Rapid rotation threatens audit quality

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.

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.

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