daugherty et al - 2012 - an examination of partner perceptions of partner rotation - direct and indirect consequences to audit quality

Auditing: A Journal of Practice & Theory American Accounting Association
Vol. 31, No. 1 DOI: 10.2308/ajpt-10193
February 2012
pp. 97–114
An Examination of Partner Perceptions of
Partner Rotation: Direct and Indirect
Consequences to Audit Quality
Brian E. Daugherty, Denise Dickins, Richard C. Hatfield, and Julia L. Higgs
SUMMARY: Using structured interviews and surveys of practicing audit partners, this
study examines their perceptions with regard to mandatory partner rotation and cooling-
off periods, and how recently enacted, more stringent rules, may negatively impact
auditors’ quality of life to the detriment of audit quality. Results suggest rotation, in
general, increases partners’ workloads and the likelihood of relocation. Additionally,
results suggest that in response to accelerated rotation (and an extended cooling-off
period), partners would rather learn a new industry than relocate. Importantly, partners
perceive audit quality suffers from retraining, but not from relocating. Thus these results
suggest an indirect, negative impact, and unintended consequence, of accelerated
rotation/extended cooling-off periods on audit quality.
Keywords: Sarbanes-Oxley; audit partner rotation; auditor independence; audit quality;
quality of life.
Data Availability: The survey instrument is available upon request. Individual audit
partner responses are confidential.
INTRODUCTION
T
his study examines the perceptions of practicing audit partners with regard to mandatory
audit partner rotation and cooling-off periods, focusing on how more stringent rules may
lead to unintended consequences (i.e., negative impact on audit quality) through their effect
on partners’ quality of life. Many countries require some form of audit partner rotation and cooling
Brian E. Daugherty is an Assistant Professor at the University of Wisconsin–Milwaukee, Denise Dickins is an
Assistant Professor at East Carolina University, Richard C. Hatfield is a Professor at The University of
Alabama, and Julia L. Higgs is an Associate Professor at Florida Atlantic University.

The authors thank Larry Abbott, Patricia Arnold, Joe Brazel, Karen Hooks, Leslie Kren, Linda McDaniel, Dan Neely,
Scott Showalter, Ehsan Soofi, Wayne Tervo, and an anonymous reviewer from the Midyear Auditing Meeting for their
helpful observations and suggestions. We also thank workshop participants at The University of Tennessee, North
Carolina State University, the University of Central Florida, The University of Montana, Southern Illinois University–
Carbondale, and the University of Wisconsin–Milwaukee. We are grateful to Logan Wehking and Tim Yang for valuable
research assistance, and are especially appreciative of the anonymous firms and practicing audit partners participating in
this research.
Editor’s Note: Accepted by Ken Trotman.
Submitted: May 2011
Accepted: October 2011
Published Online: January 2012
97
off. For example, the European Union currently requires partner rotation every seven years and a
cooling-off period of two years, the U.K. has a five-year-on, five-year-off policy, and Australia has
a five-year-on, two-year-off policy. Coincident with the enactment of the Sarbanes-Oxley Act of
2002 (SOX), the U.S. shifted from a seven-year rotation with a two-year cooling-off period, to a
five-year rotation and five-year cooling-off period (U.S. House of Representatives 2002).
1
This regulatory change provides a unique setting to investigate the perceptions of partners who
have worked under both standards.
2
Mandatory rotation of audit engagement partners results in a
‘‘ fresh look’’ at client risks and engagement issues, and increases the auditor’s independence, in part
at the expense of lost client-specific knowledge (U.S. House of Representatives 2002). While these
direct effects on audit quality have been discussed in prior literature, in this study we specifically
consider how rotation (and changes in rotation rules) influence partners’ perceived quality of life
(indirect effects), and how partners may make decisions to optimize their quality of life that may in
turn reduce audit quality.
In 2008, the U.S. Department of Treasury’s Advisory Committee on the Auditing Profession
(ACAP) heard testimony on partner rotation, including arguments that changes in rotation rules

have negatively impacted partners’ quality of life and audit quality (ACAP 2008a). Specifically, the
testimony documents partners’ difficulties with reassignments caused by increased rotation and the
profession’s growing concern of being able to attract and retain high-quality partners under the
current rotation/cooling-off system. Testimony also addressed the concern that the revised rules
would have a negative effect on technical and sector experience, leading to reduced audit quality.
To investigate these issues, we first conducted in-depth semi-structured interviews with seven
practicing audit partners (most of whom were also managing partners) in various geographic
locations, to better understand the current environment with regard to mandatory rotation and how
the revised rules are affecting practicing partners. Based on these interviews, we developed a model
of the effects of mandatory rotation on audit quality and created a field survey completed by 370
audit partners to test the model. A key aspect of this inquiry (and a key concern raised by all of the
interviewed partners) is how partners’ quality of life may be impacted by regulations, and how
partners manage their career and personal life while operating under the revised regulations. It is
these quality-of-life decisions that potentially result in unintended negative impacts on audit quality
when the partner is subject to the new rotation requirements.
Our study contributes to the literature by focusing on mandatory rotation’s influence on audit
partners’ perceived quality of life and audit quality based on partners’ perceptions of rotation rules
in effect in both the pre- and post-SOX periods. While anecdotal information from audit partners
(e.g., ACAP testimony) suggests the potential audit quality effects considered here, this is the first
study to develop this relationship explicitly and provide evidence consistent with this expectation.
Our research also allows for a unique comparison of seven-year versus five-year rotation (and two
year versus five-year cooling off ) that may be informative as the consequences of mandatory
rotation continue to be debated, both in the U.S. and in the international community, and as the
auditing profession continues toward international convergence of auditing standards.
Results of the interviews and field surveys suggest, in general, that partners perceive some
direct effects of rotation on audit quality. Consistent with prior research, rotation is viewed as
improving independence resulting in a positive impact on audit quality. However, the reduced
client-specific knowledge is perceived to negatively impact audit quality. Beyond these direct
1
The revised rotation and cooling-off mandates now extend to the concurring partner—now known as the quality

