The Market for Audit Services and Mandatory Rotation

  • Cahiers de recherche; 1995.02
Publication date1995

Auditors are playing a crucial role in the economy. Yet there are still few models which study the strategic interactions between the auditors, their clients and the outside parties (investors). Auditors is a special kind of service given that they rent their reputation. A model of the audit industry has then to explain how the action of the auditors influence their reputation. We adopt the view that auditors provide information to investors ; the reliability of this information is a function of the auditor reputation. We use the proposed dynamic framework to assess the impact of mandatory rotation of the auditors. This regulation is intended by lawmakers to increase the independence of auditors. We prove, on the contrary, that mandatory rotation is actually likely to reduce auditor independence

Citation (ISO format)
DE PALMA, André, DENECKERE, R. The Market for Audit Services and Mandatory Rotation. 1995
  • PID : unige:5992

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