The effects of a cooling-off period on perceived independence of external auditors: A study in the nonpublic regulatory environment

Audit firms’ professionals often resign their positions to accept employment with their firms’ audit clients. To preserve the audit firms’ independence, under the Sarbanes–Oxley Act a period of dissociation is required before accepting employment with an audit client. This period of dissociation is referred to as a cooling-off period. We examine whether a cooling-off period affects state boards of accountancy members’ perceptions of audit firms’ independence in the nonpublic-company regulatory environment. Findings indicate that perceptions of audit firms’ independence increase significantly with a one-year cooling-off period. However, increasing the length of the cooling-off period from one year to two years fails to significantly increase perceptions of audit firms’ independence.