A Fresh Look : Changes to Component Auditor Use Following Audit Partner Rotation

This paper examines whether component auditor use changes following audit partner rotation. For U.S. multinationals, the audit partner must determine whether and to what extent audit procedures, and therefore component auditors, are needed in foreign locations. A new audit partner may not change component auditor use given audit firms strive for continuity during rotations, however, audit partners are expected to re-evaluate audit processes every year and a new partner may provide a fresh look at these decisions. We find incoming partners significantly decrease the number of component auditors used. This result is concentrated in small component auditors where the audit partner has more flexibility. Additionally, this decrease is not associated with audit quality changes but negatively associated with audit fees. While prior literature demonstrates increased hours following audit partner rotation, we are one of the first to provide insight on how the audit partner changes the audit process upon rotation