review partner (PCAOB 2009)—unlike the previous rotation requirements.
2
The new requirements became effective for fiscal years beginning on or after May 6, 2003 (SEC 2004). For
calendar-year companies, the new requirements require initial partner rotations no earlier than calendar 2004
audits, and no later than calendar 2009 audits. Our participating partners average 11 years as an audit partner.
98 Daugherty, Dickins, Hatfield, and Higgs
Auditing: A Journal of Practice & Theory
February 2012
expectations, our results suggest the SOX-imposed accelerated rotation and extended cooling-off
mandates may have an indirect effect on audit quality as well. Partners believe that audit quality is
maintained by relocating to maintain industry expertise, but perceive audit quality suffers when
partners opt to gain new industry experience in order to avoid relocation. However, due to
quality-of-life issues, partners report being more likely to opt to retrain rather than relocate. That is,
the preferred response to rotation (if necessary) is to choose an option that they perceive to have a
negative effect on audit quality in order to preserve their quality of life.
These inferences are made more evident by the fact that, in general, partners believe rotation
increases the likelihood of relocation, yet they believe that accelerated rotation (five years) will not
increase the likelihood they will relocate, though it will increase the likelihood they will opt to gain
new industry experience. Consequently, the SOX-accelerated rotation appears to increase the
likelihood that partners will specialize in multiple industries, at the expense of industry depth and to
the detriment of audit quality as reported by our practicing audit partners. Further, partners report a
two- to three-year new-client familiarization period before they are fully effective on new
engagements, increasing the amount of time audit engagements suffer from ‘‘ start-up’’ efficacy
concerns. In contrast, while partners participating in our research perceive rotation generally
improves auditor independence, they do not perceive accelerated rotation (and an extended
cooling-off period) further enhances independence.
The remainder of the paper is organized as follows. The next section expands on mandatory
rotation issues brought before ACAP, discusses the results of our semi-structured interviews with
partners, and develops a model of direct and indirect effects of mandatory rotation and related
hypotheses based on these discussions. The third section discusses the study’s field survey

methodology. Results are presented in the fourth section, and the last section provides conclusions
and suggestions for future research.
MANDATORY ROTATION ISSUES BROUGHT BEFORE ACAP
Many countries have mandatory audit engagement partner and/or audit firm rotation
requirements. The primary rationale for rotation is that it results in a ‘‘ fresh look’’ at client and
engagement issues and increases auditor independence, in part at the expense of lost client-specific
experience (U.S. House of Representatives 2002). Accordingly, it is not surprising that the extant
research is split on whether audit quality is improved by rotation. For example, audit partner
rotation was found to improve auditor conservatism (Hamilton et al. 2005) and audit quality
(Cameran et al. 2009) in regimes mandating audit partner rotation. On the other hand, Geiger and
Raghunandan (2002), Myers et al. (2003), and Johnson et al. (2002) all found audit and financial
reporting quality and audit firm tenure to be positively related; and Jackson et al. (2008) found the
likelihood of an auditor issuing a going-concern opinion increases with audit firm tenure.
Although changes to regulations, such as mandatory rotation, may appear to address specific
concerns (e.g., auditor independence), consideration must also be given to the potential for negative
and unintended consequences as behaviors change in response. For example, literature dealing with
the unintended consequences of new regulations suggests careful consideration must be given to
‘‘ second order’’ effects resulting from altered behavior of decision makers, which may be contrary
to the original intent of regulators (e.g., Kolev et al. 2008; Bru¨ggemann et al. 2010; Lambert et al.
2011). Of particular interest in this study is how quality-of-life considerations may influence
practicing audit partners’ behavior as they adjust to accelerated rotation and lengthened cooling-off
periods.
In an effort to examine the U.S. audit profession post-SOX, ACAP was formed. A number of
stakeholders provided testimony and commentary to ACAP regarding partners’ quality-of-life and
audit quality issues surrounding the SOX rotation mandates. For example, Brian Jennings, CFO of
An Examination of Partner Perceptions of Partner Rotation 99
Auditing: A Journal of Practice & Theory
February 2012
Energy Transfer Partners, testified that, given the rise of dual careers, coupled with family
requirements and location preferences, partner development and retention will be affected and will

potentially harm sector specialization.
3
Further, the Center for Audit Quality (CAQ 2008, 5)
discussed partners’ quality-of-life issues, suggesting ‘‘ more frequent rotation of partners poses
significant logistical and human capital challenges for firms, and will likely result in at least one
more relocation in the typical partner’s career.’’ Wayne Kolins, BDO Seidman’s national director of
assurance, testified that the revised partner rotation requirements may impair the ability of firms to
assign the most qualified audit partners to specific audits, noting the rules seem to imply ‘‘ each
accounting firm has an unlimited and interchangeable supply of suitably qualified partners with the
same level of skills and industry expertise in every office’’ (Kolins 2008, 16). Additionally, smaller
firms may be affected more, given the potential for a limited number of partners with sufficient
industry expertise.
4
Semi-Structured Partner Interviews
In an effort to better understand how issues such as those raised by ACAP and the CAQ may
influence the effect that rotation has on audit quality, we conducted semi-structured interviews with
seven practicing audit partners from seven different firms, six of whom were office managing
partners (OMPs) from various geographic locations and from differing office sizes. The other
partner was a leading industry specialist, selected to assist in development of the field survey
statements relevant to industry expertise. Data from these interviews were used to develop a model
(Figure 1) that demonstrates: (1) how rotation is generally perceived to influence audit quality
through its direct impact on client-specific knowledge and auditor independence, and (2) how
indirect effects caused by quality-of-life issues brought on by more stringent rotation rules may also
affect audit quality. Consistent with the approach employed by Hirst and Koonce (1996) and
Beasley et al. (2009), the use of semi-structured interviews allowed us to delve further into the
partners’ responses to develop the study’s model. A standard script guided the interviews.
Each interview lasted in excess of an hour, was attended by at least one of the authors, and
notes were taken. We explained that the purpose of the research was to explore perceptions of
mandatory partner rotation—including the SOX-mandated changes—on quality-of-life and audit
quality issues. Partners were interviewed separately and could elaborate on any issue they chose.

