European Study Examines Mandatory Audit Rotations
A study from Europe has determined that requiring public companies to change audit firms every few years may be a bad idea. The study, which covered the Public Company Accounting Oversight Board’s Concept Release No. 2011-006, Auditor Independence and Audit Firm Rotation, revealed dissimilarities between the trust clients maintain in auditors and professional skepticism auditors exhibit toward clients.
Those in support of mandatory audit rotations say a lengthy relationship between auditors and clients can negatively impact an auditor’s skepticism and objectivity, leading to a reduced audit quality. They also believe term limits would offset an auditor’s inclination to have a closer relationship with long-term clients, as well as support efforts to reinforce auditor independence. The study also found no major connection between auditor skepticism and the span of the companies’ relationships with audit firms or engagement partners.
Austrian professor Ewald Aschauer conducted the study with colleague Matthias Fink, Cranfield University’s Andrea Moro, Vienna University’s Katharina van Bakel-Auer, and University of Southern Denmark’s Bent Warming-Rasmussen.