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• W251644644 abstract "ABSTRACTMandatory audit firm rotation has been discussed by accounting academics, regulators and practitioners for decades. Recently, the Chairman of the PCAOB and the former head of the SEC have stated support for the concept because of the perception that long-term auditor/client tenure may signify decreased objectivity. This paper examines the rotation issue from a historical and international perspective. The background of the rotation issue is discussed along with a brief sample of the mixed prior research findings. Auditor rotation rules and laws in countries with the largest GDP are also examined and discussed. Finally, as a result of this examination, the authors recommend a very long mandatory auditor rotation period of 12 to 20 years in order to increase the perception of objectivity without significantly increasing long-term costs. A potential future research topic would be to examine the present status of the mandatory audit firm rotation issue by accounting rule makers in other large industrialized countries.INTRODUCTIONMandatory auditor rotation has been discussed by members of the accounting profession and by the various users of accounting information for decades. Congress considered including mandatory audit firm rotation in the Sarbanes-Oxley legislation, but instead opted for partner-in-charge rotation. In the United States, Sarbanes-Oxley requires that the in-charge partner be rotated every five years but does not require the audit firm to be changed. Last August, James R. Doty, the Chairman of the five-member Public Company Oversight Board (PCAOB), proposed mandatory auditor rotation as a means of enhancing ... auditor independence, objectivity and professional skepticism. Arthur Levitt, former SEC head, in a recent Wall Street Journal interview (2011) expressed his view that audit firms should be rotated every ten years. Michel Bamier, the European Union's commissioner for the internal market, has also raised the issue of requiring mandatory audit firm rotation among European Union member countries, along with splitting up the top four international audit firms (Huw Jones, Reuters, 2011).The rotation issue has also received considerable recent attention in the financial media. In the September 3, 2011 issue of The Economist (author unknown), the reporter showed ambivalence by stating: Mandatory rotation would probably not do much harm; but it might well not do much good either. (2011). The issue was also discussed by a columnist for The New York Times in the August 17, 2011 issue (author unknown) in an article with the headline Accounting Board to Seek Comments on Rotating Auditors. (2011).Elected politicians have also got involved in the mandatory auditor issue. Representative Michael Fitzpatrick (R, Pa.) introduced legislation in March 2012 that would prohibit the PCAOB from requiring the use of different auditors on a rotating basis. Representative Fitzpatrick's argument is that rotation would increase audit costs and would deprive the company of the auditor's company-based knowledge that comes from a longterm audit-client relationship.One of the primary rationales for the increased interest in mandatory rotation is the perception that a long, close relationship between the audit firm and the company being audited may lead to significantly decreased objectivity. In the United States, for example, GE, Proctor and Gamble, Dow Chemical and four other corporations in the Standard and Poor's 500 index have used the same audit firm for over 100 years. Nearly 175 companies in the index have had the same audit firm for 25 years or more. For companies included in the Russell 1000, over 36 percent have retained the same external auditors for 21 years or more (Brookings Institute, 2012). On the international front, the average tenure for an audit firm of a company in the British FTSE 100 is 48 years. In Germany, over 60% of the companies in the DAX 30 index have used the same audit firm for over 20 years. …" @default.
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• W251644644 date "2012-10-01" @default.
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• W251644644 title "Issues with Mandatory Audit Firm Rotation" @default.
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