Factors Affecting Audit Firms Rotation: Jordanian Case

Transcription

1 European Journal of Economics, Finance and Administrative Sciences ISSN Issue 96 December, 2017 FRDN Incorporated Factors Affecting Audit Firms Rotation: Jordanian Case Tariq Moh d Yaser AlRajabi tariq_rajabi@hotmail.com Lina Hani Warrad Associate Professor, Accounting Department Applied Science Private University, Amman, Jordan l_warrad@asu.edu.jo Abstract The primary target of the financial statements is to introduce a summarized overview about the performance and financial position of the firm; these statements are used by the firms management, government, labor union and other stakeholders for decision making procedure. Also audit service is very significant to raise financial statement users confidence in the financial report. This service will afford added value to the financial statement, in which users use its presented information for decision making. The concept of AFR is the lawful instruction of the period an audit firm continues and offer professional services to its clients. It requires audit firms to be rotated after a specific number of years in spite of the efficiency, quality, independence, confidence and the desire of the shareholders to hold the audit firm. The aim of this study is to determine the factors affecting audit firm s rotation (AFR) in the Jordanian listed firms. The study involved companies from all sectors, and used seven sections Questionnaire to measure the factors that might affect the AFR. The population is all the Jordanian listed firms, which consist of 261 companies as of 2015, and the sample is 165 companies selected using random purposive sampling, two hundred (200) Questionnaires were distributed and 130 Questionnaires were collected, out of which only 121 was considered in the study with complete answers. The AFR is considered as the dependent variable in this study, and the factors affecting AFR (Rotation Drivers) were considered the independent variables which were: Accountability, Compliance to ISAs, Experience, Board Independence, Responses Delay and finally the Audit Firm Size. After analyzing the gathered data and assumptions, the study made the following conclusions: there is a significant effect between accountability and AFR, and between experience and AFR, and there was an insignificant effect between AFR and Compliance to ISAs, Board Independence, Responses Delay, and Audit Firm Size. This study recommends the audit firms to achieve a high level of accountability with their clients, along with getting the experience which will make the audit process as it should. It also recommends the researchers to add more potential factors that may affect AFR in their studies.

2 6 European Journal of Economics, Finance and Administrative Sciences Issue 96 (2017) Keywords: Audit, Audit Firms, Rotation, Audit Firm s Rotation, and Amman Stock Exchange (ASE). 1. Introduction Financial statements should be reliable and fair to indicate the realistic financial position of the firm to allow the users to take the most suitable decisions and achieve the corporate objectives. Through auditing the auditors are going to estimate the risk of errors and misstatements during the year to make certain that the financial statements are fairly presented and to evaluate the performance and internal control system of the firm. (Clements J., 2011). The audit firm repute performs an effective role to make certain the credibility of financial statements and many elements are combined to construct this repute. The most significant element is the auditor independence (Simunic D., 1984). Auditor board independence is the most essential advantage in audit profession. Shortage of auditor independence may give rise to unfairness, problem between the audit firm and the client; in some cases, it may bring about bankruptcy of business and harm it as Enron and WorldCom scandal which is deemed the largest bankruptcy reorganization in American history. When the auditor is considered being independent, the financial information is more secret for the public and used to make right decisions. (Ghosh A., & Moon, D., 2004) In the absence of AFR, the auditor may use the same approach and audit program for many years, but the audit will loss the innovation it had in the beginning and will become foreseeable and inefficient. Audit rotation shall help to earn a fresh outlook on the client's financial statements and the new audit firm might be able to reveal things in statements that the previous firm couldn't detect and errors of the previous firm. It also gives the opportunity to examine other firm's work instate of just applying the peer review program. (Catanach A. H., Walker P. L., 1999) The aim of this study is to carefully investigate the factors affecting AFR in Jordanian listed companies, addressing the significance of these factors to classify the characteristics that might help companies and audit firms in their contracting with each other. 2. Previous Studies A lot of researchers studied the audit rotation, whether related to AFR, or audit partner rotation. Below we will list the most related topics to the research: During the time that carrying out an annual audit of a client's financial statements, (Barbara A, 2006) study concluded that an audit firm's staff specified what appear to be a substantial misstatement. Two discussions with the client have produce a dilemma in that the client denies to record what the auditor considers as a necessary adjustment. The empirical study investigates whether the likelihood of public accountants adjusting their audit report for this deviation from generally accepted accounting principles is influenced by whether AFR is about to occur (no rotation v. rotation) under each of the two levels of corporate governance (weak v. strong). The subjects include 105 CPA firm employees and partners who have an average experience level slightly less than 14 years. Results showed that auditors in the rotation position are more likely to adjust their audit report as differ from those in a position in which a continuing relationship is expected. (Lu and Sivarama k., 2009) examined the effects of audit firm rotation (MAR) on firms' investment decision and auditor choice in a capital market setting using analytical methods; it had found that when firms participate in opinion shopping, AFR increase investment efficiency for some firms but decrease investment efficiency for other firms. It was done by examined the impacts of AFR on firms investment decision and auditor choice in a capital market setting. (Mustafa D., 2010) found the reasons of the shortage of auditor independence on AFR. The study was done through a questionnaire created by the researcher (author) and distributed among audit practitioners from the Big Four audit firms operating in Egypt.