In general, interviewed partners felt the prior rotation rules (seven years on, two years off )
achieved the benefits of a fresh look at engagement issues such as audit scopes and risk
assessments. They also agreed that improved independence is important. However, when
discussing the SOX-imposed rotation rules, they brought up two issues concerning possible
negative impacts on audit quality. The first issue concerns the time required to get ‘‘ up to speed’’ on
a new audit engagement. Accelerating rotation from seven to five years on any audit client may lead
to only two years of highest audit quality, as it takes approximately two years for a new partner to
get fully up to speed, and partners potentially lose some efficacy in the year before they rotate off an
audit engagement as they spend time ‘auditioning’ with audit committees of potential successor
audit clients. This concern was presented in several ways, but consistently came up in discussions
with this high-level group of partners.
3
See testimony of Brian Jennings on February 4, 2008 (ACAP 2008b, 22–25) and the June 3, 2008 ACAP
meeting minutes (ACAP 2008c, 278).
4
The CAQ also noted that concurring partners generally bring deep industry expertise to an audit and play an
important role in the overall quality of public company audits (CAQ 2008). As SOX rotation requirements now
extend to concurring partners, there is an increased likelihood that their substantial industry expertise may be
diminished by the new rotation requirements. We use the ACAP findings in the formulation of the study’s model.
100 Daugherty, Dickins, Hatfield, and Higgs
Auditing: A Journal of Practice & Theory
February 2012
Second, interviewed partners voiced their ‘‘ primary concern’’ to be how accelerating rotation
(and extending cooling off ) affects the quality of life of their partners. Interviewed partners believe
relocations would necessarily increase (e.g., one partner stated that the average career would have at
least one additional relocation due to the SOX revisions). They also believe partners likely manage
their careers to minimize the potentially negative personal impact of relocation. This can be
accomplished by having a greater breadth of industry specialization—though potentially at the
expense of industry depth.
Several anecdotal stories were given describing how the current generation of newer partners

are resistant to relocation and are emphasizing quality of life over compensation. One key factor is
‘‘ spouse equality,’’ where both spouses are equally educated, having similar earning power, such
that moving is not as economically necessary as it once was. Also, parents of younger children face
the possibility of changing their children’s’ school up to three times under the revised rotation rules
(compared to once or twice under the prior rules). For example, one spouse refused to move,
requiring the rotating partner to commute long distances. Our interviewed partners consistently
assessed this as a sub-optimal response, leading to poorer client service and lower audit quality.
In an attempt to avoid relocation, interviewed partners provided examples of engagement
partners training in new industries which could slow their advancement opportunities and reduce
audit quality. They also cited examples where partners avoided relocation by taking on less
prestigious clients, again emphasizing quality of life over career progression. Finally, a key concern
of these interviewed partners is that highly rated partners, and highly rated senior managers on the
partner track, may forgo a career in public accounting to avoid these issues, stating negative
perceptions of the revised rotation rules appear to grow more pronounced as the auditor’s level in
the firm rises. Most of these partners stated they believe these issues to be exacerbated in smaller
firms and smaller offices of large firms, with few or even a single large prestigious client(s).
Model of Direct and Indirect Effects of Rotation, and Development of Hypotheses
Based on the in-depth partner interviews, the ACAP testimony, and prior literature, we
developed a model (Figure 1) that includes both the direct effects of mandatory rotation on audit
quality due to shorter audit partner tenure
5
and increased independence, and the potential indirect
effects on audit quality intimated by the discussion of partners’ quality-of-life concerns. The model
displays the secondary linkage between shorter rotation and longer cooling-off periods and audit
quality. Prior literature has suggested direct effects on audit quality due to increased independence,
a ‘‘fresh look,’’ and reduced client-specific knowledge. Our model suggests that, beyond these direct
links, rotation/cooling-off mandates affect a partner’s quality of life, and that these quality-of-life
issues will lead partners to respond to rotation requirements by learning new industries rather than
relocating. Finally, the model shows that such a choice ultimately has a negative effect on audit
quality. The study’s hypotheses are based on the key links in this model.

Direct Effects
Shareholders engage independent auditors to reduce the likelihood that managers will engage
in opportunistic behavior (e.g., perquisite consumption and shirking) at their expense (Jensen and
Meckling 1976). DeAngelo (1981) theorizes the quality of the independent auditor’s work is
dependent upon the auditor’s ability to both detect and report identified financial statement errors.
5
Financial reporting quality and audit firm tenure are positively related (Myers et al. 2003), and audit quality is
lowest in the first three years of a firm’s tenure, and highest in years four through eight (Johnson et al. 2002).
Accounting and Auditing Enforcement Releases related to fraud are positively associated with shorter firm
tenures (Carcello and Nagy 2004a).
An Examination of Partner Perceptions of Partner Rotation 101
Auditing: A Journal of Practice & Theory
February 2012
Prior research has confirmed a positive association between auditor expertise and audit quality. For
example, client-specific experience, a proxy for expertise, enhances auditors’ ability to respond to
fraud indicators (Brazel et al. 2010); and industry expertise has been found to be positively
associated with financial reporting quality (Carcello and Nagy 2004b; Krishnan 2003, 2005).
While behavior modeling research (DeAngelo 1981) theorizes that auditors have incentives to
collude with managers and not report identified financial statement misstatements in an effort to
retain the audit, research in support of this proposition is not convincing. Summarizing much of
prior research investigating the relationship between non-audit fees and audit quality, Moehrle and
Reynolds-Moehrle (2006, 2007) suggest the evidence is inconclusive. Using the audit partner’s
engagement tenure as the proxy for independence, Simnett and Carey (2006) found a negative
relationship between auditor independence and the likelihood of issuing a going-concern opinion;
and Hatfield et al.’s (2011) results suggest a positive association between audit firm and audit
partner changes and the magnitude of proposed audit adjustments.
6
When audit engagement partners rotate, absent effective knowledge-transfer strategies, client-
specific explicit and tacit knowledge may be lost, to the detriment of audit quality. Accelerating
audit engagement partner rotation and extending cooling-off periods may accentuate this issue;

