Comparison And Analysis Of UK And Australian Laws For Audit Rotation

Regulations for Maintaining Auditor Independence

In recent years, regulators around the World auditor independence through legislatively requiring rotation of an Audit Partner or an Audit Firm has been gaining momentum to maintain the transparency in the business. The auditors independences is very important for the audit of the company as they have to give the opinion on the financial statement whether they are free from material misstatement caused due to  the fraud and the error. There are many laws and regulations which company needs to comply with the applicable laws that the auditors needs to comply to maintain the independence in the form of self-interest, self-review, and advocacy and intimidation threats (Wu, Hsu, and Haslam, 2016).  There are many things that the auditors have to see when they are working for the audit of the firm like should not be over friendly with the management staff as this will affect their work, management will not take the auditor seriously and will not provide them with the information that is to be know by the auditor for auditing the firm. The auditor should not accept the gift from their clients this will work against their work that is been performed by them. The threat that the auditors face in their independence can be solve by rotation of the auditors (Yee, Sujan, James, and Leung, 2017).

• As per the corporate governance of the UK, it is analyzed that when the auditors are rotated from time to time than the independences of the auditors are not save, because if they are not rotated then it can become a form of threat in their working. On the other hand, in case of Australia,  as per Section 324 of the Corporations Act, the rotation of the auditors are required to maintain the transparency of true and fair view of the assets and liabilities of company. The cost of internal audit can be saved as the auditors are not in the familiar relation with the client so they will work according to the plan they have decided in the starting of the audit and will ask for all the information from the management department where they think there are indication of fraud by the employees (Beardsley, Lassila, and Omer, 2017).

The rotation of the auditor in the firm can be done in 2 forms:

• Rotation from one department of the audit term to another department.
• Rotation from one audit firm to another audit firm, in this the firm in which the audit will be done is only changed (Worth, 2009).

         Advantage

• When the auditors are rotated from time to time than the independences of the auditors are not save, because if they are not rotated then it can become a form of threat in their working.
• They get to work for the different clients in the different firms because of that they get the knowledge of all the industries (Meckfessel, and Sellers, 2017).
• The chances of fraud to be committed by the auditors is reduced as they will not form the group with the employees in the company will not be involved in the fraud done by them and they will do their work seriously in the time period allotted to them (Vangelisti, 2016).

     Disadvantage

• When the auditors are rotated from time to time than the audit time consumed by them is increased as they will know anything about the client and the auditors have to start everything from the starting from the preparing of the audit strategy to the audit plan and then the implementation of it. They are very expensive as all the thing will be done from the starting so auditors will charge high fee for their work.
• The auditors will get the new clients so now they don’t have any knowledge of the client so it will become little difficult for them to detect the area where there are high chances of fraud and error (Aschauer, and Quick, 2018).

Advantages

The issues of the familiarity threats and the advocacy threats is been decrease and the        independence of the auditors is been protected (Tepalagul, and Lin, 2015).

Disadvantages

• The filling of the report can take more time because the auditors will not understand the key areas as the audit and they will fill the report in the more time then the time is allotted to them (Barr-Pulliam, Brown-Liburd, and Sanderson, 2017).
• The new auditor will provide different control and measure than the control that are been followed earlier and this can be kind of confusion for the management department as they have to change their working way according to the new auditors (Clark, et al. 2017).

After studying all the advantages and the disadvantages according to the both codes, we can see that the audit rotation will not help the client to save their independences but the audit fee that is provided to them to conduction the audit effect their independences because when the auditor will not get the proper fee for their work than they will find different ways to commit the fraud (Chan, Chiu, and Vasarhelyi, 2018).

The rotation is not the right solution for saving the independence as advantages of rotation is much less than the disadvantages so the interest of the auditors should always be discussed before signing the audit for the firm because if the auditor are not satisfied with their interest than can talk about it at that point of time and this help them to maintain their independences and can give the opinion without any biasness.  

Conclusion 

The rotation is not the solution for preventing frauds but to understand the auditor is the solution of the problem as rotation of the auditors is a more work for the management because they have to take equal part with the auditors when the audit will be going on as the auditors will not be familiar with the industry and the people working in that, so at last we can say that don’t rotate the audit firm but understand the auditors needs and motivate them to work as faithfully as possible because their opinion will be very important for the firm and their working and by chances worry opinion is given than the firm have to pay a very huge amount in the future.                      

References

Barr-Pulliam, D., Brown-Liburd, H.L. and Sanderson, K.A., 2017. The Effects of the Internal Control Opinion and Use of Audit Data Analytics on Perceptions of Audit Quality, Assurance, and Auditor Negligence. . 2(3) pp. 71-83.

Chan, D.Y., Chiu, V. and Vasarhelyi, M.A. eds., 2018. Continuous Auditing: Theory and Application.3^rd ed Australia: Emerald Publishing Limited.

Clark, C.H., Hurkmans, C.W., Kry, S.F., of Radiation, T.G.Q.A. and Group, T.C.T.H., 2017. The role of dosimetry audit in lung SBRT multi-centre clinical trials. Physica Medica, 44,(2) pp.171-176.

Tepalagul, N. and Lin, L., (2015). Auditor independence and audit quality: A literature review. Journal of Accounting, Auditing & Finance, 30(1), pp.101-121.

Vangelisti, A.L., (2016). On the importance of communication research. Communication Education, 65(4), pp.501-504.

Worth, R. (2009). Communication skills 1st ed,  New York: Ferguson.

Wu, C.Y.H., Hsu, H.H. and Haslam, J., (2016). Audit committees, non-audit services, and auditor reporting decisions prior to failure. The British Accounting Review, 48(2), pp.240-256.

Yee, C.S., Sujan, A., James, K. and Leung, J.K., 2017. Perceptions of Singaporean internal audit customers regarding the role and effectiveness of internal audit. Asian Journal of Business and Accounting, 1(2), pp.147-174.

Beardsley, E., Lassila, D. and Omer, T., 2017. How Do Audit Offices Respond to Audit Fee Pressure? Evidence of Increased Focus on Nonaudit Services and Their Impact on Audit Quality. . 2(3) pp. 271-283.

Meckfessel, M.D. and Sellers, D., 2017. The impact of Big 4 consulting on audit reporting lag and restatements. Managerial Auditing Journal, 32(1), pp.19-49.

Aschauer, E. and Quick, R., 2018. Mandatory audit firm rotation and prohibition of audit firm?provided tax services: Evidence from investment consultants’ perceptions. International Journal of Auditing. . 1(3) pp. 27-83.