The UK's biggest audit firms have rejected en masse the notion that auditors should face mandatory rotation.
Link: The survey in full
As ministers seek to finalise reforms designed to restore faith in accountancy, only one of the top 30 UK accountancy firms is in favour of bringing in mandatory audit firm rotation, Accountancy Age can reveal this week. Of those firms just Baker Tilly – seventh in the Accountancy Age Top 50 league table – believes the move is needed to restore confidence.
The news comes as the industry awaits publications of a report into into financial reporting and auditor independence by trade secretary Patricia Hewitt. The Financial Services Authority is also due to conclude its review of listing rules which is also examining the role of auditors.
Teresa Graham, partner at Baker Tilly, said: ‘Confidence must be restored in UK bourses and in UK plc. Compulsory rotation for FTSE-100 companies – which can easily afford the additional fees – could be one way to achieve this and to restore confidence in the market.’
But Graham stepped back from saying the move should be brought in across the board. ‘However, it would be madness to apply this legislation to SMEs which are already besieged by red tape,’ she added.
In contrast, the other firms said such a change would only serve to bring down the quality of audit. Jeremy Newman, managing partner of BDO Stoy Hayward, said: ‘There is no evidence that rotation will prevent corporate collapse. Our objective must be the restoration of trust in the audit and the auditor and we need to find positive ways of achieving this.’
Mandatory rotation of audit firms has long been advocated by many as a means of ensuring potential conflicts of interest are avoided and that the accountability of audit firms and company directors ensured. The government inquiry into auditor independence in the UK came in response to investor and public concerns in the wake of corporate scandals like Enron.