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Mandatory audit rotation and audit market concentration—evidence from Poland

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  • Indyk Magdalena

    (Warsaw School of Economics, Collegium of World Economy, Madalińskiego 6/8, 02-513 Warszawa, Poland)

Abstract

The new audit regulation came into force in Poland in 2017 and imposed mandatory audit rotation. The new regulation aims to strengthen the auditor’s independence but it might also affect concentration on the audit market. The aim of this paper was to analyse whether mandatory audit rotation has a potential to reduce the audit market concentration in Poland. The sample included 198 capital groups with the parent company listed on the Warsaw Stock Exchange. The own compilation was prepared based on the audit opinions which included information about appointed audit firms in the period 2011-2017 (1,386 observations in total). The paper includes the analysis of audit tenures, their length, frequency of changing the audit firm and direction of the changes (to Big-4 or to Non-Big-4). The results showed that the biggest capital groups tend to appoint Big-4 audit firms and if they change auditor—they choose another firm from the Big-4. Additionally, the high number of short-term tenures (up to five years) suggests that Big-4 firms have strong bargaining power and they benefit more from the rotation of the clients rather than from their retention. The findings significantly contribute to the hypothesis that mandatory audit rotation will not reduce the concentration on the audit market in Poland. The findings might be valuable for the regulators and supervisory authorities responsible for the monitoring of the concentration level on the audit market.

Suggested Citation

  • Indyk Magdalena, 2019. "Mandatory audit rotation and audit market concentration—evidence from Poland," Economics and Business Review, Sciendo, vol. 5(4), pages 90-111, December.
    • Handle: RePEc:vrs:ecobur:v:5:y:2019:i:4:p:90-111:n:5
    DOI: 10.18559/ebr.2019.4.5
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    References listed on IDEAS

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    1. Jong-seo Choi & Hyoung-joo Lim & Dafydd Mali, 2017. "Mandatory Audit Firm Rotation and Big4 Effect on Audit Quality: Evidence from South Korea," Asian Academy of Management Journal of Accounting and Finance (AAMJAF), Penerbit Universiti Sains Malaysia, vol. 13(1), pages 1-40.
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    4. Arrunada, Benito & Paz-Ares, Candido, 1997. "Mandatory rotation of company auditors: A critical examination," International Review of Law and Economics, Elsevier, vol. 17(1), pages 31-61, March.
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    More about this item

    Keywords

    audit reform; mandatory audit rotation; audit tenure; audit market concentration;
    All these keywords.

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • K2 - Law and Economics - - Regulation and Business Law
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • M42 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Auditing

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