hence, we expect:
H1: Audit partners perceive auditor rotation (and accelerated rotation and longer cooling-off
periods) to have a negative impact on auditor client-specific knowledge.
FIGURE 1
Model of Direct and Indirect Effects of Mandatory Rotation on Audit Quality
6
Dickins and Skantz (2010) propose these differences may be dependent upon who de facto monitors the auditor,
managers or the independent audit committee. In the post-SOX period, when independent audit committees are
explicitly responsible for monitoring independent auditors, decreases in incumbency quasi-rents (e.g., non-audit
fees) act to reduce auditor incentives to maintain their independence and report identified errors. Similarly,
decreases in technological advances gained by repeat engagement experience are predicted to reduce auditor
incentives to remain independent.
102 Daugherty, Dickins, Hatfield, and Higgs
Auditing: A Journal of Practice & Theory
February 2012
Consistent with DeAngelo’s (1981) proposition, mandatory partner rotation reduces the bond
between audit partners and their clients. That is, longer associations between audit partners and their
clients can create personal relationships that make it more difficult for the auditor to act independent
of the preferences of the client. Accordingly, we hypothesize:
H2: Audit partners perceive auditor rotation (and accelerated rotation and longer cooling-off
periods) to have a positive impact on auditors’ independence.
Indirect Effects
Like all individuals, audit partners strive to achieve personal satisfaction, which includes
maintaining a satisfactory work/life balance; minimizing conflicts with family members’ goals,
wishes, and geographic preferences; and living in a desirable location. Quality-of-life issues,
including job-related stress, burnout, job satisfaction, and turnover intentions have been recognized
as important in the public accounting profession. Research has considered how such quality-of-life
issues influence professional commitment and stress (e.g., Hall et al. 2005; Bernardi 2003), and
how quality-of-life issues are exacerbated when a working spouse and/or children are involved
(e.g., Jackson et al. 1985; Parasuraman et al. 1989). Our structured interviews, as well as the

testimony heard by ACAP, suggest increasing the frequency of rotation for audit partners will
negatively impact audit partners’ quality of life (link A in Figure 1); hence, we hypothesize:
H3: Audit partners perceive auditor rotation (and accelerated rotation and longer cooling-off
periods) to have a negative impact on their quality of life.
As previously discussed, the semi-structured interviews provide anecdotal evidence that
partners may put quality-of-life issues above career advancement opportunities, particularly in the
presence of a working spouse and/or children. Relocating can lead to many of the stressors
discussed above, and commuting may not be a viable alternative given Jackson et al.’s (1985)
finding that commuting contributes to dissatisfaction with job/family congruence. Partners could
avoid some of these issues by retraining rather than relocating (link B in Figure 1). Further, research
tracking social and generational trends suggests Generation X, individuals born between 1965 to
1976—who have or would be reaching the partner level now—are more family oriented than
previous generations (NAS 2006) and are therefore likely to put quality-of-life issues ahead of
career considerations; hence, we hypothesize:
H4: In response to shorter rotation (and longer cooling-off ) periods, partners perceive
retraining has a better outcome on their quality of life than relocating.
Some of the interviewed partners indicated audit quality may suffer beyond the direct effects of
shorter engagement partner tenure and extended cooling off, in that the preferred alternatives to
relocation may have a negative effect on audit quality. For example, retraining in new industries can
lead to several issues, including the possibility that an auditor’s ability to detect errors increases
with expertise and industry knowledge, as confirmed by prior research. For example, client-specific
experience enhances auditors’ ability to respond to fraud indicators (Brazel et al. 2010); and
industry expertise has been found to be positively associated with financial reporting quality
(Solomon et al. 1999; Krishnan 2003, 2005).
7
Reflective of link C in Figure 1, and as further
detailed in Figure 2, we hypothesize:
7
In support of the notion that auditors’ industry expertise is important to clients, Blouin et al. (2007) documented
that a number of Andersen’s former audit clients did not engage a new audit team following the firm’s demise,

but rather followed their former audit engagement team to the successor auditing firm, especially when Andersen
was viewed to be the industry leader in the local market.
An Examination of Partner Perceptions of Partner Rotation 103
Auditing: A Journal of Practice & Theory
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H5: In terms of audit quality, partners perceive relocating is a better outcome than retraining.
METHODOLOGY
The field survey was distributed to 370 practicing partners from 14 firms, representing
approximately 40 distinct practice office locations of varying size. Partners solicited to complete the
field survey were identified through contacts known to the authors in a variety of geographic
locations. For larger firms, this typically involved having a contact partner distribute the survey to
all audit partners in a specific practice location. Further, one of the eight largest firms and two of the
top 25 firms consented to a nationwide distribution of the survey to all U.S. audit partners. Of the
surveys distributed, 170 (46 percent response rate) were returned, comprising 37 Big 4 partners
(21.8 percent of the sample), 86 midsize firm partners (50.6 percent of the sample), and 47 partners
from other firms (27.6 percent of the sample).
8
All respondents had public company audit
experience with firms subject to mandatory rotation.
RESULTS
Demographics of Field Survey Participants
Table 1 provides demographic data of the audit partners participating in the field survey. Eighty
percent of surveyed partners are male and 90 percent are married; they average 47 years of age and
have been an audit partner for 11 years.
9
Partners reported expertise in an average of 2.6 industries
and served as lead (concurring) partner on an average of 1.7 (1.8) public audits during the past year.
Partners report an average of 2.14 children (averaging 1.41 under the age of 18).
10
The only significant demographic differences by firm size (not tabulated) relate to the number

of expert industries (p , 0.05), number of public companies served as lead (concurring) partner in
the prior year (p , 0.001 (p , 0.01)), and the number of assurance partners (p , 0.001) in the
local practice. Consistent with ACAP’s view that the burden of rotation was on smaller firms and
practice offices (excluding exempt firms), differences noted are generally driven by the Big 4 and/or
midsize firms as compared to the other partners. Collectively, our partner participants are in offices
FIGURE 2
Learning a New Industry versus Relocating
8
These response rates compare favorably to those of other survey-based auditing research (e.g., Bamber and
Iyer’s [2007] 23 percent, DeZoort and Salterio’s [2001] 20 percent, and Brazel et al.’s [2010] 48.8 percent
response rates).
9
Thus, most of our surveyed audit partners practiced in both the pre- and post-SOX rotation environments.
10
Inclusion of these variables in the analyses does not change the results of any of the hypothesized effects.
104 Daugherty, Dickins, Hatfield, and Higgs
Auditing: A Journal of Practice & Theory
February 2012
TABLE 1
Demographic Data of Surveyed Audit Partners
Panel A: Age, Expertise, and Experience
Big 4
a
n ¼ 37
Midsize
b
n ¼ 86
Other
c
n ¼ 47

