Companies given nod to keep audit partners for seven years

Audit partners can be invited by companies to remain with a single client
for more than five years under new regulations released today by the audit

From December 15, it will be possible for audit partners to stay with a
client for two years beyond the five year cut off if it is invited to do so by
an internal audit committee. Previously, the audit partner could opt to stay if
he or she believed the client was experiencing “execeptional circumstances”.

The Auditing Practices Board (APB), which made the announcement today,
effectively robs the audit partner of the power to extend his or her term, and
instead hands that power to the internal audit committee. The committee then has
to detail the reasons behind its decision in the annual report.

The audit committee can only make the decision to extend the term if it
believes it will “add to audit quality”.

Richard Fleck, chairman of APB, said he took into account concerns from
investors who argued any time extension should occur in limited circumstances
and if internal audit committees signed off on the decision.

“While judgement will be needed in determining whether an extension is in
fact necessary to safeguard audit quality, the APB decided that it should
emphasise…that the extension should only be granted if, in addition, there would
be clear disclosure in annual reports of the audit committee’s decision and the
reasons for it,” he said.

“The FRC’s Audit Inspection Unit will review the reasoning recorded by audit
firms where the partner rotation period has been extended and the associated
disclosures that are provided to shareholders.”

Read the APB’s full statement:
finalises changes to Ethical Standards dealing with partner rotation

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