Audit partner tenure management and audit opinions

Regulators in many countries require audit partners to rotate off engagements after a certain number of years. Using data from the Chinese market, where audit partners must rotate off every five years, we find that a considerable number of audit partners voluntarily rotate off in their fourth year of tenure but return one year later. Our study shows that these partners are significantly less likely to issue modified audit opinions in the last year of their first tenure and in the first two years after they rotate back, despite a decline in reporting quality during these periods. Furthermore, contrary to previous findings that incoming partners perform higher quality audits in the first year following mandatory rotation, we do not observe better audit quality from incoming partners following such ‘voluntary’ rotations. Our findings suggest that mandatory rotation regulations could lead audit partners to manage their tenure to circumvent these rules, significantly undermining regulatory efforts to enhance auditor independence through mandatory rotation.