Perception of Auditors on Mandatory Audit firm Rotation and its Effect on Auditor's Independence in Ethiopia
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Date
2016-06
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Addis Ababa University
Abstract
This study was conducted on mandatory audit firm rotation and its effect on auditor
independence in Ethiopia as the perception on external auditors. Factors affecting the
ability of auditors to remain independent include long audit tenure, financial dependence
on a single audit client, non-audit services provided to audit clients and ex-auditor
employment with an audit client. It is therefore timely to examine the importance of auditor
independence in the provision of reliable and credible financial information. The study
used 5 point likert scale questionnaire and simple random sampling techniques were given
to a sample of 84 external auditors who are found at different level and to examine auditors'
perceptions of the effect of mandatory audit firm rotation on auditor independence. The
results of the study revealed that 80.3% of auditors agreed that MAFR could safeguard
auditor independence. The results also reveal that there is a significant relationship between
mandatory audit firm rotation and auditor independence. Analyses of variance (ANOVA)
were also conducted to test for the possibility of confounding effects arising from
participants' background and experience. None of these variables were found to have a
confounding effect on the experimental results. The results also disclose that the adoption
of rotation rules wasn't given enough attention among the auditing firms in Ethiopia.
Further research should be considered regarding other possible recommendations for
enhancing the independence of auditors. Some examples include, appointment of company
auditors by the state or an independent oversight body, and introduce a government
approved body to verify the auditors’ work year after year to ensure they are carrying out
their duties to their full capability.
Keywords: Mandatory audit firm rotation (MAFR), Auditor Independence, Accounting and
Auditing Board of Ethiopia (AABE)
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Keywords
Mandatory audit firm rotation (MAFR), Auditor Independence, Accounting and auditing board of ethiopia (AABE)