Audit rotation requirements should be extended

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Audit rotation requirements should be extended

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More Australian businesses may be required to comply with tougher audit requirements following a visit to Australia by the International Ethics Standards Board for Accountants (IESBA), which is an independent ethics standard-setting board that sits within the International Federation of Accountants (IFAC).

The group met to discuss the Code of Ethics for Professional Accountants, which is applicable to over 2.5 million accountants worldwide and is expected to have far-reaching consequences for auditors and accountants.

A series of draft standards were announced during the meeting, including:

A requirement that all ‘significant public interest entities’ rotate audit partners; and

A recommendation to broaden the definition of “key audit partners” who must rotate after seven years to include; engagement partners, individuals responsible for the engagement quality control review and other audit partners who are responsible for key decisions.

The Institute of Chartered Accountants in Australia CEO, Graham Meyer, said he was concerned about the loose definition of ‘significant public interest entities’ and the potential for small non-listed companies and NFPs to be caught-up in unnecessary audit requirements.

“What constitutes a ‘significant public interest entity’ is to be determined by each country, since the IESBA felt it was impractical to develop a global definition,” he said.

“The Institute will be pushing for a sensible definition of ‘significant public interest entities’ to be applied in Australia whereby small businesses and small NFPs are exempt from pointless work,” Mr Meyer said.

Other recommendations put forward included:

A cooling-off period of one year before an audit partner can join a client as a director, officer or employee who has influence over accounting records. This is a lesser requirement than Australia’s existing requirement of two years.

Seven-year rotation requirement for audit partners. This is also lesser requirement than Australia’s existing requirement of five years.

The draft standards on audit independence are expected in early 2008, with implementation due in late 2009.