Rotate back or not after mandatory audit partner rotation?

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Journal article

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Journal of Accounting and Public Policy

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Elsevier Inc.


Many countries have implemented rules that require an audit partner to rotate off the audit of a specific client after a certain period of time in the belief that rotation will improve independence and will allow for a fresh look at the audit. The rules are either silent on whether or when a partner can rotate back or else they specify a cooling-off period after which the rotated-off partner can resume the audit. Using archival data from China, a country with a 2-year cooling-off period, this paper explores the determinants of whether the audit partner rotates back or not when the cooling-off period expires, and whether audit quality is weakened by the audit partner rotation-back practice. We find that the audit partner rotation-back practice can be explained by factors relating to switching costs, agency conflicts, client desirability, and the audit partner’s capacity constraint considerations. Interestingly, we find that clients suffering greater audit adjustments immediately prior to the expiration of the cooling-off period are more likely to be associated with subsequent audit partner rotation-back. Furthermore, we find that rotation-back partners tend to treat former clients more favorably than non-rotation-back cases using modified audit opinions as our proxy for audit quality. Overall, our findings offer preliminary explanations for and shed light on the consequences of rotation-back practice arising from mandatory audit partner rotation requirements and lend support to regulatory concerns on rotation-back practice among audit partners.



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Funding Information

Xi Wu acknowledges financial support from the National Natural Science Foundation of China (No. 70602020), the Program for Innovation Research at the Central University of Finance and Economics (CUFE), the New Century Scholar Program of China’s Ministry of Education (NCET-11-0754), the Beijing Municipal Commission of Education “Joint Construction Project”, and the “Project 211” Fund of CUFE.

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Copyright © 2012 Elsevier Inc.

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Recommended Citation

Firth, M., Rui, O. M., & Wu, X. (2012). Rotate back or not after mandatory audit partner rotation? Journal of Accounting and Public Policy, 31(4), 356-373. doi: 10.1016/j.jaccpubpol.2012.05.002