Evidence compiled over the past few months by the UK industry regulator, the Review Board, shows the disadvantages of audit firm rotation overshadow the advantages.
Colin Reeves, Review Board director, said: ‘International experience suggests the disadvantages of audit firm rotation in respect of increased learning costs and potential audit failures in the early years outweighs the advantages of the new firm bringing an innovative perspective to the audit.’
The research will be fed into the coordinating group on audit and accounting issues – set up by the DTI and the Treasury in the wake of the Enron collapse – which is due to report its findings in the next few weeks. The Review Board concluded ‘changing the auditors should be a decision made by the company and not be mandatory’.
The Board also recommended that where an auditor had been in place more than five years, a company should ‘provide an explanation as to why it is felt independence is not impaired’.
Last week an Accountancy Age survey found just one of the top 30 firms supported mandatory rotation.
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