Audit Partner Rotation Essay


This study is done to inform my faculty coordinator, on the benefits and hurts that need to be considered before taking up an hearer spouse rotary motion. The key which need to be considered involves the hearers independency and the quality of an audit performed.


Audited account is defined as ‘a systematic scrutiny of the activities and position of an entity, based chiefly on probe and analysis of its systems, controls, and records ‘ ( BNET Business Dictionary ) . Audit spouse on the other manus is explained as any spouse whom is involved in the audit battle squad to execute an audit undertaking. The individual may hold the duty in doing a determination which relates to an country which he or she might hold covered.

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On the issue associating to auditor rotary motion, there are some states such as Israel, Italy and Spain which has already adopted the rotary motion ( Anthony H. CatanachJr. , Paul L. Walker. 1999 ) . However, there are much more states in the universe that are still debating on the issues of following this policy. The US has literally done some research and surveies on the acceptance of hearer rotary motion and from what they have discovered, they are still against the rotary motion.

Independence and audit quality

Robert K. Elliott and Peter D. Jacobson in ‘Audit Independence Concept ‘ assert that ‘there has ne’er been an official definition of the term independency and that there has ne’er been a conceptual model for audit independency ‘ ( Carmichael Douglas R.,1999 ) . However, since the being of Generally Accepted Auditing Standards ( GAAS ) in 1947, the word “ independency ” is defined as an hearer must hold a good attitude and attack of being ‘unbiased, just and impartial ‘ every bit good as have unity.

Bing competent is said to hold the ability to execute the audit successfully with appropriate cognition in observing breach, fraud and mistake. For hearer to be independent is, whenever he found any of the misstatements, he has the ability to describe it without any uncertainty. Furthermore, being less connected with the client is besides said to be independent.

The quality of audit comprises of two elements which are independency and competency. As mentioned above, holding a good hearer ‘s feature will surely act upon a good quality production of the audit study. Therefore, it will so act upon the external users in determination devising procedure.

Auditor Rotation

Audit battle spouse rotary motion merely applies to the lead spouse and audit reappraisal spouse or agring referee. The rotary motion is required to be done every five back-to-back financial old ages and it is supported by the Ethics Committee on the updated Section 8 in November 2001. In add-on, Section 203 in Sarbanes-Oxley Act dated 28 January 2003 province that it is an obligatory demand for a house to use a five-year ‘timeout ‘ period after each rotary motion. The new regulations besides required for other audit spouse to be rotated after seven old ages executing audit to a peculiar client ‘s company with a biennial ‘timeout ‘ period. Harmonizing to Evan and Sutherland, this rotary motion policy efficaciously started on 2nd April 2004.

Survey conducted by ICAEW shows that 78.5 % of respondent wanted a longer audit spouse period before rotary motion. Merely over half expressed involvement in a seven-year rotary motion period, while 24 % opted to retain the five-year period but be able to widen it to seven if required. 21.5 % said they would keep the five-year period ( Accountancy Age, 2009 ) .

Auditor rotary motion merely applies to take hearer. Therefore, it would non interfere the remainder of the audit squad. It will assist the new lead spouse in familiarising himself to the client ‘s concern and therefore, lead the audit squad in seeking or observing any other new leery affair. This is due to the status of the new spouse in holding ‘fresh eyes ‘ to the client ‘s concern.

Firm is likely to suggest a alteration in audit spouse to a client if it helps the house to pull off and develop cardinal staf hearer. For case, new hearer will be given a little undertaking to cover with simple client. As their experience grew, they will be moved to a larger corporation to cover with more complex accounting issues. This will besides assist to familiarise the hearer on his duty in going independent. Therefore, it will increase the quality of audit work every bit good as increase his or her assurance in executing audit undertaking.

