Putting a different spin on mandatory auditor rotation
Abstract: U.S. accounting regulators and standard-setters have considered implementing mandatory auditor rotation for public companies. The rationale for such a rule is that term limits would help prevent auditors from developing long-term relationships with their clients that, proponents of rotation believe, inhibit professional skepticism. However, a recent study suggests that the opposite is true: Auditors are less likely to question their clients’ accounting decisions if they’re required to rotate periodically. This article discusses the role of professional skepticism, the impact of auditor rotation and why it’s important to evaluate the pros and cons.