This paper aims to determine the impact of mandatory auditor rotation on audit quality by collecting data from Taiwanese companies. In 2004, the Taiwanese government stipulated a five-year audit partners’ rotation. We calculate the audit tenure using both audit firms and partners and explore the differences and effects of discretionary accruals before and after the stipulation. We employ a linear mixed model to control the variance among companies, audit partners, and audit firms in order to observe the stability of the ordinary least squares (OLS) regression results. Empirical results from OLS regression indicate that the new auditors’ rotation policy in Taiwan does not improve the audit quality of audit partners. However, according to the linear mixed model results, we find that it is important to take the variances among companies, partners, and firms into account. If we only use the OLS results, it may easily lead to bias.
2010 American Accounting Association Annual Meeting and Conference on Teaching and Learning in Accounting