MANDATORY ROTATION OF AUDITORS Essays
In light of a number of high-profile corporate failures during the first half of 2001, a number of studies have been performed to address the impact of mandatory rotation of audit firms to ensure the appropriate level of ‘independence’ of auditors. Majority of studies conclude that the detrimental effects of firm rotation on the quality of the audit work by far outweigh its positive effects as a safeguard against various independence and quality threats.
Frequent changes of audit firms, whether resulting from mandatory rotation or otherwise, introduce threats to independence and operational difficulties that make audit failure more likely. Many studies have involved practitioners’ opinions on this issue, which have been based on …show more content…
As a part of the growing recognition of the desirability of achieving global uniformity and harmonisation in all areas of financial reporting and auditing, many studies and discussions including the Ramsay report were instigated since 2001 . The CLERP (Audit Reform & Corporate Disclosure) Act 2004 implemented the CLERP 9 measures and the recommendations of the Ramsay Report on the independence of Australian company auditors and took into account the relevant recommendations of Report 391 of the Joint Parliamentary Committee of Public Accountants and Audit.
The CLERP 9 Act draws on the HIH Royal Commission (HIHRC) , Cole Royal Commissions Report and the Ramsay Report in focusing on the importance of an independent audit on capital market efficiency. This is to be achieved through adding value to financial statements by improving reliability, which in turn should assist to lower the cost of capital by reducing information risk and enhancing value to capital market by strengthening the credibility of financial statements.
The many arguments for and against Mandatory audit firm rotation was