Auditing firm rotation, financial reporting and independence

Making it mandatory for audit firms to rotate is one of the measures regulators around the world are looking with the intention of improving the independence, objectivity and professional scepticism of auditors.

While we agree these attributes are at the heart of the audit profession, we believe that mandatory audit firm rotation is likely to reduce – not improve – the quality of audits and the reliability of financial reporting. Not only would such measures add cost and complexity to audits, we believe they would actually undermine some of the recent reforms that have improved audit quality.

We outline why we believe mandatory audit firm rotation will put audit quality at significant unnecessary risk and undermine the reliability of financial reporting for any company. We also explain why we believe that, for larger, more complex companies, and in particular the banking industry, the adverse impact is likely to be even more severe.

We believe there are more effective ways to reinforce auditor independence, objectivity and professionalism.