Audit Partner Rotation

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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 main question that comes to mind is, are these rules fair? Will the benefits outweigh the changes that will need to be made in order to implement the new rule including the effect of the impact to the individual audit partners? In order to apply the rule, there needs to be a way that it will be consistent and rational across the accounting profession considering all types and sizes of accounting firms. Therefore, the SEC came up with a few exceptions to alleviate this matter. First, being that “specialty” partners would be excluded from the five-year audit rotation requirement because they usually do not perform the same tasks or have the same responsibility as the lead audit partner. 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...
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