Mandatory Rotation of Auditors is In the Cards

Just when you thought that your auditors understood your business and could find their way around your systems, the audit team changes! Managing the audit relationship can be a frustrating experience.

Obviously a balance has to be struck between audit familiarity and objectivity but it can be challenging to find a resolution that works for both parties. Added to which legislators are becoming more assertive when it comes to auditor rotation.  For example, The Legal Affairs Committee (JURI) of the European Parliament recently endorsed the framework for EU audit reform agreed by the Lithuanian EU Council Presidency and the European Parliament in December 2013.

Under these rules, mandatory rotation of auditors will be introduced, requiring companies to re-tender at 10 years and change the auditor at least every 20 years. The next stage will be to put the proposals to the vote at the European Parliament.  Some audit firms already adhere to voluntary rotation and the early signs are that the proposals will meet with widespread approval.  But the key question is will these measures do anything to improve investor confidence in the quality of external audit and the reliability of financial results?  Unfortunately it only takes one mishap to upset the applecart and, regrettably, history shows that to be inevitable.