Issues brought up

Although the oppositions acknowledge the possible benefits from the acceptance of the rotary motion, they argued on the cost that might be incur in the hereafter due to the acceptance, which might hold a possibility to be more than the benefits earned. It is proven that there will be little addition in cost which chiefly focus on giving information to new spouse. This is assigned as a start-up cost. The start-up cost is an initial cost which will be incurred while get downing up an audit. This should be exhaustively discussed before any determination being made in revolving an hearer due to monolithic sum involved.

Despite the high cost, based on the collapsed of Enron and WorldCom, it has shown that “ excessively close ” relationship between the hearer and client will endanger the independency and the quality of work performed by the hearer ( Sandra K. Gates et al. , 2007 ) . Hearer himself has the possibility to go prejudice when saying his sentiment on the status of the client. Harmonizing to Herrick and Barrionuevo, 2002 ( Arel et al. , 2005 ) , Andersen ‘s hearers and advisers were given a infinite in Enron ‘s office and have entree to all the benefits obtained by Enron ‘s employees. Due to this, other people thought they were Enron ‘s employees.

Audit spouse rotary motion is besides argued that it will take to steadfast rotary motion. Sarbanes-Oxley Act ( SOX ) ,2002 requires the lead audit spouse to be rotated every five old ages on all public companies. However, this could merely be achieved when the house is big plenty and comprises many hearers. For spouse rotary motion which could take to steadfast rotary motion, this is specifically for exclusive practicians and little houses with limited figure of audit spouse. If they could non run into the rotary motion demand ( i.e. : no more spouses to be rotated in the house ) , they have to give up the audit to another house.

Research done by the U.S General Accounting Office ( GAO ) reveals that puting a bound on the figure of old ages to execute an audit of a peculiar company will non better the efficiency and the quality of the audit work performed. This research is besides supported by AICPA stating that in the first and 2nd audit of a company, there were more likely audit failures occur when hearers performed their audit undertaking ( AICPA, 1992 ) . This shows that the hearers have failed to observe and describe stuff mistakes which has occurred in the fiscal statements of a client.

Audit spouse rotary motion may besides give impact to clients. They might confront pecuniary issue due to increased in audit fees. Management will hold ‘money ‘ troubles in seeking for hearers and will confront clip restraint in familiarising the hearers with their operations, processs, systems and industry ( AICPA, 1992 ) . With a quotation mark ‘Time is Precious ‘ , all these processs is considered as a waste of clip as they can utilize their clip in doing money. Furthermore, clients besides may confront troubles in finding the audit quality differences between the audit houses that has perform audit in the organisation.

In Taiwan, compulsory spouse rotary motion can be said as being superficial. This is because the spouse that rotates in that peculiar twelvemonth will come back on the undermentioned twelvemonth. Therefore, it will take to no difference in footings of the quality of the audit work. ( Chen, Lin, and Lin ( 2008 ) ) . The intent of making this is that they want to keep the relationship with the client, and this may ensue into endangering their audit work.


In decision, based on the above justifications, engagement spouse rotary motion might better independency in visual aspect which is the hearer ‘s ability to be indifferent and nonsubjective on the audit work performed. In add-on, it might besides increase the overall audit quality due to the rule of hearer of holding a good hearer features.

However, despite of all the benefits may obtained, pull offing manager must besides see the deduction of following this policy. There are many states which are still debating upon this acceptance which indicates that there are still many issues undiscovered yet being unsolved.


It is best for the scrutinizing board to garner and discourse this affair to measure the effectivity of this acceptance. There are certain standards which must be take into thorough consideration such as the type of a company ‘s involved, the quality of an audit which resulted from the acceptance of rotary motion every bit good as to what extent the hearer him or herself might be independent in executing the audit work.

Besides, the cost involved for the audit spouse rotary motion demand to be disclosed and instantly decide. Therefore, it will decrease the part towards the negative impact of this acceptance.

Creativity and imaginativeness is required in order to accomplish a solid solution therefore, heighten the productiveness of audit work.


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