Auditor Rotation

Question 1

What is it?

Answer 1

mandatory auditor rotation would require that a client retain an auditor for no more than X number of years

Question 2

Current Rules

Answer 2

Audit lead and partner reviewing the audit must change every five years. Or they will not be able to perform the audit.

Question 3

Why?

Answer 3

Auditors will have less incentive to seek future economic gain from a specific client.

Less likely to bias reports in favor of management.

Question 4

Pros

Answer 4

More objectivity and independence in audit opinion. Which will lead to more confidence in the audit opinion.

Auditor can better resist management pressures

Auditors will issue unbiased reports.

More competetive environment will bring about new auditing firms.

Long-term engagements can weaken an auditor’s performance.

Question 5

Cons

Answer 5

The board and audit committee have statuatory responsibility for the oversight of auditors.

The board and audit committee are uniquely qualified to evaluate the work of the audit firm.

Unnecessary for objectivity: already a requirement for audit rotation AND rules for auditor independence.

Understanding of the company can take years before the auditing firm can deliver maximum benefits.

Changing audit firms can be disruptive and costly.