It is essential to signal that most of the papers considered relevant for this thesis provide empirical support for the opponents of the implementation of mandatory audit firm rotation. Finally, a comparative assessment of the evidence from prior scientific research has been presented in section 4.4 of this chapter. This assessment represents the basis for the development of the hypotheses that will be presented in next chapter. Hypotheses This chapter provides the answer to the fifth sub-question of this thesis: on the “Based research question and prior literature, in order to answer the research question which hypotheses will be formulated?” In the fourth chapter, the empirical literature relevant to this thesis was presented. Considering this literature, it is essential to signal that some of the commented topics to this thesis are relevant, but they will not be further investigated. The relationship between the auditor tenure and the quality of the audit, as well as the relationship between the mandatory audit firm rotation and the quality of audit, in the scientific prior literature are already extensively investigated. However, even though they will not be further explored, they provide relevant insights, which facilitate the formulation of the hypotheses of this thesis. In this chapter, the correspondence between the scientific literature presented in chapter four and the predictions of this thesis is presented. Finally, the predictions are shaped into two hypotheses. Hypotheses Development This thesis investigates the behaviour of the management, in terms of the use of earnings management, during the auditor-client relationship in a mandatory audit firm rotation setting. One of the responsibilities of the management is to prepare the financial statements of the company in accordance with the Generally Accepted Accounting Principles (GAAP) and other applicable accounting standards. This process of the financial reporting requires complex judgment and estimates, which provides managers with the opportunity to manipulate the published figures. This situation is consistent with the agency theory, especially considering the information asymmetry between what managers know about the
It is essential to signal that most of the papers considered relevant for this thesis provide empirical support for the opponents of the implementation of mandatory audit firm rotation. Finally, a comparative assessment of the evidence from prior scientific research has been presented in section 4.4 of this chapter. This assessment represents the basis for the development of the hypotheses that will be presented in next chapter. Hypotheses This chapter provides the answer to the fifth sub-question of this thesis: “Based on the research question and prior literature, in order to answer the research question which hypotheses will be formulated?” In the fourth chapter, the empirical literature relevant to this thesis was presented. Considering this literature, it is essential to signal that some of the commented topics to this thesis are relevant, but they will not be further investigated. The relationship between the auditor tenure and the quality of the audit, as well as the relationship between the mandatory audit firm rotation and the quality of audit, in the scientific prior literature are already extensively investigated. However, even though they will not be further explored, they provide relevant insights, which facilitate the formulation of the hypotheses of this thesis. In this chapter, the correspondence between the scientific literature presented in chapter four and the predictions of this thesis is presented. Finally, the predictions are shaped into two hypotheses. Hypotheses Development This thesis investigates the behaviour of the management, in terms of the use of earnings management, during the auditor-client relationship in a mandatory audit firm rotation setting. One of the responsibilities of the management is to prepare the financial statements of the company in accordance with the Generally Accepted Accounting Principles (GAAP) and other applicable accounting standards. This process of the financial reporting requires complex judgment and estimates, which provides managers with the opportunity to manipulate the published figures. This situation is consistent with the agency theory, especially considering the information asymmetry between what managers know about the