Is Mandatory Rotation Real? Evidence from Taiwan

This paper aims to diagnose the effectiveness of mandatory audit-partner rotation in Taiwan. As distinct from extant literature, this research not only is conducted under a mandatory regime but also categorizes samples by the extent of the relationship between incoming partners and outgoing partners in order to examine the influence of the policy exactly. Basically, the partner rotation is classified into two major types. If a company engages an incoming partner that has close relationship with outgoing partner, this study defines the rotation as rotation-in-appearance (RIA). On the other hand, if a forced-rotation company chooses a new independent partner, this study defines the rotation as rotation-in-fact (RIF). The result indicates that only RIF companies enhance audit quality after the implementation of mandatory partner rotation while RIA companies have a mixed impact on audit quality. This study provides valuable insights for revision of current mandatory rotation regulations.