Total
n ¼ 170
Mean
(s.d.)
Mean
(s.d.)
Mean
(s.d.)
Mean
(s.d.)
Age in years (n ¼ 167) 44.6 47.8 46.3 46.7
(6.9) (8.7) (8.4) (8.3)
Years as an audit partner (n ¼ 167) 9.4 11.9 10.2 10.9
(6.2) (9.4) (9.4) (8.8)
Calculated age at partner (n ¼ 167) 35.2 35.9 36.1 35.8
(3.8) (3.9) (4.9) (4.2)
# of expert industries (n ¼ 166) 2.1 2.8 2.5 2.6
(0.9) (1.3) (1.1) (1.2)
Times relocated due to mandatory rotation (n ¼
166)
0.11 0.02 0.02 0.04
(0.39) (0.15) (0.15) (0.23)
# of lead partner public-company audits last year
(n ¼ 166)
2.1 2.1 0.64 1.7
(1.5) (1.7) (1.43) (1.7)
# of concurring partner public-company audits
last year (n ¼ 166)
1.5 2.5 0.73 1.8
(2.2) (3.2) (1.69) (2.8)

# of audit partners locally (n ¼ 165) 21.2 8.1 8.4 11.0
(29.1) (7.3) (6.6) (15.8)
Panel B: Other Demographics
Female Male Total
Gender (n ¼ 166) 20.0% 80.0% 100%
Single Married Cohab. Divorced Total
Personal status (n ¼ 166) 5.4% 90.4% 1.8% 2.4% 100%
Age of children in years (n ¼ 166) 0–5 6–11 12–17 . 18 Total
0.43 0.57 0.41 0.78 2.14
Mean # (s.d.) of children by age (0.73) (0.78) (0.71) (1.18) (1.15)
Yes No Total
Maintained second residence for
client service (n ¼ 167)
2.4% 97.6% 100%
Big 4
a
Midsize
b
Other
c
Total Overall
Firm type (n ¼ 170) 21.8% 50.6% 27.6% 100%
Response rate (n ¼ 170) 56.1% 45.7% 40.5% 46%
a
Deloitte, Ernst & Young, KPMG, and PricewaterhouseCoopers.
b
BDO Seidman, Crowe Horwath, Grant Thornton, and McGladrey & Pullen.
c
All other firms, primarily top 25 firms not categorized as Big 4 or midsize.
An Examination of Partner Perceptions of Partner Rotation 105

Auditing: A Journal of Practice & Theory
February 2012
averaging around 11 audit partners, with one-third reporting five or fewer partners in their local
practice office, and two-thirds having eight or fewer partners (not tabulated), providing a favorable
mix of small and midsize practice office locations to investigate the hypotheses. The number of
audit partners in the local offices of the Big 4, midsize, and other partner respondents average
(range) 21 (3–120), 8 (1–45), and 8 (2–30), respectively.
Direct Effects of Rotation on Audit Quality
We first consider partners’ perceptions about the intended benefit of mandatory audit
engagement partner rotation (independence) and the generally agreed upon cost (lost client-specific
knowledge by the auditors). These relationships are represented by the outside links in the model
(Figure 1). Participants were asked the extent of their agreement on a seven-point scale (1—
Strongly Disagree, 4—Neutral, 7—Strongly Agree) to statements dealing with rotation. It should be
noted that p-values are calculated by comparing means to the scale midpoint, which is a meaningful
midpoint separating general agreement from disagreement with the survey statement.
Consistent with H1 (Table 2, Panel A), partners agreed with the statement that such knowledge
is lost due to rotation (mean ¼ 5.61; p , 0.01). Further, they perceive that longer auditor tenure
increases audit quality (mean ¼ 4.26; p , 0.05). A surveyed partner discussed the importance of
client relationship building, a notion that is frequently considered as negative in terms of its
potential impact on auditor independence and audit quality, noting: ‘‘ It takes several years normally
to establish relationships with key executives of an audit client. These relationships aid in the
partners’ understanding of their client’s businesses which enables them to better identify risk and,
as a result, adjust the audit approach to address those risks. Therefore, audit quality can be
negatively impacted when a key member of the engagement team, who has gained special
knowledge of a client, is removed from the team.’’
Consistent with H2 (Table 2, Panel A), partners generally agree with the statements that
‘‘ partner rotation improves independence in’’ both fact and appearance (mean ¼ 4.44 and 5.70,
respectively; both p-values , 0.001).
11
Similarly they agree rotation reduces inappropriate client

attachment (mean ¼ 4.69; p , 0.001). Contrary to perceptions regarding the positive impacts of
rotation (in general) on auditor independence, our surveyed partners perceive little to no value
resulting from accelerating rotation or extending cooling-off periods (Table 2, Panel B).
Participants disagree that accelerated rotation (and extended cooling off ) improve independence
in fact (means of 2.87 [2.80], with 65.1 [66.3] percent expressing some level of disagreement, and
only 13.8 [12.0] percent agreeing, all p-values , 0.001).
12
Responding partners also perceive no
benefits in terms of extended cooling offs’ impact on independence in appearance (mean of 3.97, p
. 0.10); however, they do believe independence in appearance is enhanced as a result of
accelerated rotation (mean of 4.28, 54.5 percent agreeing and 26.4 percent disagreeing, p , 0.05,
no differences based on firm size).
Effect of Rotation on Partners’ Quality of Life
The first link (Link A) in our model demonstrating the indirect effect of rotation on audit quality
links partner rotation and partner quality of life. H3 predicts rotation, in general, negatively impacts
partners’ quality of life. Survey results are consistent with this expectation (see Table 3, Panel A).
11
Large office partners felt more strongly that partner rotation improves independence in appearance, compared to
smaller offices (means of 6.00 and 5.57, respectively, p , 0.05).
12
Larger office partners reported less agreement that the rule changes improved independence in fact, compared to
smaller offices (means of 2.50 and 3.10, respectively, p , 0.01).
106 Daugherty, Dickins, Hatfield, and Higgs
Auditing: A Journal of Practice & Theory
February 2012
TABLE 2
First-Order Effects of Rotation on Audit Quality
Panel A: General Rotation
Statement
Endpoints,

