The Impact of Mandatory Change of External Auditor in Reducing the Risk of Material Misstatements in The Financial Statements: A Field Study of Auditors in The Republic of Yemen
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Abstract
This study aimed to identify the effect of mandatory rotation of external auditors on reducing the risks of material misstatements in financial statements. It examined the psychological impact of mandatory rotation on auditors and their professional behavior and its role in lowering misstatement risks. The study adopted a descriptive analytical approach, using a questionnaire, SPSS and STATA 14 for statistical analysis, and SmartPLS3 for structural equation modeling. The population consisted of licensed auditors in audit offices and firms in the Republic of Yemen, totaling 428 auditors in 2024 according to the Yemeni Association of Certified Public Accountants. A random sample of 207 respondents was selected, and 180 valid questionnaires were analyzed. The findings showed a statistically significant effect of mandatory external auditor rotation on reducing the risks of material misstatements in financial statements. Professional skepticism was the most influential dimension, while the learning curve had the least effect. The study recommended regulating auditor–client tenure, increasing awareness of mandatory rotation, strengthening professional skepticism, supporting auditor independence, enhancing oversight of prior auditors’ performance, adapting international regulations locally, establishing an independent professional body to supervise auditing, and addressing learning curve and cost challenges
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Mandatory auditor rotation, material misstatement risk, financial statements.
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