3 7 European Journal of Economics, Finance and Administrative Sciences Issue 96 (2017) The study revealed that Audit defeats result at most from the shortage of independence problem which is an essential consequence of the extended auditor client relationship. To control such undesirable consequences, auditor rotation is recommended in the Egyptian auditing and legal frame work as a solution for the shortage of auditor independence problem. (Daniels B., 2011) explored loan officers recognition of auditors independence and audit quality under three empirical AFR stories, a case experiment with a between-subjects and results indicated that loan officers do understand an increase in independence when the firm come behind an AFR policy. However, the length of auditor tenure within rotation fails to significantly change loan officers perceptions of independence. Results also showed that neither the presence of a rotation policy nor the length of the auditor tenure within rotation significantly affects the loan officers recognition of audit quality. (Anis, A., 2014) examined professional auditors recognition of the effect of AFR on audit quality. It also examined the possible benefits and determining factors of auditor rotation by using the descriptive methodology. The results concluded that rotation of auditors has a positive impact on audit quality, a negative impact on client-specific knowledge, and a positive impact on auditors independence. The impact from the auditors perspective of industry specialization and fees dependence on the relationship between auditor rotation and audit quality was also specified. From the auditor s perspective; (Said K., 2014) investigated the influence of AFR on auditor independence in Bahrain. The study based on a questionnaire to investigate auditor s perceptions of the influence of audit AFR on auditor independence. The results showed that the larger part of auditors agreed that AFR could protect auditor independence, it also concluded that there is a significant relationship between AFR and auditor independence. (Al-Araidah A., 2015) study found factors affecting audit rotation in the Jordanian financial sector by using descriptive analytical method in the study. A questionnaire was distributed to 103 companies (13 trading sector, 26 insurance sector, 64 services sector) using purposive sampling. 156 questionnaires were distributed, 104 came back and 24 were eliminated from the results. The study found that external audit rotation was effected by audit quality, independence, laws and legislations, and judicial disputes, while the judicial disputes had the most influencing ratio among all the mentioned factors. (Onwuchekwal J., 2012) investigated whether the impact of auditor rotation on audit quality relies on the mental frame auditors applied in evaluating management representations. In practice, auditors can structure their assessments of management representations in through their likely dishonesty (what we term skepticism) or potential honesty. Using psychology theory and a laboratory experiment, he revealed that rotation improve audit quality when an auditor is probity frame, but that this impact reverses when an auditor is skeptical. Thus, the interest of using a skeptical frame achieved when auditors do not rotate, but requiring rotation can decrease audit effort for auditors using a skeptical frame. Furthermore, (Ottosson J., 2015) investigated and compared the responses from both EU investor sand US investors in order to get their opinions about rotation of audit firms and to find out if the investors opinions have had any influence on the legislators decisions regarding the contradictory approaches in the EU and the US. The main research question is: Is there a difference between the investors viewpoints of rotation of audit firms in the EU and the US? 42 responses were analyzed because investors are one of the essentially stakeholders and those who should be most concerned with auditor independence and audit quality. The study revealed that rotation of audit firms is not supported, according to the investors opinions. A pure majority of the investors in the EU and all of the investors in the US unfavorable the rotation and comparable debates were used both by EU investors and US investors. The investors do not believe that regulations on rotation of audit firms will improve auditor independence or audit quality. The study also concluded that legislators in the EU have not followed the investors opinions when they decided to regulate the rotation in However, it does not explain why the legislators decided on two different approaches, only that the decision by the legislators in the EU did not agree with the investors point of view.

4 8 European Journal of Economics, Finance and Administrative Sciences Issue 96 (2017) 3. Hypotheses 3.1 Main Hypothesis H0: There is no significant effect of Rotation Drivers on the AFR. 3.2 Sub Hypothesis H01: There is no significant effect of the accountability on AFR. H02: There is no significant effect of compliance to ISAs on AFR. H03: There is no significant effect of the experience on AFR. H04: There is no significant effect of the board independence on AFR. H05: There is no significant effect of the responses delay on AFR. H06: There is no significant effect of the firm size on AFR. 4. Research Methodology The research depends on descriptive analysis and quantitative approaches that will provide the research results, and will enrich the detailed information s that will allow reaching the research results. Questionnaires were distributed to the companies of the research sample. Regression analysis will be used to measure the variables and the mentioned hypothesis. 4.2 Research Population Population of the study: The population of the study consists of Jordanian listed firms as of 2015, of a total of 261 companies from all four sectors (Banking, Insurance, Services, and Industry). The sample of the study consists of 165 companies, which were selected randomly from all sectors, ordered by their size (number of employees), along with the distance from the researcher s location (inside Amman). 4.2 Sampling The questionnaire will target the financial managers, the board of directors, Internal Audit Specialist, And Internal Auditors from the sample, to provide the most accurate data related to AFR from their perspective. A quantitative research method was used to collect the data, and a Questionnaire was distributed to the companies, one to four Questionnaires for each company depending on the availability of the targeted audience. (The questionnaire is provided in the appendix of this study). Total of 200 Questionnaires were distributed, and 130 were collected, out of which 121 were considered in the study with complete answers. 4.3 Research Model The current study will investigate influence of variable in the extent of AFR and the factors (Rotation Drivers) that may affect it as shown below:

