Upload
eugene-jenkins
View
235
Download
0
Tags:
Embed Size (px)
Citation preview
Mandatory Auditor Rotation. Hasan Kılıç
26 April 2007
Antalya
Mandatory Auditor Rotation/ Hasan Kılıç
2©2007 Deloitte Türkiye
Index
• Why Discussing Rotation?
• New Regulations and Mandatory Auditor Rotation
• Auditor Rotation in the World
• Auditor Rotation in Turkey
• Why Rotate?
• Rotation is not the Solution
• Alternatives to Rotation
• Responsibilities of Companies
• Results of Certain Studies
Mandatory Auditor Rotation/ Hasan Kılıç
3©2007 Deloitte Türkiye
Why Discussing Rotation?
Mandatory Auditor Rotation/ Hasan Kılıç
4©2007 Deloitte Türkiye
• Sarbanes – Oxley Act (US)
• 8th Directive (EU)
• CMB, Capital Markets Board Auditing Standards (Communique X/22)
• BRSA, Banking Regulation and Supervision Agency Auditing Standards
New Regulations and Mandatory Auditor Rotation
Mandatory Auditor Rotation/ Hasan Kılıç
5©2007 Deloitte Türkiye
• US: Audit firm rotation is not mandatory, rotate only audit partner: 5 years (7
years for some cases)
• EU: Audit firm rotation is not mandatory, rotate only . audit partner: 7 years
(Rotation is left to member country jurisdictions.)
• Canada, Japan & Australia: Rotation discussed but mandatory in these
countries.
• Italy: 6 years + 6 years = 12 years
Auditor Rotation in the World
Mandatory Auditor Rotation/ Hasan Kılıç
6©2007 Deloitte Türkiye
• CMB Communique X/22
- 7 years
- Start: 2003
- End: 2009
- Rotate: 2010
• BRSA Communique
- 8 years
- Start: 2002
- End: 2009
- Rotate: 2010
Auditor Rotation in Turkey
Mandatory Auditor Rotation/ Hasan Kılıç
7©2007 Deloitte Türkiye
Why Rotate?
Closeness to ClientManagement
• Repetition of prior audits• Tendency to anticipate results• Reliance on prior audit workpapers• Less experienced audit staff
Staleness & Redundancy
• Please the client so as to retain for future periods• The most compelling argument on auditor rotation
Eagerness to Please the Client
• Interact intensively with client• Troublesome close relationship• Conflict of interest when contentious issue• Lack of professional scepticism• Auditors hired by former clients
Mandatory Auditor Rotation/ Hasan Kılıç
8©2007 Deloitte Türkiye
• Auditor should interact with management,
• Relationship with client should not be limited by number of years,
• Management should be willing to share information,
• Solution partner when problems arise,
• Audit of documentation goes with sharing of information.
• Close relationship contribute sharing of information.
• Prior experience increase audit efficiency.
• Understanding of client operations and changes in activities over periods,
• Less disruption of day to day business,
• No proof of the benefits of mandatory audit firm rotation.
Rotation is not the Solution
Mandatory Auditor Rotation/ Hasan Kılıç
9©2007 Deloitte Türkiye
• Studies highlight rotation decreasing audit quality.
• Rotation increases cost of audit firms as well as cost of audit services received.
• Pressure to please client due to rotation,
• Less attention to a client to rotate,
• Rotation may result in opinion shopping.
Rotation is not the solution (cont’d)
Mandatory Auditor Rotation/ Hasan Kılıç
10©2007 Deloitte Türkiye
• Supervision of audit firms,
• Rotating audit partner (problem for small firms),
• Improving independence policies,
• Assigning second partner for quality assurance review,
• Internal quality control procedures,
• Emphasizing the importance of audit team independence,
• Risk and independence policies.
Alternatives to Rotation
Mandatory Auditor Rotation/ Hasan Kılıç
11©2007 Deloitte Türkiye
• Improving duties and responsibilities of audit committee under corporated
governance principles,
• Evaluation and assesment of audit firm services,
• Coordination bete
• Collaboration between management and audit committee,
• Independence board members and audit committee members,
• Effective accounting and reporting standards,
• Improving the responsibilities of management on accounting and financial
reporting,
• Ethical principles.
Responsibilities of Companies
Mandatory Auditor Rotation/ Hasan Kılıç
12©2007 Deloitte Türkiye
• PCAOB Study: Average audit failure rate is three times higher in the first years.
• US General Accounting Office (GAO)/ General Accountability Office Report:
- No evidence of auditor rotation guaranteeing better audits.
- 99% of Fortune 1000 companies do not have policy on auditor rotation.
- Average tenure for Fortune 1000 companies is 22 years, 10% with 50 years of audit with the same auditor.
• Federation des Experts Comptables Europeens (FEE) Study:
- Mandatory auditor rotation has serious disadvantages outweighting perceived benefits.
- Audit firm rotation should not replace audit partner rotation.
- Intensive interaction for understanding and auditing client’s operations cannot be established with a short period of services.
- Audit failure subsequent to rotation is more likely to occur.
Results of Certain Studies
Mandatory Auditor Rotation/ Hasan Kılıç
13©2007 Deloitte Türkiye
• Bocconi University Study:
- Rotation has an adverse effect on competition rather than improving it.
- Higher costs for auditor and auditee.
- Rotation decreases the quality of services in the first years.
- Rotation adversely affects shareholders and share values.
• AICPA Study: As per the federal hearing statistics, rotation leads to audit
falilures in the first years above the average.
Results of Certain Studies (cont’d)
Deloitte Türkiye
Member ofDeloitte Touche Tohmatsu