An advantage of rotation is new people often bring fresh perspectives without changing the whole team so that a measure of efficiency is preserved. In Malaysia, there is an intention to make rotation of audit partners mandatory every five years. .
The potential for conflict of interest arises when the same firm provides both an audit and a consultancy service. A restriction of dual roles may not mean that auditors would be relieved of pressure. An auditor that has a principal relationship with a financial controller may have difficulty maintaining objectivity.
Auditing firms have to be perceived to have an independent role so that they can perform their job professionally. Fees received from one client are limited to a certain percentage of the total income of the auditor. If not, the issue or degree of independence of the auditor will be questioned.
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However, a firm that establishes a reputation as a difficult auditor is much less likely to be chosen at the next rotation.
Deloitte, Ernst & Young, PwC & KPMG have sold off their consulting divisions and have indicated that they will no longer provide internal and external auditing to the same client . .
3.0 Management.
The duty to prevent fraud primarily lies with the management of the client. The onus is upon the company itself to manage its business and operations, not only in an effective and efficient manner but also with sufficient controls, internal or otherwise to prevent the temptation of fraudulent activities.
One of the limitations of internal controls is the possibility that an authority abuses his/her position. In this case, a control is 'useless' and ironically this person is hired by the company and not by the auditors.
It is a fact that CEOs and CFOs will need to be even more accountable for the quality of the company's records, and not just in doing 'deals'. Management must be able to receive negative matters or items in dispute without causing the auditor fear of losing the audit.
