Auditors Rotation

2019 WordsSep 9, 20139 Pages
Auditor Rotation | Raising Auditor 's Independence | Proposed By: Varun Basantani | Auditor Rotation- Raising Auditor 's Independence ------------------------------------------------- Abstract: The question for mandatory audit rotation has been a concern to academics, investors, practitioners and the public at large. This paper is designed to determine the relationship between mandatory audit rotations and audit Independence. The paper makes an earnest effort to evaluate the need for rotation of auditor. It uses different studies done at various universities at allied subjects. It compares such provision in various statute like “Insurance Regulatory and Development Authority”, “Banking Regulatory Act”, “Sarbanes-Oxley…show more content…
Since traditional agency conflicts are characteristic in large management operated corporations, the necessity of a statutory rotation is solely related to this group of companies. Shareholders in small and medium-size companies are to exert greater influence on the management than an average private shareholder in a public company. This dichotomy in auditing standards has recently been contemplated by the Ministry of Corporate Affairs in their regulation draft. Burton and Roberts (1967) present a fundamental approach to the economic impact of auditor changes. Although, considering the assistant role of an auditor in a stock corporation, a long-term contract between board and auditor seems sensible, the independence in appearance might be limited due to a special trust relationship between management and auditor in a long-term assignment. They suggest that personal relationships between auditor and management, the combination of auditing and consulting, as well as the auditor’s goal of maintaining the assignment are determining factors towards reducing audit quality. According to DeAngelo (1981), quasi-rents according to low balling – without compulsory rotation – might present a financial incentive to the auditor to give up his independence, if the probability of exposure by the capital market is considered to be low. According to supporters of this theory, an auditor’s low balling strategy which might be related to his
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