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Rapid rotation threatens audit quality - Printable Version

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Rapid rotation threatens audit quality - Muhammad Adnan Arshad - 04-18-2007

Regulators should be aiming to extend the rotation period to at least seven years, according to auditors

Nicholas Neveling, Accountancy Age, 12 Apr 2007

Rotating audit engagement partners on a regular basis has been a pet topic of the Professional Oversight Board’s audit inspection unit, with the watchdog arguing that engagement partners need to be moved along to ensure independence.

"Professional Oversight Board (POB)" chairman Sir John Bourn has spoken out about the ‘insufficient use of databases to monitor the length of relationships between audit engagement partners and clients’ and warned that too cosy a relationship between partner and client places audits at risk.

This week, however, auditors gave their firmest indication yet that rather than enforcing the five-year rotation rule meticulously, regulators should be aiming to extend the period to at least seven years.

Responding to the Financial Reporting Council’s discussion paper on promoting audit quality, Grant Thornton, ICAS and Deloitte were among the many respondents who said the rotation period should to be extended to seven years.

‘Existing rotation requirements may inadvertently have a negative impact on audit quality because key audit partners are removed without always having someone to replace them,’ said ICAS’s James Barbour.

Deloitte’s Martyn Jones said extending the rotation period was highly unlikely to compromise auditor independence.

‘Chief executives and financial directors are more mobile and less likely to see out five years at a single company, which reduces the risk of a relationship becoming too close,’ he said.


- msc286 - 04-18-2007

So we have to comprise on one of the two main areas

1. Quality

2. Independence

In my personal view there should be a blend of both, without sacrificing any of them.