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December 19, 2012

Benefits of mandatory audit firm rotation questionable: ICAS

Research by the Institute of Chartered Accountants of Scotland (ICAS) has found ‘no conclusive’ evidence that mandatory audit firm rotation improves audit quality.

The report also found, that the potentially positive influence on auditor independence that rotation may have can’t guarantee a higher audit quality and that it could actually damage audit quality.

The research comes as the European Parliament debates the audit reform proposals put forward by the European Commission, which includes mandatory audit firm rotation.

ICAS director of research Michelle Crickett said the ICAS research is a "timely addition to the debate over audit market reform."

"Regulators need to be very clear about the long-term objectives of rotation," Crickett warned.

In a separate piece of research, the benefit of joint audits were further scrutinised, finding no evidence related to audit quality and in fact stating that such audits actually cost more. However, because the evidence is inconclusive it demonstrates the full impact of joint audit is still not known and further research is required prior to implementing any policy on joint audit.

This research says that before implementing mandatory joint audit, regulatory bodies would need to determine how the audit work would be shared, and how the pair of auditors would be determined.

The research review was carried out by two teams of independent international academics on the behalf of ICAS.

Related linkInstitute of Chartered Accountants of Scotland

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