Auditor Rotation Won’t Make Audits Better

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For decades, audits have been aimed at checking the math and making sure that companies are following Generally Accepted Accounting Principles (GAAP) in creating their financial statements. The only way to start finding more fraud would be to completely change the process of auditing, or to require companies to engage fraud-focused consultants to perform procedures specifically designed to detect fraud.

It has been almost a decade since Sarbanes Oxley was enacted, and still audits are no better at preventing and detecting fraud. The investing  public, however, still seems to believe that auditors can and will find fraud in their financial statement audits. They should not be fooled by this proposal. The problem isn’t with the length of time auditors have had a client. It is with the process of auditing itself, and unless that changes drastically, fraud will not be detected with any great regularity by the financial statement auditors.

3 thoughts on “Auditor Rotation Won’t Make Audits Better

  1. Rotation of audit partners is already a requirement. This provides a fresh set of eyes in theory. Also, auditors with a long client relationship can be far more aware of facts and issues relating to financial reporting.

  2. I’ve attended the PCAOB’s “Auditing in the Small Business Environment” seminar the last two years, and various other SEC focused conferences that include PCAOB representatives. Someone has the PCAOB’s ear, and it isn’t CFOs, controllers, chief accounting officers, and audit committee chairs. It certainly isn’t the auditors. And at the rate they are going, the only public company auditors that will be left with be the Big 4.

  3. Pingback: Fraud Files Blog

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