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Proposal for Regulation to Require Audit Firm Rotation

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Audit firm rotation

Currently there is no regulation on audit firm rotation and it is required to do partner rotation. Discuss past and present regulations related to both and write a conclusion which will include the an opinion on requiring audit firm and partner rotation.

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Solution Summary

Your tutorial is 483 words and six references and discusses the motivation for proposing audit firm rotation (versus audit partner rotation) and whether this would fix the issues it hopes to address.

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Concerns that the auditor might be too close to their client to be objective has been an issue for decades and suggestions to offset this concern have run up against resistance. Why? First, it is hard to "quantify" or measure the problem (amount of closeness?) or the cost of the problem (what is the dollar amount you assign to a failed audit?). And, who is it that pays the price for a failed audit? The public and the capital markets. And who pays the fee to tighten up the auditor objectivity? The client. So, this is a constant battle. The one who pays (client) screams that it is not needed. The public tries to get regulators to do something. And so the struggle continues.

The first major legislation to try to address this issue was the Sarbanes Oxley Act of 2002. This act required that auditor partners be changed every five years. This was supposed to ...

Solution provided by:
Carol Sargent, PhD
Education
  • BSc, University of Virginia
  • MSc, University of Virginia
  • PhD, Georgia State University
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