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Tuesday, April 23, 2019

Does the rotation of auditors improve the quality of auditing Essay

Does the gyration of scrutiniseors advance the quality of auditing - Essay ExampleIn the conditional report released by the panel, it was proposed that, for there to be audit quality, audit firms must be rotated sporadically (Whitehouse par. 4). This proposal by the U.K. rivalry Commission is in line with the United States Public Company explanation Oversight Boards (PCAOB) concept, which proposed compulsory rotation of audit firms. According to PCAOB, the proposed regulation would set a threshold on the number of years that a registered public 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 arrogant examination of internal and external auditors quality system. Audit quality is seen as an definitive 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 exit overhaul increase competition among audit firms, which will also increase the quality of audit. This will be of great benefit to the shareholders since it will help rampart shareholders interests by increasing the managers accountability. A report released by the U.K. Competition Commission showed that about 31% of superlative degree 100 public companies in the U.K. and 20% of the top 250 had been sharing the same audit firm for more(prenominal) than two decades. This raises concern since it does not promote the spirit of competition, thus resulting in lower quality, higher prices and less(prenominal) 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, sub jugated by the Big 4, is constrained by factors that prevent companies from changing auditors. In addition, these factors allow auditors to centralize more on satisfying the needs of managements than those of shareholders. A study also established that most companies contract it difficult in comparing alternative audit firms with their existing auditors, as they prefer continuity. As a result, they incur significant costs in hiring and terminating the services of auditors. Therefore, the reluctance of these companies to change auditors limit reduces their bargaining power. in all these problems, according to the U.K. Commission can only be addressed 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 outstay as an auditor for a particular client for too long. Instead, the auditors are required to move to tin their services with the firms the y have been working for after the expiry of the set time limit to find another(prenominal) 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 punt 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 between companies and audit firms, thus promoting increased skepticism, liberty and objectivity.

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