Mandatory Rotation and Tendering

There has been significant international discussion about the merits of mandatory audit firm rotation and tendering with the objective of improving audit quality by enhancing auditor independence, objectivity and professional skepticism (both in fact and in appearance).  The intent of mandatory rotation and tendering is to address concerns about familiarity and self-interest threats between auditors and their clients at the institutional level.  The argument is that, after an extended period of time, the relationship between the auditor and management can become too cozy, creating a threat that the auditor may lose objectivity and fail to exercise appropriate professional skepticism.

CPAB does not support mandatory firm rotation or tendering.  We are concerned that either approach could result in a lengthy procurement exercise, diverting resources from audit quality – leading to a "race to the bottom" on audit fees. Additionally, the threat of a tender or auditor change can pressure an auditor to not challenge management.  Both these consequences could result in a deterioration of audit quality. 

Instead, CPAB supports mandatory comprehensive audit firm review as an alternative to mandatory firm rotation or tendering because it has a greater focus on enhancing audit quality.  This type of periodic review requires audit committees to consider institutional familiarity threats created by audit firm tenure and to focus on issues such as the auditor's application of professional skepticism.

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