Auditor independence, audit quality and the mandatory auditor rotation in Egypt

Abstract

Purpose

The purpose of this paper is to introduce the problem of the lack of auditor independence in the Egyptian context, how it might affect the audit quality, through assessing reasons behind the voluntary switching of auditors, whether this switch is in the side of improving audit quality or not and the suggestion of the mandatory auditor rotation as a solution to such a problem.

Design/methodology/approach

The paper's findings are based on a survey analysis. The survey is done through a questionnaire created by the researcher (author) from the literature and distributed among audit practitioners from the Big Four audit firms operating in Egypt.

Findings

The problem of lack of auditor independence exists in Egypt due to many reasons. The main reason is the poor structure of corporations of being closely held. It was also found that the voluntary switching of auditors are for purposes improving the quality; from these reasons is the search of more reputable auditors and timelier audit opinions. Finally auditor rotation was suggested by the practitioners in order to overcome the problems of lack of independence and that the mandatory firm rotation is suggested instead of the mandatory partner rotation.

Practical implications

The mandatory audit firm rotation in different countries had some positive effect on audit quality. The application of mandatory rotation in the Egyptian context where there the problem of the lack of auditor independence is really clear is suggested so as to overcome the consequences of the independence problem and improve the audit quality.

Originality/value

This research work tries to dig more into the Egyptian context as a developing country regarding the threats to the auditing professionals in terms of the causes that might be impairing their independence as well as assessing the applicability of the mandatory rotation practice in Egypt.

Citation

Mostafa Mohamed, D. and Hussien Habib, M. (2013), "Auditor independence, audit quality and the mandatory auditor rotation in Egypt", Education, Business and Society: Contemporary Middle Eastern Issues, Vol. 6 No. 2, pp. 116-144. https://doi.org/10.1108/EBS-07-2012-0035