Auditors given seven-year itch switch

LISTED Australian companies will be forced to change their auditors every seven years if Australian Securities and Investments Com-mission chairman David Knott has his way.

The role of auditors has been under increased scrutiny since the collapse of US energy trading giant Enron and Australian retailer Harris Scarfe.

Mr Knott told delegates at the CPA Australia Congress that he backed the seven-year switch of auditing firms.

“The principle of rotating audit firms should be embraced to underpin the independence of auditors and to counter-balance the influence of any long-term service provider-client relationship,” he said. “I have previously stated that firm rotation should be seriously considered. I hold that view because I believe that partner rotation, while useful during the life of an audit engagement, will not achieve the same result as firm rotation.

“Rotation of firms, as encouraged by CPA Australia, is the more credible process.”

The idea of switching auditing firms is not a new one, but several auditors believe it will cause more harm than good.

One of the fears is that the new audit firm will not know the risk areas to focus on.

Institute of Chartered Account-ants in Australia national president Geoff Brayshaw said the institute was opposed to audit firm rotation.

“I don’t think there are many places in the world that do that (mandatory rotation of audit firms),” Mr Brayshaw said.

“The risk of audit failure is probably at its highest in the first couple of years of audit.

“I think the rotation of audit partners is a happy medium.”

The Ramsay Report into audit independence, commissioned by the Federal Government last year, also counselled against audit firm rotation.

Another concern for large listed companies is the lack of choice of top-tier audit firms due to the demise of Andersen.

Most large listed entities such as Wesfarmers and BHP-Billiton are audited by top-tier firms.

If audit firm rotation is introduced, they will only have four top-tier firms to choose from.

Add your comment

BNIQ sponsored byECU School of Business and Law


6th-Australian Institute of Management WA20,000
7th-Murdoch University16,584
8th-South Regional TAFE10,549
9th-Central Regional TAFE10,000
10th-The University of Notre Dame Australia6,708
48 tertiary education & training providers ranked by total number of students in WA

Number of Employees

BNiQ Disclaimer