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Auditor rotation abroad and at home

September 16, 2013 Blog 1 min read

There is much worldwide debate over auditor rotation and whether it has a positive or negative impact on the quality of financial reporting.  The debate principally revolves around public companies but if the concept becomes a well-accepted part of the U.S. or global financial reporting system it’s not too hard to imagine it beginning to impact non-public U.S. subsidiaries of foreign public companies as well as private companies.  Some believe that auditor rotation increases the quality of financial reporting by having a new set of eyes on the books but others oppose it because of the burden and expense it would put on companies as well as the belief that audit failures are more likely in the first several years of an engagement.  An additional concern is the number of globally capable firms who can accept such engagements.  It has been argued that there are not enough and they may not all have the local expertise in all of the areas in which some global companies operate.

The Sarbanes-Oxley Act requires audit partner rotation every five years but an outstanding proposal by the PCAOB looks to include audit firm rotation as well.  The European Union currently has a law drafted that would require rotation every 14 years with an option to extend it to 25 years in certain cases.  Some are opposed to this idea in lieu of something less intrusive while others are opposed enough to pass legislation that would not allow it.

What do you think about mandatory auditor rotation?  Would it make you feel more comfortable with financial reporting?

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