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Recommended: Importance of auditor independence

Sarbanes- Oxley 2002 Act had enforced audit firms to limit providing non-audit service to clients (the company) which they audit at the same time in order to improve audit quality. We agree that audit firms should develop auditors’ independence, professional skepticism and objectivity to improve the quality of audit reports. The big challenge for PCAOB and each audit firm is how to implement these valuable requirements appropriately. Audit firm rotation may bring some advantages to public investors. First of all, different audit engagement teams use different methods to evaluate the company’s business and financial situations. New auditors could have new viewpoints and identify potential problems about the company’s financial statements. Second, if the auditor understand his or her work will be reviewed by following auditors, he or she may be more critical to do their work. Audit firm rotation is also a method to help auditors refuse the pressure from the company’s management. However, we think mandatory audit firm rotation is not an effective method to improve audit quality. Auditor independence, professional skepticism and objectivity are three major factors to ensure high audit quality. There are other important factors to impact audit quality, for example, audit engagement cost, the application of audit standards and auditors’ knowledge about the company’s business and industries. Potential disadvantages of mandatory audit firm rotation may result in losing the clients and reducing audit quality. We oppose PCAOB’s mandatory audit firm requirement, which would be harmful to audit quality and reliability. In the following parts, we will provide our valuable reasons and comments on this concept.

Increase Cost and Time
According ...

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...round information. New auditors may have less ability to detect fraud since insufficient knowledge during first year. Mandatory rotation will also limit audit committee’s capability to select suited audit firm. These three major disadvantages impact audit quality negatively.

We suggest some other methods to enhance professional abilities in order to improve overall audit quality. First, rotate engagement team members after a fixed number of years so that audit firm still has “fresh eyes” to review the company’s financial statements. Second, auditors can identify important issues and solutions in current audit report clearly. This requirement may provide public investors detailed understanding of company’s and auditors’ judgments. Third, as King, Davis and Mintchik mentioned, the disclosure of the engagement partner’s identity may increase auditors’ accountability.

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