and K. Pany. 2006. Findings on the Effects of Audit Firm Rotation on the Audit Process under Varying Strengths of Corporate Governance. Advances in Accounting 22: 1–27.

    Google Scholar 

  • Arrunada, B., and C. Paz-Ares. 1997. Mandatory rotation of company auditors: A critical examination. International Review of Law and Economics 17: 31–61.

    Google Scholar 

  • Bleibtreu, C., and U. Stefani. 2018. The effects of mandatory audit firm rotation on client importance and audit industry concentration. The Accounting Review 93 (1): 1–27.

    Google Scholar 

  • Boone, J., I. Khurana, and K. Raman. 2010. Do the Big 4 and the Second-Tier Firms Provide Audits of Similar Quality? Journal of Accounting and Public Policy 29 (4): 330–352.

    Google Scholar 

  • Bradbury, Μ., and Ν. Redmayne. 2013. Audit Effort and Pricing Differences among the Large Audit Firms: Evidence from a Public Sector Setting. International Journal of Auditing 18(1): 90–100.

    Google Scholar 

  • Butcher, K., G. Harrison, and P. Ross. 2013. Perceptions of Audit Service Quality and Auditor Retention. International Journal of Auditing 17(1): 54–74.

    Google Scholar 

  • Cameran, M., G. Negri, and A. Pettinicchio. 2015. The Audit Mandatory Rotation Rule: The State of the Art. Journal of Financial Perspectives 3(2): 1–29.

    Google Scholar 

  • Cameran, M., A. Prencipe, and M. Trombetta. 2016. Mandatory Audit Firm Rotation and Audit Quality. European Accounting Review 25(1): 35–58.

    Google Scholar 

  • Carcello, J., and A. Nagy. 2004. Audit Firm Tenure and Fraudulent Financial Reporting. Auditing: A Journal of Practice and Theory 23(2): 55–70.

    Google Scholar 

  • Casterella, J., and D. Johnston. 2013. Can the Academic Literature Contribute to the Debate Over Mandatory Audit Firm Rotation? Research in Accounting Regulations 25(1): 108–116.

    Google Scholar 

  • Catanach Jr., A., and P. Walker. 1999. The International Debate Over Mandatory Auditor Rotation: A Conceptual Research Framework. Journal of International Accounting, Auditing and Taxation 8(1): 43–66.

    Google Scholar 

  • Chi, W., H. Huang, Y. Liao, and H. Xie. 2009. Mandatory Audit Partner Rotation, Audit Quality and Market Perception: Evidence from Taiwan. Contemporary Accounting Research 26(2): 359–391.

    Google Scholar 

  • Church, B., J. Jenkins, and J. Stanley. 2018. Auditor Independence in the United States: Cornerstone of the Profession or Thorn in Our Side? Accounting Horizons 32(3): 145–168.

    Google Scholar 

  • Davis, L. et al. 2000. Auditor Tenure, Auditor Independence and Earnings Management. Boston College, Boston, US. Working paper.

  • DeAngelo, L. 1981. Auditor Size and Audit Quality. Journal of Accounting and Economics 3(3): 183–199.

    Google Scholar 

  • Dekeyser, S., and Simac, I. 2019. EU Statutory Audit Reform: Impact on Costs, Concentration and Competition. Study for the Committee on Economic and Monetary Affairs, Policy Department for Economic, Scientific and Quality of Life Policies, European Parliament, Luxembourg.

  • Dopuch, N., R. King, and R. Schwartz. 2003. Independence in Appearance and in Fact: An Experimental Investigation. Contemporary Accounting Research 20(1): 79–114.

    Google Scholar 

  • Elder, R., S. Lowensohn, and J. Reck. 2015. Audit Firm Rotation, Auditor Specialization and Audit Quality in the Municipal Audit Context. Journal of Governmental and Nonprofit Accounting 4: 73–100.

    Google Scholar 

  • Ettredge, M., Ε. Fuerherm, and C. Li. 2014. Fee Pressure and Audit Quality. Accounting, Organizations and Society 39: 247–263.

    Google Scholar 

  • Ewelt-Knauer, C., A. Gold, and C. Pott. 2012. What Do We Know about Mandatory Audit Firm Rotation? Edinburgh: Institute of Chartered Accountants in Scotland (ICAS).

  • Ewelt-Knauer, C., A. Gold, and C. Pott. 2013. Mandatory Audit Firm Rotation: A Review of Stakeholder Perspectives and Prior Research. Accounting in Europe 10(1): 27–41.

    Google Scholar 

  • Fairchild, R. 2008. Auditor Tenure, Managerial Fraud and Report Qualification: Α Behavioural Game-Theoretic Approach. International Journal Behavioural Accounting and Finance 1(1): 23–37.

