Massive scandal started in 2002 when
Arthur Andersen having scandal in Enron and followed by WorldCom, Parmalat and
Satyam but each of the Big-Four audit firm were also subject to legal
investigation. This has prompted regulators to question whether external
auditors are independent when the audit failures occurred (Commission on Public
Trust & Private Enterprise, 2003). From this cases an act which is called
as Sarbanes-Oxley Act had been introduce in 2002. This act is to lead audit
partner and audit review partner to be rotated every five years on all public
company audits. So according to Nashwa (2014) by limiting the client-auditor
relationship and periodically mandating a new auditor and the auditor’s
indepence should improve the audit quality. Audit rotation may be costly to the
company or you can say the audit client and auditor will loss of experience
with audit client.


Some believe that the length of time an
audit firm maintains a relationship with the client jeopardizes the public
perceptions of audit independence and audit quality. Audit tenure can be seen
as the length of the auditor-client relationship, which is measured in years.
Vanstraelen (2000) mentioned the difficulty in measuring the relationship
between audit tenure and audit quality, because audit tenure can have a
positive or negative impact on the two main determinants of audit quality. greater
acquired expertise in that with extended auditor tenure, the auditor can gain a
better understanding of the client’s business processes, and risks (Bell et al.
1997). The longer audit tenure may be associated with reduced vigilance
over-familiarity with the client adopt from (Mautz and Sharaf 1961).

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Auditor reporting quality is a basic ingredient
to enhance the credibility of financial statements to those interested parties.
However, this could not been seen if the auditor is not independence. Without
independence, the process of auditing can be argued to the extend that the
auditor would give bias opinion to their clients. Mandatory auditor rotation could
reduce the loss of auditor independence, especially when the numbers of years
are fixed (Geiger & Raghunandan, 2002, p. 69). Also, according to the SEC
(Practice Section Executive Committee), mandatory auditor rotation is likely to
balance out the drawbacks of lengthy auditor tenure.


The non-existence of a close
auditor-client relationship activates a real independent auditor providing
high-quality audits by conducting a professional evaluation. It is maintained
that the discovery and the report of substantial negative data about the client
are more likely to be declared by a truly independent auditor being not
impaired by a long-lasting relationship. Mandatory audit could reduce the loss of
independence of auditor when using the SOX where the number of rotation is
fixed and it is likely to balance out the drawbacks of lengthy auditor tenure.
Long term relationship between auditor and client trigger the development of a
close relationship where the auditor may lose professional scepticism which can
cause a reduced ability to discover fraud occur in the company. When the longer
the tenure of auditor with the client’s, the auditor give priority on clients’ management
rather than sticking to the professional standards.


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