Should Audit Firms Be Required To Rotate On Public Companies

1560 words - 7 pages

To: Professor Moffit
From: Lloyd Johnson
Date: February 26, 2015
Re: Should Companies be required to rotate their auditing firms on a regular basis?
As an accountant entering the modern business world, a case instilled in our minds is the Enron Scandal. For accountants, this was an embarrassing scenario and by effect brought numerous reforms, laws, and regulations. Many of these rulings are apparent in the present corporate setting. The division of accounting most affected by this scandal was the role and function of the external auditors. Auditors by trade serve in the public and stockholders interest. Furthermore, the independence of auditors is essential in performing their duties ...view middle of the document...

” The CFO further stated, “We believe the current five-year rotation requirement of lead audit partners captures substantially all the benefits of mandatory audit-firm rotation in a cost-effective manner”(2014 Vincent). The cost-effective manner appears to be the main benefit of not requiring publicly traded companies to rotate their audit-firm. Many fear the frequent changing of audit firms will increase redundancies in performing an audit. This is due in part of the publicly traded companies having to explain their corporate structure; thus requiring more time to execute an audit. Also, retaining an audit firm for years provides an understanding of the entity that may require several years to develop. Many aspects of performing an audit efficiently are intangible and are difficult to replicate when engaging with new audit firms. An example of an intangible aspect is the lead auditor’s knowledge and their ability to properly inform the staff level auditors of the business environment.
To require companies to rotate their audit firms every five years increases the likelihood of performing an ineffective audit. For instance, would one believe a first time audit would be more effective than the fifth or perhaps the eighth year? This question is the largest factor arguing against the rotation of audit firms on a routine basis. Rotating audit firms periodically may appear to achieve more independence on paper, but this does not necessarily provide for more effective audits. If an effective audit to ensure the reasonable presentation of financial statements, requiring a fresh set of eyes may not accomplish this task. Independence is obtained by abiding by the rule of ethics and professionalism. Enforcing new audit firms to engage with publicly held companies will not guarantee independence if the auditors do not abide by these codes. Furthermore, the issue of independence may not exist in what firm is performing the audit but reside in the professional conduct of those performing the audit.
If a company is being exposed to more audit firms, this may reduce the degree of independence in actuality. If an audit firm has previously engaged with a public company to provide financial services and now are performing an audit, they will technically not be independent. With the rulings already in place from SOX, lead audit managers go through an intense review process whenever leaving an audit. The new lead audit partner has to essentially create the audit all over, which diminishes any longstanding relationship held previously. An idea mentioned by Mr. Doty, who became chairman of the PCAOB in 2011, “require that the engagement partner sign the audit…partners might be more hesitant to sign off on dubious accounting if they knew their name would be publicly attached to audit if problems were later discovered”(2011 Norris). Mr. Doty is implying that if lead audit partners were held to a higher accountability with their engagements, these lead auditors will...

Other assignments on Should Audit Firms Be Required To Rotate On Public Companies

Bkaa 3023 Essay

1222 words - 5 pages techniques. 4. To be familiar with related issues in audit completion, group audit, internal audit and related audit services and other services that can be provided by the public accounting firms. 3. LEARNING OUTCOMES Upon completion of the course, students will be able to: 1. Explain the professional conduct and ethics of an auditor, the legal liability environment affecting the auditors and relate it to relevant cases (C2

The Scrushy Way Essay

1617 words - 7 pages the company. Public accounting firms report their findings directly to the audit committee and thus the committee is critical to the governance of the corporation. Written charter A formal audit charter should be written and followed. The audit charter should grant the audit committee the necessary power to help ensure that audits meet the intent and rigor required by SOX. The written charter should capture the core values of the

Arthur Andersen

4672 words - 19 pages the growing complexity of transactions, particularly those involving derivative financial instruments, hedges, swaps, and so on, and the desire to restrain audit time in the interest of profit was thought to be within the capacity of auditors and firms to resolve. The growing conflict for auditors between serving the interests of the management team that was often instrumental in making the appointment of auditors, and the interests of

Assurance Service

2680 words - 11 pages can be used to monitor the contract agreed to by the two parties. (P.S. As an attorney, Lee should be well versed on contract law.) * Auditing is also used to monitor other types of contracts for which no laws or regulations require an audit, for example, contracts between management and debt holders. * There is historical evidence of forms of auditing in the early Greek states and in the United Kingdom during