5 9 European Journal of Economics, Finance and Administrative Sciences Issue 96 (2017) Figure 1: Research Model (created by the researchers) Independent s Rotation Drivers Accountability Compliance to ISAs Experience Board Independence Responses Delay Audit Firm Size Dependent AFR 4.4 s of the Study Dependent _ Audit Firms Rotation (AFR) Audit Firms Rotation (AFR): As defined in the Sarbanes-Oxley (SOX) Act as the process that a company rotates its audit firm after a period of time. Also it has been proposed as a potential solution to the possibility that long auditor tenure may lead to a deterioration of audit quality (Sarbanes-Oxley Act, Section 207). This factor will be measured in the questionnaire by whether the company rotates its audit firm or not Independent s_ Accountability, Compliance to International Standards on Auditing (ISAs), Experience, Board Independence, Responses Delay, Audit Report Lag (ARL), Firm Size Accountability: The term accountability is diverse and has evolved multi-dimensionally from its traditional definition. The traditional view of accountability incorporates the giving and demanding of reasons for conduct (Roberts J., Scapens R. 1985). It requires individuals to explain (account for) and take responsibility for their actions, or failure to take actions. Compliance to International Standards on Auditing (ISAs): The ISAs were issued by the International Auditing and Assurance Standards Board (IAASB) to establish standards and provide guidance on the objective and general principles governing an audit of financial statements. This factor will be measured by the level of compliance that the audit firm considers in its audit process. Experience: the term experience describes the period during which the audit firm provides its professional services to its clients. Board Independence: As realized in the Sarbanes-Oxley (SOX) Act as the concept for a majority of board members to be independent from the company. Independence place when a board member has not been and is not currently employed by the company or its auditor and the board member s employer doesn t achieve an important amount of business with the firm. Each company makes its own definition of significance (Sarbanes-Oxley Act, Section 103). Responses Delay: this term measures the audit firm delay in responses which the company waits to take some action or to deliver reports to the audit firm. Audit Report Lag (ARL): determines the number of days between the client's fiscal year end and the date of auditor s report and is considered a crucial element for investors, companies, external auditors, and regulators. They believe that it can affect the timeliness of financial statements which in turn affects the level of uncertainty of the accounting information and market reaction to the release of this information (Givoly and Palmon 1982); (Chambers and Penman, 1984); (Ashton A., 1987); (Dao M., Pham, T. (2014).

6 10 European Journal of Economics, Finance and Administrative Sciences Issue 96 (2017) Firm Size: The firm size is defined by the number of employees that works in the audit field in that firm. 5. Theoretical Framework 5.1 Arguments in favor of AFR Supporter of AFR propose that in a long-standing relationship, auditors may become excessively familiar with the company s management and risk losing the professional skepticism necessary to stay objective. Furthermore supporter debate that commercial pressure to keep a long-term economic relationship with a specific company may undermine an audit firm s commitment to the severity and independence of the audit process. Another joint rationale for firm rotation is that a new audit firm will manage the audit with conscious eyes and may be more likely to notice matters than an incumbent audit firm. In addition, the knowing that another firm will in the near future review the current auditor s work could support the professional skepticism of the incumbent auditor. Some also argue that mandatory firm rotation could be a way to open up and resist concentration in the upper end of the audit market. Sometimes auditors use the same methods and the same techniques in auditing a specific firm which sometimes may lead to some misstatements and can increase the chances of firm fraud or manipulation and that is consistent with (Hoyle A., 2011); (McLaren N. L., 2011) studies. 5.2 Arguments against AFR Audit Quality Mandatory firm rotation has not been assured to increase audit quality; actually, studies have revealed that it may negatively impact it, particularly where there are shorter rotation periods. In contrast, one feature of audit firm tenure is that the auditor gain significant knowledge and understanding of a company over time, as well as a consciousness of its risks, all of which can improve audit quality. Longer tenure can permit the audit firm to improve experience and credibility with the entity by demonstrating, over time, its technical accounting expertise, the quality of its audit work and its knowledge of the company s business. (Joseph A. 2011) Cost and Timing Because of the learning curve audit firms confront with any new audit, audits can be less efficient at the beginning of an engagement. While audit firms clearly can and do conduct movements effectively, this is not without cost or risk; both the auditor and the company afford costs in getting up to speed. The cost of mandatory firm rotation may also be increase because of a company s specific circumstances Does Auditor Rotation Affect the Auditor Independency? Many studies e.g. (Al-Khouri, A. 2014); (Hoyle A., 2011); (McLaren N. L., 2011) showed a positive significant relationship between the auditor rotation and the auditor independency, in general when the auditor rotation increases the auditor independency. From the study of (Al-Khouri, 2014), the results show a significant influence of the audit firm rotation on the independence of the auditor. 5.3 Auditor Experience and Audit Quality It was argued that the brand name (high reputation) of an audit firm is not sufficient to encourage the audit quality, but the industry knowledge and specialization is a critical element of the auditor s experience. As the auditor s knowledge and experience with a client s industry increase, the auditor is fit to discover potential material misstatements and to set basis and hypotheses for industry specifc routine errors (Knechel W., 2007). Also, it was revealed that the auditor s experience in discovering