Midpoint
Mean
a
(s.d.)
Diff. from
Neutral
b
1. Client-specific knowledge is lost due to
partner rotation
1 ¼ Strongly Disagree 5.61 1.61***
4 ¼ Neutral (1.17)
7 ¼ Strongly Agree
2. Longer partner tenure results in a higher
quality audit
1 ¼ Strongly Disagree 4.26 0.26*
4 ¼ Neutral (1.56)
7 ¼ Strongly Agree
3. Partner rotation improves independence in
fact (mental attitude)
1 ¼ Strongly Disagree 4.44 0.44***
4 ¼ Neutral (1.52)
7 ¼ Strongly Agree
4. Partner rotation improves appearance of
independence
1 ¼ Strongly Disagree 5.70 1.70***
4 ¼ Neutral (1.25)
7 ¼ Strongly Agree
5. Partner rotation reduces the likelihood of
inappropriate client attachment
1 ¼ Strongly Disagree 4.69 0.69***

4 ¼ Neutral (1.32)
7 ¼ Strongly Agree
Panel B: Accelerated Rotation
Statement
Endpoints,
Midpoint
Mean
a
(s.d.)
Diff. from
Neutral
b
1. Accelerated audit engagement partner rotation
requirement improved auditor independence in
fact
1 ¼ Strongly Disagree 2.87 [1.13]***
4 ¼ Neutral (1.41)
7 ¼ Strongly Agree
2. Accelerated audit engagement partner rotation
requirement improved auditor independence in
appearance
1 ¼ Strongly Disagree 4.28 0.28*
4 ¼ Neutral (1.48)
7 ¼ Strongly Agree
3. Increasing the cooling-off period from 2 years
to 5 years before an audit engagement partner
can rotate back to a client-improved
independence in fact
1 ¼ Strongly Disagree 2.80 [1.20]***
4 ¼ Neutral (1.37)

7 ¼ Strongly Agree
4. Increasing the cooling-off period from 2 years
to 5 years before an audit engagement partner
can rotate back to a client-improved
independence in appearance
1 ¼ Strongly Disagree 3.97 [0.03]
4 ¼ Neutral (1.60)
7 ¼ Strongly Agree
*, **, *** Denote significance at , or ¼ 0.05, 0.01, and 0.001 levels, respectively (two-tailed).
a
The number of responses for the individual statements may be less than the overall number of partners responding (n ¼
170) due to responses left blank. Five or fewer responses were missing for any one question and were unrelated to firm
characteristics (e.g., size).
b
Difference from neutral value of 4.
Bracketed difference values indicate disagreement, while non-bracketed values indicate agreement, relative to neutral.
An Examination of Partner Perceptions of Partner Rotation 107
Auditing: A Journal of Practice & Theory
February 2012
TABLE 3
Perceived Effects of Rotation on Partners’ Quality of Life
Panel A: General Rotation
Statement Endpoints, Midpoint
Mean
a
(s.d.)
Diff. from
Neutral
b
1. Rotation increases incoming lead partner

workload in first year
1 ¼ Strongly Disagree 6.14 2.14***
4 ¼ Neutral (0.85)
7 ¼ Strongly Agree
2. Partner rotation increases workload of other audit
team members
1 ¼ Strongly Disagree 5.43 1.43***
4 ¼ Neutral (1.14)
7 ¼ Strongly Agree
3. Rotation increases outgoing lead partner
workload in first year
1 ¼ Strongly Disagree 4.09 0.09
4 ¼ Neutral (1.56)
7 ¼ Strongly Agree
4. Audit partner rotation increases the likelihood of
relocation in your career
1 ¼ Very Unlikely 4.45 0.45**
4 ¼ Neutral (1.81)
7 ¼ Very Likely
5. The potential for relocation and commuting
discourages employees from pursuing an audit
partner track
1 ¼ Strongly Disagree 4.47 0.47***
4 ¼ Neutral (1.52)
7 ¼ Strongly Agree
6. Impact on your quality of life if you were to
relocate to become lead partner for a new client
1 ¼ Very Negative 2.65 [1.35]***
4 ¼ Neutral (1.20)
7 ¼ Very Positive

Panel B: Accelerated Rotation
Statement Endpoints, Midpoint
Mean
a
(s.d.)
Diff. from
Neutral
b
1. The change in mandatory audit engagement
partner rotation policy from 7 to 5 years
significantly increased the frequency you will
have to relocate in your career
1 ¼ Strongly Disagree 4.00 0.00
4 ¼ Neutral (1.58)
7 ¼ Strongly Agree
2. The change in mandatory audit partner rotation
policy from 7 to 5 years significantly increased
the likelihood you will have to gain new industry
expertise during your career
1 ¼ Strongly Disagree 4.70 0.70***
4 ¼ Neutral (1.40)
7 ¼ Strongly Agree
3. The change in the cooling-off period from 2 to 5
years significantly increased the frequency you
will have to relocate in your career
1 ¼ Strongly Disagree 4.05 0.05
4 ¼ Neutral (1.51)
7 ¼ Strongly Agree
4. The change in the cooling-off period from 2 to 5
years significantly increased the likelihood you

