The Impact of Mandatory Audit Firm Rotation on Audit Fees : Evidence from Iran

A mandatory audit firm's rotation policy has been adopted in many counties, including Iran, as a mechanism to improve auditor independence and in turn, audit quality. Proponents of this policy claim that its results are increased clients' audit costs. Using data from firms listed in Tehran Stock Exchange where the mandatory audit firm rotation was required from 2007, this study provides empirical evidence of the economic impact of this policy initiative on audit fees. We examine the impact of both voluntary and mandatory audit firm switch on audit fees for a sample of firms listed on TSE that covers 2006 to 2013. We find no relation between mandatory audit firm rotation and audit fee. Our results suggest that the mandatory audit firm rotation does no impact on audit costs. Other results also show that there is a positive association between voluntary audit firm rotation and audit fees