Mandatory Auditor Of The New Rule

1998 Words8 Pages
Introduction In 2014, the EU issued the requirement of mandatory auditor rotation in order to figure out the auditor independence issues, however the Competition Commission delayed the introduction of the new rule as it has a conflict with EU regulations. In fact, since the early 1970s, whether introduction of mandatory auditor rotation has sparked much debate. The favourer often used to vindicate mandatory auditor rotation rule is to enhance auditor independence, have a fresh view at the financial statement, boost the public’s perception of auditors’ independence and promote greater competition among audit firms. The supporter of the rule has argued that each would result in an improvement in audit quality. On the other hand,…show more content…
In next section, I will critically discuss the supporter and objectors of views. In conclusion, I will weigh both side opinion and give the clear view for introduction of mandatory auditor rotation. Enhancing Auditor’s Independence and Objectives & Reducing the Earning Management Convincing arguments can be made that the introduction of mandatory auditor rotation enhance auditor independence that really improves the audit quality. In fact, audit firms are economically bonded to its clients as there is a financial rewards associated with keeping a long term relationship with an audit client. In order to maintain the longer period of audit firms tenure, auditors might be enticed to overlook the issue of financial reporting such as earning management. Moreover, this financial rewards also lead to auditors who lose objectivity in periodic audit engagements. Therefore, auditor rotation may hold auditor back long term relationships with audit clients from developing(Porter et al.,2014). It may lower the earning management and managing to earnings targets owing to auditor rotation rules reducing the threats to auditor independence. This point can be illustrated by a study which shows evidence of less earning management and less managing to earnings targets from Italy, South Korea, and Brazil compared to the sample before introduction of mandatory auditor rotation(Harris and Whisenant, 2012). Plenty of
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