will have to gain new industry expertise during
your career
1 ¼ Strongly Disagree 4.73 0.73***
4 ¼ Neutral (1.34)
7 ¼ Strongly Agree
*, **, *** Denote significance at , or ¼ 0.05, 0.01, and 0.001 levels, respectively (two-tailed).
a
The number of responses for the individual statements may be less than the overall number of partners responding (n ¼
170) due to responses left blank. Five or fewer responses were missing for any one question and were unrelated to firm
characteristics (e.g., size).
b
Difference from neutral value of 4.
Bracketed difference values indicate disagreement, while non-bracketed values indicate agreement, relative to neutral.
108 Daugherty, Dickins, Hatfield, and Higgs
Auditing: A Journal of Practice & Theory
February 2012
Partners perceive their workload, as well as that of the engagement team, will increase due to
rotation (means of 6.14 and 5.43 respectively; both p-values , 0.001). Partners also view
mandatory rotation as leading to an increased likelihood of relocating (mean of 4.45, p , 0.01).
13
Partners’ Behavioral Response to Rotation
Next, we consider H4 (Link B in the model), which predicts, based on quality-of-life concerns,
that partners will likely change their behavior in response to rotation. To consider this link, we look
first at how satisfaction is affected by potential responses to rotation. As shown in Table 4, survey
respondents indicate that relocating will have a significant and negative impact on partner
satisfaction (mean of 2.21, p , 0.001). Similarly, serving less prestigious clients reduces partners’
satisfaction (mean of 2.98, p , 0.001). Note, however, partners are generally neutral (neither
satisfied nor dissatisfied) when asked about gaining new industry expertise to deal with rotation
(mean of 3.86, not significantly different from neutral). Consistent with H4, multiple mean
comparisons (not tabulated) indicate, based on relative satisfaction, they would rather retrain than

serve less prestigious clients (p , 0.001), and would rather retrain or serve less prestigious clients
than relocate (p , 0.001).
14
In addition, when asked specifically how accelerated rotation (longer cooling-off period) would
affect the likelihood of their future actions, partners believed only the likelihood of having to learn a
new industry would significantly increase (means of 4.70 [4.73], respectively, p-values , 0.001;
see Table 3, Panel B). Respondents were neutral regarding the likelihood of relocation (means of
4.00 [4.05], respectively). In spite of concerns expressed by interviewed partners regarding
rotation’s impact on the willingness of employees to pursue careers as partners, as depicted in Table
5, our surveyed partners disagree that rotation requirements hinder their ability to attract the best
and brightest employees (mean of 3.62, 45 percent expressing some level of disagreement and only
24.3 percent expressing some level of agreement, p , 0.001, no differences based on firm size), and
are neutral (mean of 3.98, not significantly different than neutral, no differences based on firm size)
on the influence that rotation has on their ability to retain their highest performing employees.
Finding no increase in expected relocations due to accelerated rotation and lengthened cooling-
off rules, discussed above, seems inconsistent with our expectations. However, when considered in
the overall pattern of results, it is consistent with partners’ anticipated responses to rotation (i.e.,
retraining rather than relocating or leaving the firm). Consider also partners’ most recent choices,
demonstrated in the demographic data reported in Table 1, which shows fewer than four percent of
surveyed partners have relocated due to mandatory partner rotation requirements. In contrast, 51
percent (not tabulated) reported having learned a new industry due to rotation requirements.
Together, these findings are consistent with our expectation regarding partners’ responses to
mandatory rotation.
Effect of Relocating versus Retraining on Audit Quality
Next we look at perceptions of how different partner actions (i.e., potential responses to
accelerated rotation) influence audit quality (Link C). Consistent with H5, partners perceive that
when partners retrain to gain new industry expertise, audit quality decreases (mean of 4.36, p ,
0.001; Table 5); and they disagree that relocation has a negative effect on audit quality (mean of
13
Concerns about the likelihood of relocations were higher for partners of larger firms (means of 5.64 for Big 4,

4.52 for midsize, and 3.43 for other, respectively, p , 0.001).
14
More specific but consistent insights were provided in partner comments. For example, one partner noted,
‘‘ Relocation with a family is a large disruption to quality of life.’’ Interestingly, several reported health concerns
particular to commuting.
An Examination of Partner Perceptions of Partner Rotation 109
Auditing: A Journal of Practice & Theory
February 2012
TABLE 5
Perceived Impact on Audit Quality
Statement Endpoints, Midpoint Mean
a
(s.d.)
Diff. from
Neutral
b
1. When audit engagement partners are
required to relocate, audit quality declines
1 ¼ Strongly Disagree 3.73 [0.27]**
4 ¼ Neutral (1.24)
7 ¼ Strongly Agree
2. When audit engagement partners are
required to gain new industry expertise,
audit quality declines
1 ¼ Strongly Disagree 4.36 0.36***
4 ¼ Neutral (1.34)
7 ¼ Strongly Agree
3. When audit engagement partners are
required to telecommute, audit quality
declines

1 ¼ Strongly Disagree 4.08 0.08
4 ¼ Neutral (1.35)
7 ¼ Strongly Agree
4. Audit engagement partner rotation
requirements hinder an audit firm’s ability
to attract the best and brightest employees
1 ¼ Strongly Disagree 3.62 [0.38]***
4 ¼ Neutral (1.37)
7 ¼ Strongly Agree
5. Audit engagement partner rotation
requirements hinder an audit firm’s ability
to retain the best and brightest employees
1 ¼ Strongly Disagree 3.98 [0.02]
4 ¼ Neutral (1.41)
7 ¼ Strongly Agree
*, **, *** Denote significance at , or ¼ 0.05, 0.01, and 0.001 levels, respectively (two-tailed).
a
The number of responses for the individual statements may be less than the overall number of partners responding (n ¼
170) due to responses left blank. Five or fewer responses were missing for any one question and were unrelated to firm
characteristics (e.g., size).
b
Difference from neutral value of 4.
Bracketed difference values indicate disagreement, while non-bracketed values indicate agreement, relative to neutral.
TABLE 4
Partners’ Behavioral Response to Rotation
Statement Endpoints, Midpoint Mean
a
(s.d.)
Diff. from
Neutral

