24th May 2006 
 
Small accounting practices that service public listed companies are being forced to consider major business restructure or risk losing clients under the Auditor Rotation requirements.  
 
The auditor rotation is a requirement of the Corporations Act and the accounting bodies ethical rules, and requires public listed companies to rotate their audit partner every five years.  
 
"It is argued that Auditor Rotation is necessary to ensure auditor independence. With high profile audit cases in recent years such as the HIH collapse, Auditor Rotation is seen as being an important safe guard for the independence of auditors," said Keith Reilly, Technical Standards Adviser, Institute of Chartered Accountants, at the Chartered Accountants Business Forum in Perth.  
 
"While Auditor Rotation is important to ensure auditor independence, the market needs to understand that it could lead a higher concentration of auditors, creating less competition in the market, and potentially increasing the cost of audits," said Reilly.  
 
Local businessman John Van Dieren, is an Audit Partner for Stanton Partners and has more than 55 public listed companies that the firm audits.  
 
"From next month we have approximately 10 publicly listed audit clients businesses that we will not be able to service in our current form due to working with these businesses for more than five years and having the same audit partner involved. We have long term relationships with these companies and they don't want to leave our firm or have a new audit partner just because legislation requires it," said Van Dieren.  
 
"We are presently considering options to keep these clients such as employing contractors. But for the long term, we are seriously looking at the possibility of merging with another practice of a similar size so we have access to more Audit Partners," Van Dieren said.  
 
The new rotation requirements requires two people to manage a publicly listed company audit, an Audit Partner and an Audit Quality Control Reviewer to review and sign off. Both roles require appropriate audit qualifications.  
 
"We are presently considering options to keep servicing our audit clients and will be required to have another audit partner take on the responsibility as lead partner and utilise the services of another audit firm partner to act as second/review partner," Van Dieren said. "In the medium term, we may need to merge with another practice of a similar size so we have access to more Audit Partners. It is quite conceivable that over the next few years there may be more mergers of audit practices particularly in the second and third tier accounting practices."  
 
"These requirements have come at the worst possible time with the skills shortage in accountancy rife, but specifically for audit orientated firms. Increasing legislation and regulations along with time pressures and other factors are leading to fewer people seeking to become audit partners. The situation may worsen over the next few years as senior audit partners retire and there is no one to replace them," Van Dieren concludes.  
 
The final submissions on the ASIC proposal are due 26 May 2006. The Institute provides an Auditor Independence toolkit to help members comply that can be downloaded from the website www.icaa.org.au/tech.