In the aftermath of the collapse of financial institutions like Lehman Brothers and audit deficiencies of investment banking firms, a great deal of attention has been devoted to requiring mandatory auditor rotation. Some critics of the audit profession are concerned about a breakdown in external auditor independence, objectivity and professional skepticism. Others point out the inherent conflict of interests in the “issuer pays” model for audit firms.
Kenneth Daly, president and CEO of the National Association of Corporate Directors, told the PCAOB in its hearings on these matters that there should be a rigorous annual evaluation of the external auditor led by the audit committee, endorsed by the board, and communicated to shareholders.
Do you think such an annual process negates the need to consider mandatory auditor rotation?
What are some of the possible unintended consequences of instituting a mandatory auditor rotation requirement?
What are the costs and benefits of mandatory auditor rotation from an ethical perspective? Do you believe auditors should be required to rotate off a client’s audit engagement after a specific period of time? Why or why not?