Audit rotation threatens quality
Forced rotation of audit firms inadvertently damages audit quality, the latest research concludes.
An in-depth study by the Brussels-based European accountancy body, FEE, which looked at reports on the topic by governments, regulators and academics from around the world, concluded that mandatory rotation ‘could undermine the EU’s work to build public trust in financial reporting’.
The research also found that mandatory rotation would lead to increased costs to business and time dedicated to oversee the process. Although FEE said cost should not be a decisive argument in decision making.
Proposals to introduce audit firm rotation were pushed up the agenda following the spate of corporate collapses in the US.
Following research the US concluded that rotation was not the solution in fighting high level fraud and corruption. Italy is the only EU country that applies mandatory rotation of audit firms.