7 11 European Journal of Economics, Finance and Administrative Sciences Issue 96 (2017) material misstatements decrease when they pass longer tenure with their clients, that they depend on their prior experience with the client rather than spending more effort (Meyer et al., 2007), an issue that would suggest the rotation as a solution to overcome auditor slag. 5.4 AFR Vs Audit Partner Rotation Audit Partner Rotation (APR) is defined as the process where the key audit partners are required to rotate off the audit engagement after a period of time, this is different from the AFR; in which the audit firm would be rotated as a whole. In this study we are considering the AFR only, in which the audit firm will be, rotated (Soo Young Kwon, et al., 2010). 5.5 Rotation in Jordanian Law Auditor rotation is referenced in Jordanian regulation in article 33 - (of the temporary profession regulating law number (73) for the year (2003) specified that A certified auditor cannot be selected to audit the financial statements of public shareholding corporations, or private shareholding corporations or limited liability corporations for a period that exceeds four concurrent years except having the approval of the Higher Committee of the profession. After investigating the existence of such a law in Jordan Association of Certified Public Accountants (JACPA); they have denied having such legislation in their internal laws. After questioning some audit firms; they also replied by that they unaware of this. This may be because of not applying the law from the legislation, or due to being in-specific about the details in that law. 5.6 Accountability and AFR Accountability occupies a significant role in the development of confidence during human interaction (Friedman & Grudin J., 1998). As a first-class design aim of services in federated distributed systems (Yumerefendi I., & Chase J.S. 2004). Accountability from the auditor in engaging the audit work also influences the audit quality. (Cloyd, 1997) investigated the interaction between accountability and expertise to determine quality in engaging the audit work. 5.7 Experience and AFR Experience is expertise gained by someone after a long time period of work. The employ of experience as an independent variable is based on the assumption that repeated work in a long-time period will develop the quality of work. (Kolodner J., 1996) argued that the experience could be utilize to develop the decision making performance, in that research, which had similar finding to this paper, experience was divided in two dimensions, i.e., how long the working period and the frequency in doing audit engagements. It is interesting to re-examine the effects of experience as an independent variable on audit quality because many researchers fail to prove this hypothesis. (Ashton R., 1990) argues that it is because the accounting and audit decisions take time to learn. 5.8 Compliance to ISA s and AFR The objective of ISA is to set standards and supply guidance on the objective and general principles conducting an audit of financial statements. Audit firms are complied with all auditing standards; this was assured by the World Bank report. This findings because of hard conditions and requirements of Jordanian laws regulating the audit profession to be a certified public accountant as well as strict legal liabilities (Obaidat A., 2007).

8 12 European Journal of Economics, Finance and Administrative Sciences Issue 96 (2017) 6. Data Analysis and Results 6.1 Demographic of the Sample The study used demographic variables which are: age, gender, academic qualifications, Specialization, certifications, and current position. 1. Regarding the Age question, the following table shows the distribution of the research sample participants according to age: Table 2: Demographic characteristics (Age) Age Frequency Percentage Less than 30 years % From 30 to less than % From 40 to less than % 50 or more 2 1.7% Total % Based on the table 2 above, in the study conducted, the age bracket of the participants aged less than 30 years was 46.3% which was the largest group of participants regarding age. This may indicate that the targeted industry prefers young workers rather than older ones. On the other hand, participants aged from 30 years to less than 40 years were 41.3% which is considered high too, supporting the above indicator. Participants aged from 40 years to less than 50 years shows 10.7%, and participants aged years or more was 1.7% as well. 2. Regarding the gender question, the following table shows the distribution of the research sample participants according to gender: Table 3: Demographic characteristics (Gender) Gender Frequency Percentage Male % Female % Total % Based on the table 3 above, in the study conducted on the participants in the Gender section shows that the Males percentage was 87.6%, and for Females was 12.4%.This might indicate that the targeted industry/environment prefers to hire males rather than females or that the work market offers more males than females, which might be more reasonable since the population ratio in Jordan supports that. 3. Regarding the academic qualifications question, the following table shows the distribution of the research sample participants according to academic qualifications: Table 4: Demographic characteristics (Academic Qualifications) Academic Qualification Frequency Percentage Diploma 8 6.6% Bachelor % Masters % PH.D % Total %

