Staggered Audit Partner Rotations and Audit Quality

Abstract

We examine whether staggered audit partner rotations, where partners overlap their experience on clients, are positively associated with audit quality. We use dual signature audit opinions to compare audits where partners are rotated on a staggered basis to those where both partners are rotated simultaneously. Consistent with knowledge continuity management theory, staggered rotations are associated with more audit adjustments that correct clients’ pre-audited earnings, fewer financial restatements, fewer regulatory misconduct sanctions against auditors, and lower discretionary accruals. These results are present regardless of whether staggered rotations occur voluntarily or due to mandatory partner rotation rules. Our findings support audit firms’ assertion that overlapping partner experience on audits is beneficial and increases financial reporting reliability.