In most cases, auditors are changing or rotating every three or every five years. The best practice is in every five years for a public company.
And in most cases, the rotation is based on the entity’s policies, as well as approval by the board of directors. This is to make sure that the conflict of interest between auditor and management of the entity is minimized.
The company is also required to change or rotate because of the local regulatory requirement. For example, the company listed in the stock exchange require to rotate auditor every three years.
The new auditor can bring a fresh perspective and might be able to detect the new risks or problems related to business risks, internal control risks, or risks related to financial reporting.
The value that an internal auditor could add to an entity is better. Audit risk is likely to reduce due to the longtime clients might cause the auditor to relax on assessing the potential risks that might affect the financial report.
There are many reasons why auditor needs to change, here are the sample of the reasons that cause audit rotation:
- Require by law or stock exchange
- Require by company article of association
- Required by group company
- Best practices
- Auditors resigned by themselves
Long-period engagements with auditors might not really good for the company as well as its shareholders as mentioned above. However, too short a period of engagement also provides a negative impact on the company.
For example, management will have to spend more time work with auditors to update the changes and internal controls to auditors. New auditors normally lack experience with the entity and the level of accuracy on risk assessment will also limit based on the experiences.
Whenever there is a change, there needs to be involved and contributions by the management team, audit committee as well as the board of directors. These will cost the company a lot.