Washington (Nov. 24, 2003) -- Mandatory firm rotation may not be the most efficient way to strengthen auditor independence and enhance audit quality, according to a report released by the General Accounting Office.
A 98-page report from the auditor general found that the benefits of auditor rotation when weighed against “additional financial costs and the loss of institutional knowledge of the public company’s previous auditor of record, are harder to predict and quantify.”
The Sarbanes-Oxley Act requires mandatory auditor partner rotation after five years.
The GAO found that nearly all the largest public accounting firms and Fortune 1000 publicly traded companies it surveyed believed that the costs associated with audit firm rotation are likely to exceed the benefits. Most of those participating in the survey indicated that Sarbanes-Oxley’s requirements regarding audit partner rotation, and auditor independence would achieve the benefits of firm rotation.
The GAO found the views of stakeholders, such as institutional investors, regulators and banks, consistent with the views of the respondents to the survey.
The office said that “several years’ experience with the implementation of Sarbanes-Oxley is needed before the full effect of the act’s requirements can be assessed.”
The GAO recommended that the Securities and Exchange Commission and the Public Company Accounting Oversight Board to monitor and evaluate the effectiveness of existing requirements for enhancing auditor independence and quality.
-- WebCPA staff
