Audit Partner Rotation - Issue Brief

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Audit Partner Rotation - Issue Brief In response to the wave of corporate crises, the Sarbanes-Oxley Act includes a provision regarding mandatory audit partner rotation for firms auditing public companies. This should not be confused with audit firm rotation and it is important to make the distinction. The Act requires the lead audit partner and audit review partner (or concurring reviewer) to be rotated every five years on all public company audits. The Act requires a concurring review of all audits of issuers (as defined in the Act). The focus of this document is audit partner rotation. However, it also discusses the circumstances in which audit partner rotation can be tantamount to audit firm rotation. A Reasoned Approach A…show more content…
While audit partner rotation was mandated in Sarbanes-Oxley, there is no evidence that audit partner rotation will guarantee better audits. In fact, regarding the issue of firm rotation there are existing independent studies that conclude that audit firm rotation reduces audit quality and that the costs far outweigh the benefits. Research conducted separately by the Public Oversight Board, the Commission on Auditors’ Responsibilities, and the National Commission on Fraudulent Financial Reporting found that audit failures are three times more likely in the first two years of a client/auditor relationship, and that there is a positive relationship between audit firm tenure and auditor competence. There is a substantial body of academic literature that indicates the direct relationship between the length of auditor tenure and the increased discovery of material financial statement errors. Knowledge of the client, its business and the environment it operates in is essential to audit quality. Without these, audit quality would decrease. It is clearly in the public’s interest to keep the most qualified partner on the job. Market and Economic Impact Requiring audit partner rotation for non-public companies could also

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