Essay Audit Rotation

1668 Words Oct 30th, 2012 7 Pages
Mandatory Audit Rotation

In 2002, Enron became the largest case of fraud in history. It caused it investors to lose sixty billion dollars, two million two hundred thousand in pension plans, and five thousand six hundred jobs (Enron Sentences Will Be Tied to Investor Losses). This all could have been avoided if public companies were forced to changed independent auditors every five years. Throughout this paper, I will be talking about mandatory audit rotation and why I think it is a great idea. First I will talk about the Sarbanes Oxley act and what it requires when it comes to partner rotation. It is important to know what the current rules and requirements are before we discuss how they should be changed. The
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When you just require partners of the firm to rotate, it does not reduce the chance for fraud. Within an accounting firm, there are several partners. When you just require for a firm to change partners, the chance the next partner that comes is being much different than the first, are quite low. The people at the firm are all trained the same and do audits the same as well. The odds are if one partner messes something up, the other partner will also mess it up. Also, most people that work within the firm are friends. If a partner at the firm is committing fraudulent acts, the chances are they might be able to talk their friends into also committing fraud. So even if you are forcing partners to rotate audits, the new partner could be the same exact way and not reduce fraudulent activities in anyway.

Auditor Independence Under the Sarbanes-Oxley Act of 20022, auditors are not independent if they: result in an auditor auditing its own work, create a mutual or conflicting interest between auditor and client, result in an auditor performing management functions or place the auditor in a position of advocating for a client (Sarbanes-Oxley Update: SEC Adopts Final Rules Regarding Auditor Independence). When public companies are allowed to keep the same independent auditors for more than five years, it has a great impact on the auditor’s independence. When public companies keep public auditors for

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