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Audit Essay

1293 words - 6 pages

Sarbanes- Oxley 2002 Act had enforced audit firms to limit providing non-audit service to clients (the company) which they audit at the same time in order to improve audit quality. We agree that audit firms should develop auditors’ independence, professional skepticism and objectivity to improve the quality of audit reports. The big challenge for PCAOB and each audit firm is how to implement these valuable requirements appropriately. Audit firm rotation may bring some advantages to public investors. First of all, different audit engagement teams use different methods to evaluate the company’s business and financial situations. New auditors could have new viewpoints and identify potential problems about the company’s financial statements. Second, if the auditor understand his or her work will be reviewed by following auditors, he or she may be more critical to do their work. Audit firm rotation is also a method to help auditors refuse the pressure from the company’s management. However, we think mandatory audit firm rotation is not an effective method to improve audit quality. Auditor independence, professional skepticism and objectivity are three major factors to ensure high audit quality. There are other important factors to impact audit quality, for example, audit engagement cost, the application of audit standards and auditors’ knowledge about the company’s business and industries. Potential disadvantages of mandatory audit firm rotation may result in losing the clients and reducing audit quality. We oppose PCAOB’s mandatory audit firm requirement, which would be harmful to audit quality and reliability. In the following parts, we will provide our valuable reasons and comments on this concept.

Increase Cost and Time
According to General Accounting Office’s “Required Study on the Potential Effects of Mandatory Audit Firm Rotation”, most large firms responded that in the first year of audit firm rotation, the audit cost would increase by more than 20 percent. We believe that mandatory audit firm rotation would increase audit and non-audit cost, and audit time significantly. The monetary cost is easily to be measured. But the company management’s and audit firm’s time and effort cannot be measured easily. These costs and time investment may cause the shortage of the company’s financial capital and reduce quality of audit.

If the company is required to rotate the audit firm, they must invest more monetary cost, time and workforce to investigate and hire new appropriate audit firm. During this process, the company has to research available audit firms, meet with each audit firm, review audit firms’ proposals and interview appropriate audit firms. After selecting the most appropriate audit firm, the company must introduce new auditors to understand their industry condition, business, internal control, information system and other important factors to help new auditors obtain enough background information in order to perform qualified audit...

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