2003 Audit Partner Rotation

The 2003 rules on the topic of audit partner rotation states that an audit partner must be rotated off the audit engagement if he/she has worked (been responsible for the issuance of the audit report reflecting the reporting of the financial statements and the dealings with the audit committee and management) on the engagement for the prior five consecutive years and be subject to a five year “time-out period” from the registrant. Previously, this rule was that the lead audit partner was to be rotated after seven years with a two year “time-out” period. Clearly, changes have been made and exceptions have been created as many concerns were brought up regarding this matter.
When evaluating the 2003 rules regarding audit partner rotation, the
Secondly, the rule is excluded for partners who function as a technical resource for the audit. These partners are used when the audit contains complex business transactions and the partner is responsible for dealing with the national office. Since this partner does not primarily deal with the auditing of the financial statements they are not subject to the rotation requirements. Lastly, smaller accounting firms are at a disadvantage for this requirement because there are not enough partners to rotate. Therefore, the SEC made an exception for accounting firms that have less than five audit clients and less than ten partners. Because these firms are excluded from the five-year audit partner rotation requirement, the SEC implemented a special rule requiring the PCAOB review the audit engagements of these firms at least once during a three year time period. This will ensure that the quality of their reports and competence of the partners are equivalent to that of the firms who are required to follow the five-year rotation