Abstract
One of the most controversial auditor independence issues is the provision of non audit services by the incumbent audit firms. This thesis also contributes to this debate by showing a reduction in non-audit fees in the year of audit partner rotation. I further extend the literature by considering whether mandatory audit partner rotation has differential impacts on the magnitude of different categories of non-audit fees. Consistent with the Securities and Exchange Commission (SEC)’s position that specific categories of non-audit services may promote transparency and be informationally useful, I find a significant decline in non-audit related fees in the year of audit partner rotation. However, I find no significant effects on audit-related fees. The results highlight the importance of understanding that the different types of non-audit services might have differential impacts on auditor independence. Non-GAAP earnings can provide additional information to mandatory periodic financial disclosures in accordance with Generally Accepted Accounting Principles (GAAP), but managers may utilize their discretion to manipulate non-GAAP earnings. Although external auditors are not directly responsible for non-GAAP disclosures, they still need to read these disclosures as “other information related to mandatory audits.” I examine the effect of audit partner rotation on the quality of S&P 1500 constituents’ non-GAAP earnings. The results suggest that audit partner rotation may lead management to make more low-quality non-GAAP exclusions, which, possibly being the result of the incoming audit partner’s lack of familiarity with the client, may be deceptive regarding the profitability and viability of the company.