Audit

Audit firm tenure: the case for change

Some regulators and other commentators believe that some auditors may have too close or cosy a relationship with their audit clients’ management reducing their independence, scepticism and objectivity and undermining the quality of the audit they produce and therefore its value to the financial markets and broader society.

Limiting the tenure of auditors is seen as one approach to addressing this.  Equally, some regulators believe limiting tenure can be a remedy to concerns around high levels of concentration among the larger global accounting networks undertaking the audits of larger, listed, companies (especially in banking and financial services).  Some countries also see it as a way to unlock wider economic growth by encouraging native accounting firms to grow through a more dynamic audit market.

A frequent response to such concerns has been the introduction of mandatory audit firm rotation (MFR) or tendering and or joint audit – either separately or in combination.  The evidence that these approaches are effective is mixed and some countries have introduced alternative approaches.

Tenure and Governance

In the following videos hear the views of investors (Pru Bennett from Blackrock and Rui Mota Guedes from Kepler Cheuvreux)), audit committee chairs (David Denison from Royal Bank of Canada), regulators (Brian Hunt from the Canadian Public Accountability Board) and governance experts (Professor Mervyn King Chair of the King Committee on Corporate Governance in South Africa).

In the first they give their views on rotation, arguing both for and against rotation as an effective solution to issues around auditor tenure and independence, and in the second, their views on approaches to enhanced governance including increased oversight of performance of the audit and the auditor by the audit committee.

Audit quality

A focus on the quality of the audit is at the heart of our assurance work.
Quality is the foundation of trust and stability in the financial markets. We and other members of the profession are continually improving the quality of our work and considering the relevance of the audit in the future. For more information, please see our dedicated page on Audit Quality.