The effects of mandatory audit firm rotation : From Finnish auditing professionals’ perspective
Myntti, Jonathan (2019)
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The aim of this study is to assess the effects of Mandatory Audit Firm Rotation in Fin-land as a means of restoring confidence in financial statements. Given the inconclusive evidence of its effectiveness towards increasing auditor independence and professional scepticism while also having the possibility of decreasing audit quality, this thesis evaluates the outcome versus the European Commission’s objectives for the European audit reform. Other effects evaluated in the thesis related to the topic are audit costs and the audit market. The conflicting theories regarding limiting audit firm tenure either claim that auditor independence is improved by reducing excessive familiarity, or that it is insignificant with high probability of decreasing audit quality and increasing costs. The methods used in this thesis was qualitative from a constructionist position and with an interpretive approach. The empirical research was conducted by interviewing three Big Four auditors from different firms. The interviews were semi-structured and transcribed verbatim. The results indicated that Finnish auditors already retain an elevated level of confidence among stakeholders and little improvement is expected on that front. The results further showed that Mandatory Audit Firm Rotation could potentially enhance auditor independence and professional scepticism, whereas the effects on audit quality are inconclusive. The cost increase was approximated to 20% while upcoming changes in the audit market were regarded relatively small. The overall attitude towards the re-form was mostly positive. As the nature of this thesis is subjective, only an interpretation whether the European Commission has achieved their goals with the reform is provided by the author, instead of a definite answer which is left for the reader to decide.