Long Association of Senior Personnel (Including Partner Rotation) with an Audit Client

Project Status

This is an active project

Staff

Chris Jackson

Task Force

Marisa Orbea (Chair)

Brian Caswell

Gary Hannaford

Chishala Kateka

Andrew Pinkney

Objective(s) of project

This project will review the long association provisions in Section 290 of the Code to ensure that they continue to provide robust and appropriate safeguards against the familiarity and self-interest threats arising from long association with an audit client.

Background

Familiarity and self-interest threats are created by using the same senior personnel on an audit engagement over a long period of time. Amongst the safeguards to eliminate these threats or reduce them to an acceptable level is the rotation of senior personnel off the audit. Paragraphs 290.151-155 provide specific rotation requirements for audit clients that are public interest entities (PIEs), including a seven year on / two year off rotation requirement for key audit partners. In the IESBA's view, the rotation of key audit partners balances the need for a fresh look on the audit with the need for continuity of knowledge of the client's business and the risks inherent in that business in order to maintain audit quality.

There have been initiatives undertaken in many jurisdictions to address the question of whether there are ways in which to promote greater professional skepticism and auditor independence, and therefore enhance audit quality. In addition, feedback from certain of the IESBA’s constituents has suggested that the two-year time-out period is too short when placed together with the permissible seven years of service, because it would potentially allow a key audit partner to serve on the audit engagement for a PIE for 14 out of 16 consecutive years.

In light of this feedback, and the manner in which rotation provisions have developed across a range of jurisdictions, the IESBA agreed that it would be appropriate to reconsider the long association provisions in the Code, particularly the rotation requirements, and determine whether the provisions continue to provide robust and appropriate safeguards against familiarity and self-interest threats arising from the long association of senior personnel with an audit client.

Task Force progress / Board discussions to date

At its December 2012 meeting the IESBA  approved the project proposal to review the long association provisions in Section 290 of the Code to ensure that they continue to provide robust and appropriate safeguards against the familiarity and self-interest threats arising from long association with an audit client. 

At its March 2013 meeting, the received an update on the project. Amongst other matters, the IESBA discussed the approach to research into (a) the partner rotation provisions in major jurisdictions, and (b) the views of stakeholders on the threats associated with long association. 

The IESBA CAG considered the project proposal at its April 2013 meeting.

Next Steps

The IESBA will receive a further update on the project at its June 2013 meeting.