Mr. Friehling – A Future Auditing Case Study

1215 words - 5 pages . Mr. Friehling faces 105 years in prison if convicted of all charges. The PCAOB, created under the Sarbanes-Oxley Act to help prevent fraud, did not require CPA firms who didn’t audit public companies to register with the PCAOB.(5) However, the PCAOB did require brokerage firms such as Madoff Securities to be audited by firms registered with the PCAOB. The only problem was that the SEC provided a temporary reprieve from this rule for

Ocean Manaufacturing 1.1

581 words - 3 pages is lower than the industry. The profit margin is much greater than the industry average. These increased profits, if sustained, can keep the debt to equity ratio below average. [3] Evaluating the integrity of management is vital. If management is dishonest the engagement should not be accepted. In this case, management was honest and disclosed the past auditor differences of opinion and allowed the audit firm to talk to the previous

Auditing

2531 words - 11 pages shareholders and the investors. Moreover the audit expectation gap is also being established were the difference between what auditors actually required to do when they conduct an audit and what shareholders and users think auditors do or should do while conducting an audit in the financial statements. Therefore the auditors are not performing their task which can create huge problems in future such as collapses of the firms. Furthermore in the

Audit

2737 words - 11 pages . (SOX) challenging The Sarbanes-Oxley Act prohibits a CPA firm that audits a public company from providing which of the following types of services to that company? c a. Reviews of quarterly financial statements. b. Preparation of corporate tax returns. c. Most consulting services. d. Tax services. 23. Which of the following audits can be regarded as generally being a compliance audit? challenging a. IRS agents’ examinations of

Case 1-2 Giles And Regas

1396 words - 6 pages may have a hard time to find a job in the future because of the firms low reputation. Shareholders. If the CAA is public company, investors or shareholder relies on the audit report to make their judgment. Giles and Regas work of the audit report may mislead and damage the public interest because of their irresponsibility. 4.Accounting and Auditing Ethic Standards Violates AICPA code of conduct Objectivity. All CPAs need to maintain a

Audit

768 words - 4 pages identify key risks and raise risk awareness, draft an audit plan, and schedule an opening meeting. Opening Meeting The opening meeting should include senior management and any administrative staff that may be involved in the audit. During this meeting, the scope of the audit will be discussed. You should feel free to ask the auditors to review areas that you are concerned about. The time frame of the audit will be determined, and you should

The Changing Role Of External Auditor

1490 words - 6 pages under the support of Tun Razak because mostly of the accounting practices in the country was dominated by the foreigners. MIA Code of Ethics committee also mentioned that they put more concern on the auditing of the public listed companied rather than the family companies. After that during the Asian Financial Crisis in late 1990s, existence of auditing in Malaysia seen to be neglected followed by the downfall of the influence of the government

Similar Documents

School Uniforms Should Be Required Essay

321 words - 2 pages School uniforms should be required. Should school uniforms be required? Some parents and educators say that uniforms help students focus on academics instead of fashion. Others believe that kids should have the freedom to choose what they wear to school. After considering both sides of the issue, I strongly believe that uniforms should be required in school. Some parents and teachers think that letting kids wear what they want is a recipe for

Opinion Piece: "Should The Obligation For Women In Iran To Wear A Hijab In Public Be Abandonned?"

754 words - 4 pages THESIS: “Should the obligation for women in Iran to wear a hijab in public be abandonned?” At present women in Iran are forced to cover themselves up whenever they leave their private zone, but that is truly a restriction to their freedom. Therefore I have asked myself if it should be optional for women in Iran to choose for themselves whether and how much they want to cover their bodies and faces in public. In the following I am going to

Should Corporations Be Allowed To Advertise In School

721 words - 3 pages and Switzerland prohibit advertisement in school. Therefore, companies’ advertisements should be illegal in school for three reasons: parasitize the education environment, effect children vulnerability and contribute to children’s addiction of some goods. Corporations’ advertisement should be banned in school because it parasitizes the education circumference. One reason is that publicities transform school from a place of studying to

What Would You Consider To Be The Greatest Sports Film Ever Made? Explain Your Reasoning In Film Review Form. If You Wrote An Essay On This Film, Don’t Answer This Question

252 words - 2 pages Coach carter has always left a ever lasting impression on me because of the hard work and dedication displayed by coach Ken Carter. In 1999, Carter became a coach in his old high school located in Richmond, CA. The high school is surrounded by poverty and violence from gangs in surrounding areas. Little did Carter know he became a coach for a basketball team that was very de-motivated, and lacking the grades required to get into College