9 13 European Journal of Economics, Finance and Administrative Sciences Issue 96 (2017) Based on the table 4 above, in the study conducted on the participants in the Academic Qualifications section shows that Bachelor degree holders are 71.1% being the largest value. This indicates that most the participants might be in the mid-level of their career or that the graduate studies might be a challenge to them. On the other hand, the Master s degree holders are 20.7%, and the Diploma degree holders are 6.6% and the last one PH. D is 1.7% of the participants; this might be due to the high demands for specialized skills. 4. Regarding the Specialization question, the following table shows the distribution of the research sample participants according to Specialization: Table 5: Demographic characteristics (Specialization) Specialization Frequency Percentage Accounting % Business Administration 3 2.5% Economics 1 0.8% Other 5 4.1% Total % Based on the table 5 above, in the study conducted on the participants in the Specialization section shows that Accounting Specialization participants were 92.6% being the highest score; which is reasonable for the targeted sample. The Other field got 4.1%, and the Business Administration got 2.5% and the Economics got 0.8% of the participants. 5. Regarding the certification question, the following table shows the distribution of the research sample participants according to certification: Table 6: Demographic characteristics (Certifications) Certificate Frequency Percentage JCPA 7 5.8% CPA 9 7.4% CMA 3 2.5% Other 3 2.5% None % Total % Based on the table 6 above, in the study conducted on the participants in the Certification section shows that most of the participants didn t hold any certification for 81.8% of them. This indicates that the certifications require specialized skills are considered costly for such bracket (from the Age bracket above), the CPA holders were 7.4% and JCPA holders was 5.8%, and Other certifications along with CMA scored 2.5%. 6. Regarding the current position question, the following table shows the distribution of the research sample participants according to current position: Table 7: Demographic characteristics (Current Position) Position Frequency Percentage Financial Manager % Internal Auditor 23 19% Accountant % Other % Total %

10 14 European Journal of Economics, Finance and Administrative Sciences Issue 96 (2017) Based on the table 7 above, in the study conducted on the participants in the Current Position section shows that 51.2% were Accountants; this might indicate that the companies have a larger number of employees as accountants than other positions, also it might indicate that the higher levels of positions in the companies might not be available to fill the questionnaire due to their work schedule. On the other hand, Financial Managers position scored 19.8%, and Internal Auditor position scored 19% and the last one Other for 9.9% of the participants. 6.2 Tool Validity Table 8: Cronbach s alpha for the study fields Section # Section Name Value of Cronbach's Alpha (α) 1 Rotation Accountability Compliance with ISA Experience Board Independence Responses Delay Size Total Questionnaire As shown in table 8 above; the total Cronbach s alpha for the study fields was (0.680) while the maximum value was for Accountability (0.797) and the lowest value was (0.601) for Experience. All the values were above the minimum acceptable value (0.6) (Cronbach L. J., 1951), which led to the stability of the results of the study. A specialized third party has verified the instrument, in order to check the model strength and the validity to measure the study variables. 6.3 Data Collection Method Analysis This research depended on two sources of information in order to gain the intended results for the research, which are: 1. Gathering information from books, articles, past researches and other literature that has addressed the audit rotation. 2. Building a questionnaire based on past literature reviews and distributes it to collect participant s opinions. 3. Analyzing the data using Statistical Package for the Social Sciences (SPSS) and finding relation from the data gathered from the questionnaire. 6.4 Statistical Analysis Means and standard deviation were calculated from the participant answers according to the Questionnaire questions, to determine the rotation drivers effects on AFR. The descriptive statistics for the study variables for the fields are distributed in the following table: Table 9: Descriptive Statistics for the study variables # Field Mean Std. Deviation 1 AFR Accountability Compliance with ISA Experience

