Auditor Rotation

Posted on Wednesday, August 14, 2013

The U.S. House of Representatives recently approved a bill that prohibits the Public Company Accounting Oversight Board (PCAOB) from requiring mandatory audit firm rotation for public companies.  The bill still needs to be approved by the Senate and signed by the President before it becomes law.  When the Sarbanes-Oxley Act was initially adopted in 2002, it required that the lead audit partners for public companies must rotate every 5 years.  The recent bill amends this regulation to prohibit the requirement of public companies from changing auditors.

Those in favor of audit firm rotation believe it provides a “fresh look” at the organization by requiring new auditors every so many years, while others claim that long-term relationships with an audit firm may impair independence and objectivity.

Independence and objectivity; however, are part of the auditing standards that every auditor must follow.  “The auditor must maintain independence in mental attitude in all matters relating to the audit.” (Statement on Auditing Standards No.1)  Auditors must document that they follow these standards and are also subject to a peer review process to ensure the standards are being followed.

Opponents believe that auditor rotation comes at an increased cost and may actually reduce audit quality due to the learning curve for both the nonprofit organization and the auditor that occurs in the first years of a new relationship. 

The mandatory auditor rotation has never applied to nonprofit organizations; however, some organizations make it a practice to rotate auditors every few years.  So should your organization rotate auditors?  Instead of looking at how long of a relationship you have with your auditors, look at what your auditors are providing your organization.  You should consider changing your auditors when your current auditors are no longer able to meet the quality of service required by the organization.

Posted by: Carrie Minnich, CPA

Posted in Mission Minded Nonprofits

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