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Auditor rotation - Coggle Diagram
Auditor rotation
Rotation of audit firm
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There is an option that mandatory rotation is necessary only every 20 years so long as the rules for the annual tendering of the audit every 10 years are complied with
Whether audit firm rotation should be made mandatory is an issue that has been debated for almost five decades
Proponents of mandatory audit firm rotation have argued that a new auditor would bring to bear greater scepticism and a fresh perspective that may be lacking in long standing auditor-client relationships
When a company has been a client of an audit firm for a number of years, the client can be viewed as a source of a perpetual annuity, potentially impairing the auditors' independence
Opponents of mandatory firm rotation have argued that audit quality would suffer under such a regime because the auditor would lack familiarity with the client and its industyr
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Roation of partner
FRC guidance recommends that the normal rotation period for the audit engagement partner and key audit partners is 5 years
The audit committee can decide that it is necessary to safeguard the quality of the audit without compromising the independence and objectivity of the external audit to extend the period
In such circumstances where it has been extended, the audit engagement partner may continue in this position for an additional period of up to two years so that no longer than 7 years in total is spent in this position
Where the period is extended the audit committee should disclose this face and the reasons for it to the shareholders as early as practicable
It is argued that the independence of the auditor is threatened by the personal relationship that builds up over time between the audit team and the company