Question

1. Identify the advantages and disadvantages of mandatory audit firm rotation. What, if any, auditor rotation rules are in effect in the United States?

Answer 1

Mandatory Audit Firm Rotation

Advantages

1. An auditor's independence is compromised if the auditor's tenure is long. So suditor firm rotation is beneficial.
2. Audit firm rotation improves audit quality.There are less chances of subjectivity.
3. Audit firm rotation introduces looking at client's financial reporting with a feesh eyes.
4. If a particular auditor is working for a company for long time, the external stakeholders may think that accounts are prepared in a biased way.

Disadvantages

1. The new appointed auditor has to gain knowledge about a client. This may prove to be a cost for the client.
2. Appointment of new auditor may decrease the audit quality.
3. Audit firm rotation may increase fraudulent financial reporting.
4. There is a loss of client specific knowledge due to auditor firm rotation.

Rules in effect for Auditor firm rotation in United States

In United States, only rotation of audit partner is mandatory after 5 years. Rotation of audit firm is not mandatory.