The Centre for Audit Quality (CAQ) executive
director Cindy Fornelli has said mandatory audit firm rotation
would not increase audit quality but decrease it.

Fornelli made the comments in a statement as a
US Public Company Accounting Oversight Body (PCAOB) meeting to
discuss the contentious proposal of audit firm rotation as a way to
enhance auditor independence, objectivity and professional
scepticism began.

“Mandatory firm rotation would limit the
statutory authority of audit committees to hire and fire the
auditor, engender cost and disruption for issuers, cause a scarcity
in the choice of auditors for certain sectors and for global
companies, and have a potentially negative impact on audit
quality,” Fornelli said.

Fornelli, who is expected to share the
statement with PCAOB panellists tomorrow, also said studies of
experience with mandatory firm rotation in other jurisdictions
reveal “significant costs, including diminished audit quality, and
suggest that the benefits of mandatory firm rotation are
speculative at best”.

The CAQ, a non-profit affiliate of the
American Institute of Certified Public Accountants that acts as a
spokesperson for the US accounting profession, also thinks audit
committees, instead, should be further strengthened and encouraged
to take a more proactive role in their oversight of the independent
auditor.

Auditor communication
standard

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Fornelli expressed support for the PCAOB’s
consideration of a revised auditing standard on the auditor’s
communication with the audit committee.

The CAQ said a revised standard would expand
current requirements and encourage constructive dialogue between
auditors and audit committees on significant audit and financial
statement matters that require judgment, such as critical
accounting policies, practices and estimates, as well as
significant unusual transactions, risks and going concern
considerations.

The PCAOB public meeting, which is being held
today and tomorrow, will hear from several stakeholders on their
views on auditor independence and mandatory audit firm rotation as
suggested in a consultation issued by the oversight board mid last
year.

The full coverage of the PCAOB meeting will be
available on The Accountant and International
Accounting Bulletin websites.

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