Interim reviews and the association between partner rotations and audit fees
- Publisher:
- Wiley
- Publication Type:
- Journal Article
- Citation:
- International Journal of Auditing, 2018, 22 (2), pp. 214 - 229
- Issue Date:
- 2018-04-06
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This paper considers whether the association between partner rotation and audit fees varies based on whether the partner is rotated before the interim review or annual report audit. Consistent with prior literature, there is some evidence of higher fees in the year of rotation, but we find this effect is driven by partner rotations that occur before the interim review, which are 7.14% higher on average. We argue that rotations before the annual report audit are less likely to be planned, and thus audit firms cannot pass on increased costs due to a weaker bargaining position. Supporting evidence is provided, as results only persist when client bargaining power is low, and in contrast there are lower fees for rotations that occur before the annual report audit when client bargaining power is high.
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