11 15 European Journal of Economics, Finance and Administrative Sciences Issue 96 (2017) 5 Board Independence Responses Delay Size As seen in the above table 9 above; the AFR field achieved mean (3.617) and standard deviation (0.831), and the Accountability achieved mean (4.399) and standard deviation (0.612), and the Compliance to ISA achieved mean (4.3) and standard deviation (1.842), while the Experience mean was (4.4) and standard deviation (0.4), and the Responses Delay mean was (4.4) and the standard deviation was (0.38), finally ly the Size mean was (4.0) and the standard deviation was (0.5). the above data is represented resented in the following figure: Fig. 2 Descriptive Statistics for the study variables 1. Firm Rotation Means and standard deviation were calculated for Firm Rotation field by the means and standard deviation for all its questions that were set to measure it in the Questionnaire. Table 10: Descriptive Statistics for AFR Std. Rank 1 Question Rotating the audit firm gives a good reputation to the company Mean Deviation Question # 3 2 Rotating the audit firm prevents having late payments or delay in the audit process The company encourages to rotate the audit firm every four years Total As seen from table 10 above; the total mean for this field was (3.617) with standard deviation (0.831), It can also be seen that question number 3 ranked first with mean (3.752) and standard deviation (0.959), then question number 2 with mean (3.595) and standard deviation (0.748), and finally question number 1 with mean (3.504) and standard deviation (0.786).

12 16 European Journal of Economics, Finance and Administrative Sciences Issue 96 (2017) In the researchers opinion, the companies may tend to rotate the audit firm for some reasons the company might find important, like good reputation, getting work on time with preferring to not having late payments with the audit firm. 2. Accountability Means and standard deviation were calculated for Accountability field by calculating the means and standard deviation for all its questions that were set to measure it in the Questionnaire. Table 11: Descriptive Statistics for Accountability Rank Question Mean Std. Deviation Question # 1 The audit firm will be rotated if there are legal problems between the firm and the company 2 The audit firm is committed during its service to the laws and regulations related to the Specialization 3 The audit firm is responsible for misstatements that might affect user information Total As seen from table 11 above; the total mean for this field was (4.398) with standard deviation (0.612), It can also be seen that question number 3 got the highest rank with mean (4.495) and standard deviation (0.659), then question number 1 with mean (4.37) and standard deviation (0.502), finally question number 2 with mean (4.330) and standard deviation (0.675). In the researchers opinion, the companies show some fear about legal problems with audit firms, along with any misstatements that might happen from the auditor s report that might affect the information that user s need, in order to get the decision based on its results. 3. Compliance to ISA Means and standard deviation were calculated for Compliance to ISA field by calculating the means and standard deviation for all its questions that are set to measure it in the Questionnaire. Table 12: Descriptive Statistics for Compliance to ISA Rank Question Mean Std. Deviation Question # 1 The audit firm would be rotated when it doesn t comply to the ISA 2 Misunderstanding the ISA between the audit firm and the Company causes audit firm rotation 3 The audit firm should have full knowledge of the ISA Rotating the audit firm every four years, is required by ISA Total As seen from table 12 above; the total mean for this field was (4.318) with standard deviation (1.842), It can also be seen that question number 2 got the highest rank with mean (4.876) and standard deviation (5.134), in second place comes question number 3 with mean (4.225) and standard deviation (0.761), in third place comes question number 1 with mean (4.214) and standard deviation (0.4866), finally comes question 4 with mean (3.958) and standard deviation (0.986). In researchers opinion, the companies show a concern regarding the auditing standards, and will try to avoid the audit firms which may not apply these standards in their reports, along with the understanding to the same level for these standards with the audit firm.

13 17 European Journal of Economics, Finance and Administrative Sciences Issue 96 (2017) 4. Experience Means and standard deviation were calculated for Experience field by calculating the means and standard deviation for all its questions that are set to measure it in the Questionnaire. Table 13: Descriptive Statistics for Experience Rank Question Mean Std. Deviation Question # 1 Audit firm experience makes their work easier and helps in achieving their goals faster 2 Audit firm experience is considered an important topic when selecting the audit firm 3 Audit firm will be rotated when noticing it s not having the enough experience Total As seen from table 13 above; the total means for this field is (4.357) with standard deviation (0.650), It can also be seen that question number 3 got the highest rank with mean (4.462) and standard deviation (0.730), and then comes question 1 with mean (4.429) and standard deviation (0.630), finally comes question number 2 with mean (4.181) and standard deviation (0.591). In the researchers opinion, the companies might prefer the wide experienced audit firm on less experienced ones. This might be due to the working achievement and the less time estimated for work compared to other firms. 5. Board Independence Means and standard deviation were calculated for Board Independence field by calculating the means and standard deviation for all its questions that are set to measure it in the Questionnaire. Table 14: Descriptive Statistics for Board Independence Rank Question Mean Std. Deviation Question # 1 Social relationship between audit firm members and the company affects the independence negatively 2 Having a relationship between the audit firm and the board of directors limits audit firm rotation 3 Under the related regulations, the audit firm has an acceptable degree of independence Total As seen from table 14 above; the total means for this field is (4.266) with standard deviation (1.946), It can also be seen that question number 2 got the highest rank with mean (4.677) and standard deviation (4.52), in second place comes question number 3 with mean (4.082) and standard deviation (0.780), in last place comes question 1 with mean (4.04) and standard deviation (0.538). In researchers opinion, the companies show a concern about any relation that might happen between the audit firm members and the members of the company s board, and that might lead to affect the Independence of the audit firm, which might finally lead to manipulation in the audit report because of some personal interests. 6. Responses Delay Means and standard deviation were calculated for Responses Delay field by calculating the means and standard deviation for all its questions that were set to measure it in the Questionnaire. Table 15: Descriptive Statistics for Responses Delay

