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Monday, June 10, 2019

Does the rotation of auditors improve the quality of auditing Essay

Does the whirling of scrutiniseors improve the reference of audited accounting - Essay ExampleIn the provisional report released by the panel, it was proposed that, for there to be audit quality, audit firms must be rotated periodically (Whitehouse par. 4). This proposal by the U.K. Competition armorial bearing is in line with the United States Public Company Accounting solicitude Boards (PCAOB) concept, which proposed compulsory rotation of audit firms. According to PCAOB, the proposed regulation would target a threshold on the number of years that a registered unrestricted audit firm could act as the auditor of a public company, noted Bhika and Francis (par. 2). This proposal came about out of the increasing need to improve audit quality in both the U.K. and the U.S. Audit quality, according to Arter (3) is a process involving a systematic examination of internal and external auditors quality system. Audit quality is seen as an important part of quality management system in an organization. Quality audit ensures that audit companies perform their duties objectively, and independently. Therefore, the U.K. Competition Commission and PCAOB believe that rotation of auditors of public companies will help increase competition among audit firms, which will also increase the quality of audit. This will be of great(p) benefit to the shareholders since it will help safeguard shareholders interests by increasing the managers accountability. A report released by the U.K. Competition Commission showed that about 31% of top century public companies in the U.K. and 20% of the top 250 had been sharing the same audit firm for more than two decades. This raises concern since it does not promote the spirit of competition, thence resulting in lower quality, higher prices and less innovation. In addition, this results in failure of audit firms to protect the interest of shareholders (Whitehouse par. 5). The U.K Commission is also concerned that the audit market, crush b y the Big 4, is constrained by factors that prevent companies from changing auditors. In addition, these factors allow auditors to focus more on satisfying the needs of managements than those of shareholders. A theatre also established that most companies find it difficult in comparing alternative audit firms with their existing auditors, as they prefer continuity. As a result, they flummox significant costs in hiring and terminating the services of auditors. Therefore, the reluctance of these companies to change auditors limit reduces their bargaining power. All these problems, according to the U.K. Commission can only be intercommunicate effectively through mandatory rotation of auditors (Whitehouse par. 6). Audit rotation, according to PWC (par. 2), pertains to setting a limit that ensures that a particular auditor does not overstay as an auditor for a particular client for too long. Instead, the auditors are required to move to terminate their services with the firms they hav e been working for after the expiry of the set time limit to find other clients. Perceived advantages One of the perceived advantages of audit firm rotation is that it increases audit quality (Bhika and Francis par. 6). Those in support of proposed rotation of audit firms in the country claim that the establishing term limit for audit firms will help in eliminating some of the chumminess that might exist amongst companies and audit firms, thus promoting increased skepticism, independence and objectivity.

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