GDL

Mandatory rotation of corporate auditors has been proposed at EU level in order to


improve audit quality. The paper analyses the effect of this requirement on audit cos


and quality. The rule is shown to increase audit cost and price through the destruction


of specific assets and the distortion of competition. A negative impact on quality is also


a highly plausible effect, as a consequence of the lower technical competence of audi-


tors and fewer incentives for independent behaviour--at least for diversified auditors.


These conclusions are supported by relevant data on the auditing industry and some


empirical evidence on the effect of the rule in the countries where it has been imple


mented. 1997 Elsevier Science Inc.

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