    Google Scholar 

  • Firth, M., Ο. Rui, and Χ. Wu. 2010. How Do Various Forms of Auditor Rotation Affect Audit Quality? Evidence from China. The International Journal of Accounting 47(2012): 109–138.

    Google Scholar 

  • Francis, J., et al. 2010. Big Four Audit Market Competition and Earnings Quality around the World. University of Missouri, Columbia, US. Working paper.

  • Gates, S., D. Lowe, and P. Reckers. 2007. Restoring Public Confidence in Capital Markets Through Auditor Rotation. Managerial Auditing Journal 22(1): 5–17.

    Google Scholar 

  • Geiger, Μ., and Κ. Raghunandan. 2002. Auditor Tenure and Audit Reporting Failures. Auditing: A Journal of Practice and Theory 21(1): 67–78.

    Google Scholar 

  • Geiger, M., D. North, and B. O’Connell. 2005. The auditor-to-client revolving door and earnings management. Journal of Accounting, Auditing and Finance 20(1): 1–26.

    Google Scholar 

  • Ghosh, A., and D. Moon. 2004. Auditor Tenure and Perceptions of Audit Quality. The Accounting Review 80(2): 585–612.

    Google Scholar 

  • Gul, F., B. Jaggi, and G. Krishman. 2007. Auditor Independence: Evidence on the Joint Effects of Auditor Tenure and Nonaudit Fees. A Journal of Practice and Theory 26(2): 117–142.

    Google Scholar 

  • Imhoff, E.A.Jr. 2003. Accounting Quality, Auditing and Corporate Governance. Accounting Horizons 17(2): 117–128.

    Google Scholar 

  • Jackson, A., M. Moldrich, and P. Roebuck. 2008. Mandatory Audit Firm Rotation and Audit Quality. Managerial Auditing Journal 23(5): 420–437.

    Google Scholar 

  • Jenkins, J., and J. Stanley. 2019. A Current Evaluation of Independence as a Foundational Element of the Auditing Profession in the United States. American Accounting Association 13(1): 17–27.

    Google Scholar 

  • Johnson, E., I. Khurana, and J. Reynolds. 2002. Audit Firm Tenure and the Quality of Financial Reports. Contemporary Accounting Research 19(4): 637–660.

    Google Scholar 

  • Kim, S., S. Kim, D. Lee, and S. Yoo. 2019. How Investors Perceive Mandatory Audit Firm Rotation in Korea. Sustainability 11(4): 1089.

    Google Scholar 

  • Kingstone, G., W. Gerald, C. Dzidzai, S. Elizaberth, and K. Nyasha. 2017. Mandatory Audit Firm Rotation and Audit Quality in Zimbabwe. Research Journal of Finance and Accounting 8(6): 34–41.

    Google Scholar 

  • Kwon, S., Y. Lim, and R. Simnett. 2014. The Effect of Mandatory Audit Firm Rotation on Audit Quality and Audit Fees: Empirical Evidence from the Korean Audit Market. Auditing: A Journal of Practice and Theory 33(4): 167–196.

    Google Scholar 

  • Langli, J., and Willekens, M. 2018. The Economics of Auditor Regulation. In Forefront, Looking Ahead. Universitetsforlaget (pp. 159–176).

  • Lennox, C., Χι, W., and Zhang, Τ. 2013. Change for Change’s Sake: Does Mandatory Partner Rotation Improve Audit Quality? In Proceedings of the conference “The MIT Asia Conference in Accounting” (pp. 1–50).

  • Manry, D., T. Mock, and J. Turner. 2006. Does Increased Audit Partner Tenure Reduce Audit Quality? Journal of Accounting, Auditing and Finance 23(4): 553–572.

    Google Scholar 

  • Myers, J., L. Myers, and T. Omer. 2003. Exploring the Term of the Auditor–Client Relationship and the Quality of Earnings: A Case for Mandatory Auditor Rotation? The Accounting Review 78(3): 779–799.

    Google Scholar 

  • Owusu-Ansah, St., St. Leventis, and C. Caramanis. 2010. The Pricing of Statutory Audit Services in Greece. Accounting Forum 34(2): 139–152.

    Google Scholar 

  • Reid, L., and J. Carcello. 2017. Investor reaction to the Prospect of Mandatory Audit Firm Rotation. The Accounting Review 92(1): 183–211.

    Google Scholar 

  • Ricken, S. 2016. Mandatory Audit Firm Rotation in a Big 4 Audit Firm. Nijmegen: Radboud University.

    Google Scholar 

  • Ruiz-Barbadillo, E., N. Gomez-Aguilar, and N. Carrera. 2009. Does Mandatory Audit Firm Rotation Enhance Auditor Independence? Evidence from Spain. Auditing: A Journal of Practice and Theory 28(1): 113–135.

