Audit Partner Rotation, Earnings Quality and Conservatism

The long-term interaction of independent auditors with the client will be strengthened the likelihood of close relationships creation, violations of the professional code of ethics and the degradation of the quality of audited information. The rotation of the responsible partners in the audit firms is one of the policies taken by the regulatory and standardizers bodies of capital markets to improve the quality of the independent audit process and financial reporting. In this regard, the purpose of this study is to investigate the relationship between the rotation of the responsible partners in the audit firms in the short term with the earnings quality and conservatism in financial reporting. The sample of this study is included 127 companies listed in Tehran Stock Exchange between 2009 and 2016. In order to test the research hypotheses, multivariate regression models have been used by probit and generalized least squares methods in a panel data set. The results showed that there is a negative and significant relationship between the rotation of the responsible partners in the audit firms in the short term and meeting or beating earnings benchmarks by the client. In addition, it turned out that the rotation of the responsible partners in the audit firms in the short term has a positive and significant relationship with conservative financial reporting.