Auditing firm rotation and enhancing independence

| April 21, 2014

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Student Learning Outcome for this Project:
Incorporate the ethical dimensions in business decision-making
Project Title: Auditing firm rotation and enhancing independence
Making it mandatory for audit firms to rotate is one of the measures regulators around the world are looking with the intention of improving the independence, objectivity and professional scepticism of auditors.
While the Big 4 audit firms agree these attributes are at the heart of the audit profession, they believe that mandatory audit firm rotation is likely to reduce – not improve – the quality of audits and the reliability of financial reporting. Not only would such measures add cost and complexity to audits, they believe the practice of audit firm rotation would actually undermine some of the recent reforms that have improved audit quality.
Much research has been carried out to outline why it may be believed that mandatory audit firm rotation will put audit quality at significant unnecessary risk and undermine the reliability of financial reporting for any company.
Thus, many argue that there are more effective ways to reinforce auditor independence, objectivity and professionalism.
Discuss the above statement and evaluate the suggestions provided for and against mandatory audit firm rotation in reducing threats to auditor independence. In your report, you should be able to:
Comprehensively describe and explain the ethical dilemma that may exist in the debate above re auditors’ independence and the impact on the credibility and reliability of financial reporting given the recent global financial crisis.
Identify the relevant stakeholders involved in the ethical dilemma outlined above.
Suggest/offer courses of actions or effective ways to reinforce auditor independence, objectivity and professionalism together with a comprehensive analysis of the several impacts on the various stakeholders involved.
Suggest and select the most appropriate ethical course of action and formulates a comprehensive action plan as to how to address the ethical dilemma outlined above in point 1.
The answers provided for the points raised above MUST be in the form of a GROUP written report with 2/3 students in each group. Word count is between 1800-2000 words (excluding front page and list of references). The report will count for 20% of the final course mark.
The report should be structured as follows:
A title page (showing the project’s title as above, students’ name, student’s ID)
An appropriate Introduction relevant to the project’s title.
Section headings, and if appropriate sub-sections. These are to be considered as your main body. Sections should be in a logical order showing cohesiveness and good writing skills.
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