An analysis of the impact of audit firm rotation on audit fees: a South African perspective

The study contributes to research on audit fee determinants and the impact of firm rotation on fees. Through an analysis of companies listed on the Johannesburg Stock Exchange over a ten year period, the impact of audit firm rotations on audit fees was analysed considering the first years after rotation, the size of the audit firms involved and the existence of accounting restatements. The findings identify a strong link between client restatements and an increase in audit fees. Restatements issued after a rotation did have an impact on audit fees, suggesting that an increase in audit fees is likely when the newly appointed auditor requires restatement. Evidence was also found of fee discounting, which is more pronounced in smaller audit firms and which is attributed to increased levels of competition. Unexpectedly, it fails to detect solid evidence of a fee increase in the second year of a new auditor-client relationship.