It’s not you: It’s the audit rotation rules

Although some U.S. companies have a history of changing audit firms, many have developed long-term relationships with their auditors. After all, we’re known for adding life to any party—what’s not to love?

These relationships may be cut short, however, due to the audit rotation rules governing a company’s foreign parent.

Most countries have developed their own audit standards. While there are similarities among countries in many key areas, one area that’s maddeningly inconsistent pertains to audit firm rotation requirements. While public companies in the United States are required to rotate audit partners periodically, nothing has been addressed regarding audit firms. (There are currently no rotation requirements for nonpublic U.S. companies). This is not the case for many foreign countries, however.

While most foreign auditing standards aren’t clear as to whether subsidiaries outside the home country must rotate audit firms to match their parents’ rotation schedules, foreign subsidiaries and their audit firms are more likely to be impacted when they make up a much larger portion of the consolidated group. And both audit firms and audit partners may be affected.

Don’t be caught off guard. If audit rotation could be an issue for your subsidiary, address it with your parent company’s finance team. This will allow you to better understand the group auditor’s viewpoint and, if necessary, plan ahead to reduce any unforeseen disruptions. After all, communication is the cornerstone of any successful relationship.