Audit Partner Rotation - Issue Brief
Audit Partner Rotation - Issue Brief
In response to the wave of corporate crises, the Sarbanes-Oxley Act includes a provision regarding mandatory audit partner rotation for firms auditing public companies. This should not be confused with audit firm rotation and it is important to make the distinction. The Act requires the lead audit partner and audit review partner (or concurring reviewer) to be rotated every five years on all public company audits. The Act requires a concurring review of all audits of issuers (as defined in the Act). The focus of this document is audit partner rotation. However, it also discusses the circumstances in which audit partner rotation can be tantamount to audit firm rotation.
A Reasoned Approach
A reasoned, logical approach should be taken in considering imposing mandatory audit partner rotation at the state level. On January 28, 2003 the SEC adopted rules to effectuate the statutory requirement of audit partner rotation found in Sec. 203 of the Sarbanes-Oxley Act. In addition to the five-year rotation requirement of the lead and concurring audit partners, the rules also mandate a five-year “timeout” period after rotation. The rules, as adopted, specify that certain other significant audit partners will be subject to a seven-year rotation requirement with a two-year “timeout” period. The rule provides an alternative for firms with fewer than five public audit clients and fewer than ten partners. The alternative requires the Public Company Accounting Oversight Board (PCAOB) to review all of the firm’s engagements subject to the rule at least once every three years. Further, the Sarbanes-Oxley Act requires the Government Accounting Office (GAO) to conduct a study of the effectiveness and implications of audit firm rotation.
In a reasoned approach at the state level, it would not be logical to attempt to replicate what has already been done at the federal level regarding audit partner rotation. It would also be logical to
In response to the wave of corporate crises, the Sarbanes-Oxley Act includes a provision regarding mandatory audit partner rotation for firms auditing public companies. This should not be confused with audit firm rotation and it is important to make the distinction. The Act requires the lead audit partner and audit review partner (or concurring reviewer) to be rotated every five years on all public company audits. The Act requires a concurring review of all audits of issuers (as defined in the Act). The focus of this document is audit partner rotation. However, it also discusses the circumstances in which audit partner rotation can be tantamount to audit firm rotation.
A Reasoned Approach
A reasoned, logical approach should be taken in considering imposing mandatory audit partner rotation at the state level. On January 28, 2003 the SEC adopted rules to effectuate the statutory requirement of audit partner rotation found in Sec. 203 of the Sarbanes-Oxley Act. In addition to the five-year rotation requirement of the lead and concurring audit partners, the rules also mandate a five-year “timeout” period after rotation. The rules, as adopted, specify that certain other significant audit partners will be subject to a seven-year rotation requirement with a two-year “timeout” period. The rule provides an alternative for firms with fewer than five public audit clients and fewer than ten partners. The alternative requires the Public Company Accounting Oversight Board (PCAOB) to review all of the firm’s engagements subject to the rule at least once every three years. Further, the Sarbanes-Oxley Act requires the Government Accounting Office (GAO) to conduct a study of the effectiveness and implications of audit firm rotation.
In a reasoned approach at the state level, it would not be logical to attempt to replicate what has already been done at the federal level regarding audit partner rotation. It would also be logical to