b
1. Satisfaction if asked to relocate because a
client with your industry expertise
unavailable locally
1 ¼ Very Unsatisfied 2.21 [1.79]***
4 ¼ Neutral (1.12)
7 ¼ Very Satisfied
2. Satisfaction if asked to service a less
prestigious client locally if an equally
prestigious client not local upon rotation
1 ¼ Very Unsatisfied 2.98 [1.02]***
4 ¼ Neutral (1.20)
7 ¼ Very Satisfied
3. Satisfaction if asked to gain new industry
expertise upon rotation if client with your
industry expertise not local
1 ¼ Very Unsatisfied 3.86 [0.14]
4 ¼ Neutral (1.40)
7 ¼ Very Satisfied
*, **, *** Denote significance at , or ¼ 0.05, 0.01, and 0.001 levels, respectively (two-tailed).
a
The number of responses for the individual statements may be less than the overall number of partners responding (n ¼
170) due to responses left blank. Five or fewer responses were missing for any one question and were unrelated to firm
characteristics (e.g., size).
b
Difference from neutral value of 4.
Bracketed difference values indicate increases, while non-bracketed values indicate decreases, relative to neutral.
110 Daugherty, Dickins, Hatfield, and Higgs
Auditing: A Journal of Practice & Theory
February 2012

3.73, p , 0.01).
15
Comments from surveyed partners confirm their concerns about the impact of
rotation on auditor expertise. For example, one partner stated, ‘‘ My biggest issue with the current
rotation issue relates to the need to completely learn a new industry and clients to which we have
little familiarity and industry knowledge.’’ Another viewed a cost of partner rotation as ‘‘ a loss of
industry knowledge that goes against the intent of the new risk assessment standards [designed] to
gain an enhanced understanding of clients’ business.’’ Also consistent with this concern, one partner
stated, ‘‘Learning new industries as a partner is not good for the partner or the profession.’’
How Long Will Audit Quality Be Affected?
Consistent with the findings of Johnson et al. (2002), surveyed partners reported an average
(s.d.) of 2.54 (0.73) years to become fully effective on a new audit assignment. Fifty-eight percent
reported needing more than two years to become fully effective, and 93 percent reported needing at
least two years, results not varying significantly by firm size (p . 0.50). Comments from surveyed
partners addressing the issue included, ‘‘Overall, I believe it takes at least three years for an audit
partner to become intimately familiar with a new client, and the five-year rotation requirement
actually reduces the quality of the audit.’’ Another said new partners are not initially fully effective,
even within the same industry line, because of differing information technology and other
processing systems, client personnel, corporate governance characteristics (especially the strength
and expertise of the audit committee), and the time it takes to gain client trust at the senior
management and board levels.
CONCLUSIONS AND SUGGESTIONS FOR FUTURE RESEARCH
Our findings shed further light on the perceptions of benefits and detriments from differing
partner rotation requirements. As reported by one of our interviewed partners, ‘‘ market participants
are only seeing the ‘tip of the iceberg,’ believing the impending rotation cycles will really begin to
tell the tale of the impact of the changes on partners’ quality of life and, in turn, on audit quality.’’
Partner perceptions of the direct effects of partner rotation are consistent with prior theory and
the result of prior research. Specifically, rotation improves independence resulting in a positive
impact on audit quality, while the reduced client-specific knowledge is perceived to negatively
reduce audit quality. A key aspect of this study (and a key concern raised by all of the interviewed

partners) is the potential indirect and unintended effects due to partners’ quality of life being
impacted by regulations, and how partners manage their career and personal life while operating
under the revised regulations. Results suggest that partners believe audit quality is maintained by
relocating to maintain industry expertise, but perceive audit quality suffers when partners opt to
gain new industry experience in order to avoid relocation. However, due to quality-of-life issues,
partners report being more likely to opt to retrain rather than relocate. That is, the preferred response
to rotation (if necessary) is to choose an option that they perceive to have a negative effect on audit
quality in order to preserve their perceived quality of life. Additional results show that partners
perceive a two- to three-year new client familiarization period before they are fully effective on new
engagements, increasing the amount of time audit engagements suffer from ‘‘ start-up’’ efficacy
concerns.
This study has implications for future research, as well as for regulators both within and outside
of the U.S. For example, Canada and Taiwan adopted similar five-year partner rotation periods
15
Partners from large offices believe relocation has a less negative impact on audit quality, compared to partners
from smaller offices (means of 3.12 and 3.86, respectively, p , 0.01), confirming concerns of ACAP and
suggesting smaller office locations may be particularly at risk related to potential negative impacts of mandatory
rotation.
An Examination of Partner Perceptions of Partner Rotation 111
Auditing: A Journal of Practice & Theory
February 2012
beginning in 2004; but in 2010, Canada reversed this precedent changing to a seven-year-on,
five-year-off policy (see CA 2010). In addition, the International Federation of Accountants may
consider accelerating its current seven-year rotation requirement, as U.S. and international parties
continue in their efforts to converge U.S. and international standards. Currently there is disparity in
various regimes regarding mandatory partner rotation as the European Union requires partner
rotation every seven years and a cooling-off period of two years, the U.K. has a five-year-on,
five-year-off policy, and Australia has a five-year-on, two-year-off policy.
Care should be taken when drawing inferences from these results, as this study reports only the
perceptions of audit partners. As such, causality implied by the model cannot be tested with this

data. Additionally, the survey was quite long and may have resulted in respondent fatigue.
However, comments from supervising partners as well as written comments on the survey suggest
that respondents took the task quite seriously (note also the high response rate). Further, given
partners’ general dislike of accelerated rotation and extended cooling off, the data could suffer from
demand effects due to general partner bias. We attempted to counter this somewhat by starting the
survey with the more positive aspects of rotation. Overall, such data provide a starting point to
understanding the proposed model, and better understanding the intended and unintended effects of
rotation regulations. For example, partners indicate they think these effects may be magnified for
office locations with fewer partners. Consistent with this idea, the PCAOB (2007, 6) has noted
through the inspection process ‘‘a number of GAAS deficiencies for smaller auditing firms arose
from a lack of sufficient industry expertise.’’ Future research can more directly test how office size
may moderate the proposed relationship of rotation on audit quality.
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