Extension to audit rotation branded a backward step

A proposal by the UK’s audit watchdog to allow partners to oversee large company audits for seven years rather than five under current rules could undermine accountants’ independence, a leading shareholder advisory body has warned.

The criticism from Pirc is a setback to the Auditing Practices Board after the Association of British Insurers last week backed the suggestion to relax rules for audit partner rotation.

The APB has proposed to extend the time an audit engagement partner can stay at a large listed company before moving to another client, if given permission by the company’s audit committee.

David Ellis, head of Pirc’s UK corporate governance team, said the APB proposals – part of a consultation to update ethical standards for auditors – would be a backward step.

‘The idea of rotating a partner is that a fresh view can be bought to the audit and that the auditor does not get too close to the company,’ he said. ‘Extending the time an audit partners stays at a company leaves more questions about the audit not less.’

Ellis also called for companies to continue to rotate their audit firm every five years.

But KPMG said it supported the APB’s rotation proposal. ‘There may be advantages to clients who see the expertise and continuity of the audit [engagement] partner as being an important service,’ said Neil Sherlock, partner in public affairs at the Big Four firm.