14 18 European Journal of Economics, Finance and Administrative Sciences Issue 96 (2017) Rank Question Mean Std. Deviation Question # 1 Audit firm will be rotated if it delivers the requested reports late 2 Delivering replies in timely basis affects audit firm rotation Delivering replies in timely basis affects the use of information mentioned in financial reports Total As seen from table 15 above; the total mean for the field are (4.421) with standard deviation (0.604), and it can be seen that question number 3 got the highest rank with mean (4.504) and standard deviation (0.647), and in second place comes question number 1 with mean (4.454) and standard deviation (0.562), in last place comes question number 2 with mean (4.305) and standard deviation (0.603). In the researchers opinion, the companies find receiving replies/responses from audit firm as an important topic, and prefers to get these replies on time; most likely because the importance of the timeliness of the information will affect management decision making and investors decisions, and that might be a selection concern regarding the auditor of the company. Also we can conclude that the longer ARL was, the probability of rotating the audit firm is greater. 7. Size Means and standard deviation were calculated for Size field by calculating the means and standard deviation for all its questions that were set to measure it in the Questionnaire. Table 16: Descriptive Statistics for Size Rank Question Mean Std. Deviation Question # 1 Large sized audit firms are preferred to the smaller audit firms The company changes the small audit firms more than larger audit firms 3 The large size of audit firm reduces the contracting risk between the company and the audit firm Larger size audit firms provide better audit services, making rotation possibility lower Total As seen from table 16 above; the total means for the field is (4.061) and standard deviation (0.765), and it can be seen that question number 3 got the highest rank with mean (4.115) and standard deviation (0.858), in second place comes question number 2 with mean (4.099) and standard deviation (0.711), in third place comes question number 1 with mean (4.066) and standard deviation (0.543), in last place comes question number 4 with mean (3.966) and standard deviation (0.984). In the researchers opinion, the companies might prefer bigger audit firms on smaller ones, this might be because of the stability that companies look for, or finding bigger firms more professional than smaller ones. 6.5 Study Hypothesis Test Linear Regression Test In this section the hypothesis of the study will be tested using the Linear Regression and the results that might support or reject the study hypotheses. If the results agree with all the sub hypotheses, then the primary hypothesis will be accomplished. Primary hypothesis

15 19 European Journal of Economics, Finance and Administrative Sciences Issue 96 (2017) H0: There is no significant effect of Rotation Drivers on the AFR. Sub hypotheses H01: There is no significant effect of the Accountability on AFR To test this hypothesis, the researcher used linear regression test to check the direct effect of the Accountability on AFR as shown in the table below: Table 17: Linear regression test results of the direct effect of the Accountability on AFR Dependent R R2 F Unstandardized Coefficients Independent T Sig Accountability.232ᵃ Audit Rotation As seen in table 17 above; the result shows that there is a significant effect for the Accountability on the AFR, because the significant value was (0.010) which is less than (0.05), the value of R was (0.232) and the coefficient determination R² was (0.540), therefore about 54% of the variation in AFR is explained by the Accountability. The restriction parameter (F) was (6.779), thus we will reject the hypothesis H01: There is no significant effect of the Accountability on AFR at level (α<=0.05). This means that Accountability does affect the AFR, since companies tend to have a clear relation with the audit firm in which the firm will be responsible for anything related to the reports it provides, and companies probably change the audit firm in case it faces legal issues with that firm. From the researchers point of view, the accountability factor seems to be one of the most important factors that might affect AFR; in which the legal and regulation part is an important subject that companies consider as an important topic, which might lead to future losses or legal issues if not dealt with in a proper way. H02: There is no significant effect of the Compliance to ISA on AFR To test this hypothesis, the researcher used linear regression test to check the direct effect of the Compliance to ISA on AFR as shown in the table below: Table 18: Linear regression test results of the direct effect of the Compliance to ISA on AFR Dependent Compliance to ISA R R2 F Unstandardized Coefficients Independent T Sig.087ᵃ Audit Rotation As seen in table 18 above; the result shows that there is no significant effect for the Compliance to ISA on the AFR, because the significant value was (0.343) which is greater than (0.05), the value of R was (0.087) and the coefficient determination R² was (0.008), therefore AFR by Compliance to ISA can t be explained. And the restriction parameter (F) was (16.424), and a result the hypothesis will be accepted H02: There is no significant effect of the Compliance to ISA on AFR at level (α<=0.05). This means that Complying to ISA does not affect the AFR. Also Complying to ISA is not a factor which companies might take as a selector when choosing audit firm, and that might be because of the separation of concerns that many companies try to have.

