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Does the rotation of auditors improve the quality of auditing - Essay Example

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Does the rotation of auditors improve the quality of auditing? BY YOU YOUR SCHOOL INFO HERE DATE HERE Does the rotation of auditors improve the quality of auditing? Introduction It is a highly contested issue as to whether rotation of auditors actually maintains the ability to improve auditing quality…
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Does the rotation of auditors improve the quality of auditing

Download file to see previous pages... Based on all conjecture about such rotations and research studies on auditing tenure versus rotation, it would appear that the quality of auditing is actually improved by rotating auditing firms. The evidence Pozen (2012) argues that when an organisation decides to rotate auditors, there is the need for significant investment on behalf of the new auditing firm to gain important institutional knowledge about the industry which has already been learned by the incumbent auditing firm. Research studies have illustrated that there is reduced quality in auditing practice and competency during the initial years of appointment as the new auditing firm attempts to familiarise itself with specific business practices (Pozen 2012). Especially apparent in multi-national firms, new auditing companies must learn highly extensive information about corporate finance and accounting in a complex, global accounting environment. This requires time and perhaps even training, however once this information is gleaned, the auditor can provide better quality audits even though this quality took considerable time to develop and enhance. The International Federation of Accountants sees the situation from a rather different perspective outside of the time and labour investment in learning business processes. Elongated and long-standing relationships with existing auditing firms are recognised as becoming too cosy with their corporate employers which changes the dynamics of how incumbent auditing firms view business practices and ideologies. When long-standing relationships are developed with existing auditing firms, auditors tend to give favourable opinions, rather than unbiased opinions, about the corporate-mandated auditing processes. Existing auditor relationships that have endured over time leads to trust-building between business and auditor which, in turn, creates a situation where the auditor handles investigations carelessly and are more willing to accept business written statements rather than inspect the situation to ensure that the business is actually performing compliance-based activities to general accounting standards (IFA 2010). Boxer (2008) absolutely agrees with the aforementioned notion of corporate cosiness developed over time and in the face of trust that endures through familiarity with business leaders. This author representing the Office of the Comptroller of the state of New Jersey refers to this scenario as familiarity fatigue stating that such familiarity with management leaders of the business leads to a lack of independence where professional ties create a complicity that reduces auditing effectiveness and lack of unbiased auditing support (Boxer 2008). When this type of relationship is developed, the auditor loses their scepticism about the oral and written information that is provided to the auditor by the company leadership and, therefore, begins to overlook important facts and figures associated with financial statement production during the auditing processes. Boxer (2008) indicates yet another scenario that occurs, potentially, when maintaining enduring relationships with existing auditing firms. Auditors will have the tendency to desire corporate approval in the hopes of maintaining a continuous revenue ...Download file to see next pagesRead More
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Does the rotation of auditors improve the quality of auditing
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Does the rotation of auditors improve the quality of auditing
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