    Google Scholar 

  • Quick, R. 2017. Do Audit Firm Rotation, Auditor Retention and Joint Audits Matter? An Experimental Investigation of Bank Directors’ and Institutional Investors’ Perceptions. in Proceedings of 2017 UF International Conference on Assurance and Governance.

  • Said, K., and H. Khasharmeh. 2014. Mandatory Audit Firm Rotation and Audit Costs: A Survey of Auditing Firms in Bahrain. Journal of Finance and Accounting 2(6): 116–128.

    Google Scholar 

  • Simunic, D. 1980. The Pricing of Audit Services: Theory and Evidence. Journal of Accounting Research 18(1): 161–190.

    Google Scholar 

  • SOEL. 2010. Answers of the SOEL to the questions raised in the European Commission’s green paper on audit policy, https://circabc.europa.eu/d/d/workspace/SpacesStore/d5644fb3-8fe3-4257-ab3a-3128874f9e2f/Institute%20of%20Certified%20Public%20Accountants%20of%20Greece%20(SOEL)%20el.pdf, accessed 5 January 2018 (in Greek).

  • Solomon, I., M. Shields, and O. Whittington. 1999. What do Industry-Specialist auditors Know? Journal of Accounting Research 37(1): 191–208.

    Google Scholar 

  • Stanley, J., and F. DeZoort. 2007. Audit Firm Tenure and Financial Restatements: An Analysis of Industry Specialization and Fee Effects. Journal of Accounting and Public Policy 26(2): 131–159.

    Google Scholar 

  • Tahinakis, P., and A. Nicolaou. 2004. An Empirical Analysis on the Independence of the Greek Certified Auditor-Accountant. Accounting Business and the Public Interest Journal 3(1): 32–47.

    Google Scholar 

  • United States General Accounting Office. 2004. Mandatory audit firm rotation study—Study Questionnaires, Responses and Summary of Respondents’ Comments, https://www.gao.gov/new.items/d04217.pdf, accessed 2 December 2017.

  • Vanstraelen, A. 2000. Impact of Renewable Long-Term Audit Mandates on Audit Quality. The European Accounting Review 9(3): 419–442.

    Google Scholar 

  • Ye, P., E. Carson, and R. Simnett. 2006. Threats to Auditor Independence: The Impact of Non-Audit Services, Tenure and Alumni Affiliation, 2052. Sydney: School of Accounting University of NSW.

    Google Scholar 

  • Ye, P., E. Carson, and R. Simnett. 2011. Threats to Auditor Independence: The Impact of Relationship and Economic Bonds. Auditing: A Journal of Practice and Theory 30(1): 121–148.

    Google Scholar 

  • Wilson, A., C. McNellis, and C. Latham. 2018. Audit Firm Tenure, Auditor Familiarity and Trust: Effect on Auditee Whistleblowing Reporting Intentions. International Journal of Auditing 22(2): 113–130.

    Google Scholar 

Download references

Acknowledgements

We would like to express our sincere thanks to the Studies Director of the Institute of Certified Public Accountants of Greece Mr. Vasilios Loumiotis for his valuable help in sending the questionnaire to the members and lectures of the Institute.

Author information

Authors and Affiliations

  1. Department of Economics, International Hellenic University, Terma Magnesias, 62124, Serres, Greece

    Persefoni Polychronidou

  2. Department of Business Administration, University of Macedonia, 156 Egnatia Street, 546 36, Thessaloniki, Greece

    George Drogalas & Ioannis Tampakoudis

Authors
  1. Persefoni Polychronidou
    View author publications

    You can also search for this author in PubMed Google Scholar

  2. George Drogalas
    View author publications

    You can also search for this author in PubMed Google Scholar

  3. Ioannis Tampakoudis
    View author publications

    You can also search for this author in PubMed Google Scholar

Corresponding author

Correspondence to Persefoni Polychronidou.

Ethics declarations

Conflict of interest

On behalf of all authors, the corresponding author states that there is no conflict of interest.

Additional information

Publisher's Note

Springer Nature remains neutral with regard to jurisdictional claims in published maps and institutional affiliations.

Rights and permissions

Reprints and permissions

About this article

Check for updates. Verify currency and authenticity via CrossMark

Cite this article

Polychronidou, P., Drogalas, G. & Tampakoudis, I. Mandatory rotation of audit firms and auditors in Greece. Int J Discl Gov 17, 141–154 (2020). https://doi.org/10.1057/s41310-020-00080-3

Download citation

  • Received:

  • Published:

  • Issue Date:

  • DOI: https://doi.org/10.1057/s41310-020-00080-3

Keywords

Search

Navigation