16 20 European Journal of Economics, Finance and Administrative Sciences Issue 96 (2017) From the researchers point of view, this factor might not be an important one, due to the situation in Jordan, in which most companies try to get the final reports regardless of any ISA used by audit firm (results are more important than the technique used or standards adapted). H03: There is no significant effect of the Experience on AFR To test this hypothesis, the researcher used linear regression test to check the direct effect of the Experience on AFR as shown in the table below: Table 19: Linear regression test results of the direct effect of the Experience on AFR Dependent R R2 F Unstandardized Coefficients Independent T Sig Experience.293ᵃ Audit Rotation As seen in table 19 above; the result shows that there is a significant effect of the Experience on the AFR, because the significant value was (0.001) which is less than (0.05), the value of R was (0.293) and the coefficient determination R² was (0.086), therefore about 8.6% of the variation in the AFR is explained by the Experience. And the restriction parameter (F) was (11.199), And thus the hypothesis will be rejected H0:3: There is no significant effect of the Experience on AFR at level (α<=0.05). That means that Experience does affect the AFR. It might also show that the experience is something the company s takes regard seriously while the selecting of the audit firm, and prefer the experienced firms other than the less experienced. This might be due to the better auditing or time saving when dealing with the experienced firms. From the researchers point of view, the experience might not be a very important factor, since companies might prefer the fast service upon cost for example; assuming that an experienced audit firm will cost more than other firm which is less experienced. H04: There is no significant effect of the Board Independence on AFR To test this hypothesis, the researcher used linear regression test to check the direct effect of the Board Independence on AFR as shown in the table below: Table 20: Linear regression test results of the direct effect of the Board Independence on AFR Dependent Board Independence R R2 F Unstandardized Coefficients Independent T Sig.170ᵃ Audit Rotation As seen in table 20 above; the result shows that there is no significant effect for the Board Independence on the AFR, because the significant value was (0.062) which is greater than (0.05), the value of R was (0.170) and the coefficient determination R² was (0.029), thereforeafr by Board Independence can t be explained. The restriction parameter (F) was (3.551), andthus the hypothesis will be accepted H04: There is no significant effect of the Board Independence on AFR at level (α<=0.05). This means that Board Independence does not affect the AFR. It also means that companies in this study didn t show any concern of having relationships between the company and the audit firm,

17 21 European Journal of Economics, Finance and Administrative Sciences Issue 96 (2017) and if any they would not be a part of the decision of selecting the audit firm or requesting an apology letter from it. From the researchers point of view, board independence should be an important factor affecting AFR, since relationships between individuals can affect any decision that might break or weaken that relationship. H05: There is no significant effect of the Responses Delay on AFR To test this hypothesis, the researcher used linear regression test to check the direct effect of the Responses Delay on AFR as shown in the table below: Table 21: Linear regression test results of the direct effect of the Responses Delay on AFR Dependent Responses Delay R R2 F Unstandardized Coefficients Independent T Sig.136ᵃ Audit Rotation As seen in table 21 above; the result shows that there is no significant effect for the Responses Delay on the AFR, because the significant value was (0.136) which is greater than (0.05), the value of R was (0.136) and the coefficient determination R² was (0.019), therefore we can t explain AFR by Reponses Delay. The restriction parameter (F) was (2.253), thus the hypothesis will be accepted H05: There is no significant effect of the Responses Delay on AFR at level (α<=0.05). This means that Responses Delay does not affect the AFR. It also means that companies in this study didn t show any importance to any delay that might happen in any communication channel between the company and the audit firm. We can also conclude that ARL is not a determinant factor of the AFR. From the researchers point of view, responses delay should ve been an affecting factor, since audit firms might not deliver the required reports in timely basis as they agreed before with companies, which will make the possibility of conflicts and legal problems much higher with external parties. H06: There is no significant effect of the Size on AFR To test this hypothesis, the researcher used linear regression test to check the direct effect of the Size on AFR as shown in the table below: Table 22: Linear regression test results of the direct effect of the Size on AFR Dependent R R2 F Unstandardized Coefficients Independent T Sig Size 0.050ᵃ Audit Rotation As seen in table 22 above; the result shows that there is no significant effect for the Size on the AFR, because the significant value was (0.586) which is greater than (0.05), the value of R was (0.050) and the coefficient determination R² was (0.002), therefore AFR by Size of the firm can t be explained. And the restriction parameter (F) was (0.298), and thus the hypothesis will be accepted H06: There is no significant effect of the Size on AFR at level (α<=0.05). This means that Size does not affect the AFR. It also means that companies in this study didn t show any concern of the Size as something that may makes a difference in the selection if the audit firm, or in the firm change if needed. This also indicates that the companies focus on the output of the