Mandatory auditor rotation: a way for regulator to prevent audit failures 1822 words | 8 pages auditor rotation: a way for regulators to prevent audit failures 1 introduction auditor rotation has long been a subject of debate as a measure to prevent audit failures, especially after the financial crisis two types of rotation suggested are. Surprising effects of mandatory auditor rotation on audit quality by kendall o bowlin, university of mississippi jessen l hobson, university of illinois at urbana-champaign and m david piercey university of massachusetts – amherst | december 15, 2015 | 4 as new auditor rotation mandates are debated and adopted or rejected worldwide, a new research study takes a different approach to.
Mandatory audit firm rotation – a literature review introduction since the passing of the sarbanes-oxley act of 2002, much debate has occurred concerning mandatory auditor rotation for publicly held companies. Eu audit legislation mandatory firm rotation and selection procedures october 2016 3 q&as on mfr and the selection procedure q: assume audit firm a was the auditor of company x from 1996 to 2002.
The pcaob encountered fierce resistance to the mandatory auditor rotation idea, which never got beyond the concept release stage it would have required us public companies to change auditors. For years, us accounting regulators and standard-setters have considered implementing mandatory auditor rotation for public companies the rationale for such a rule is that term limits would help prevent auditors from developing long-term relationships with their clients that, proponents of rotation believe, inhibit professional skepticism.
Don’t just implement auditor rotation because everyone does it for example, if you want a fresh set of eyes, make sure that you’re really accomplishing that by changing auditors you may decide to stick with the same firm for its institutional knowledge but just request a new partner to work with. “mandatory auditor rotation has been met with universal rejection by board audit committees, including exxonmobil’s, as the proposal diminishes the audit committee’s role in hiring.
One of the most important is the mandatory lead auditor rotation every five years this is a much more cost effective way of increasing independence between auditors and clients. Mandatory auditor rotation limits the number of consecutive years that a registered public accounting firm or audit partner can serve as the auditor of a company, and is claimed to be able to enhance audit quality and reduce market concentration.
Auditor rotation has long been a subject of debate as a measure to prevent audit failures, especially after the financial crisis two types of rotation suggested are firm rotation and audit partner rotation mandatory auditor rotation limits the number of consecutive years that a registered public.
If mandatory rotation were required at the 500 largest us companies, a 10-year phase-in process would entail 50 auditor changes every year compared to the recent average rate of five per year. Guidance on mandatory firm rotation and selection procedures one of the key requirements of the eu audit legislation is that public interest entities (pies) in the eu must change their statutory audit firm after a certain period of time. Auditor independence is the main goal of audit firm rotation one of the most important is the mandatory lead auditor rotation every five years this is a much more cost effective way of increasing possibly create multiple relationships with audit firms this way.