Mandatory auditor rotation, adoption of IFRS and accounting conservatism

This paper investigates if mandatory audit firm and partner rotations affect accounting conservatism. It is postulated that the potential for auditor rotation to enhance conservatism is a function of the underlying demand for accounting information, which stems from institutional factors, and the intrinsic level of conservatism embedded in Generally Accepted Accounting Principles (GAAP). It is argued that Italian GAAP was intrinsically more conservative than IFRS. Because the demand for conservatism in Italy is unaffected by the adoption of IFRS in 2005, rotations are expected to increase conservatism after this adoption more than before. We provide evidence consistent with this conjectur