Last week, Accounting Today hosted an international visitor from the Association of Chartered Certified Accountants and the discussion eventually turned to the regulatory subject de jour - auditor rotation.

He regaled the editorial staff with an anecdote from across the pond, where it was revealed that one Chartered Accounting firm - albeit through several predecessor firms - had served as an auditor for a company for nearly 60 years.

Now that would even be a long time for a career politician in office. Obviously, one would have to sort of raise the question of independence after five decades of auditing the same company where I'm sure company management and the firm were at a point in their relationship where they exchanged holiday cards and attended each other's family events.

Now mandatory auditor rotation has seemingly been kicked around since Cain sucker punched Abel in a backyard scrap.

More recently, however, the volatile subject has once again been shoved to the forefront of the profession, spearheaded by Public Company Accounting Oversight Board chairman James Doty, who in a recent speech more than intimated that one among other changes in the traditional auditor reporting model could potentially include auditor rotation.

He cited the inherent conflict of interest of the auditor-client relationship because the firm is paid by the client, an arrangement not unlike a restaurant paying a health inspector to check sanitary conditions and evidence of rat droppings. There's the alluring promise of client annuity, which as many have pointed out sometimes tends to blunt skepticism and judgment.

He promised that the auditor overseer would release a concept report, which among other areas would address firm tenure.

I have little doubt that the auditing process in general has improved since one of the ugliest chapters in pubic accounting emerged circa 2001-2002, and the subsequent passage of Sarbanes-Oxley.

But as skeptics have pointed out, the first year's audit engagement is a steep and often risk-laden  learning process for the team, especially when dealing with a larger client with more complex accounting issues or perhaps even international transactions. It may also result in higher audit fees.

But for those like me who often become incensed when they read about jobs that do little to discourage coasting once tenure is bestowed upon them, audit form rotation could effectively negate that mindset.

I'll let far brighter minds than mine weigh in with a yay or nay on audit rotation.

But then again, it may ultimately be decided for them.

 

 

 

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