TORONTO, May 17, 2013 /CNW/ - The issue of when to change, or recommend
to shareholders changing, audit firms should be a matter for the
individual company, its directors and audit committees and should not
be subject to externally imposed regulations requiring mandatory
rotation of audit firms, according to an international network of
In a perspectives paper released today on the issue of Mandatory Audit
Firm Rotations (MAFR), the Global Network of Director Institutes (GNDI)
states that while it is important to enhance auditor independence,
objectivity and professional scepticism, imposing a regulated time
limit on tenure is not the best way to achieve these goals.
Such a regulation poses significant challenges including the loss of
audit knowledge, increase in time and expense, loss of flexibility,
loss of industry specific knowledge, increase in global complexity,
reduced accountability and are an impediment to strong corporate
"The ICD has been extensively engaged on this topic, providing input to
the Enhancing Audit Quality initiative led by the Canadian Public
Accountability Board (CPAB) and the Chartered Professional Accountants
(CPA)," said Stan Magidson, Deputy Chairman of GNDI and President and
CEO of the ICD. "We are pleased to see our views prevailing among our
global counterparts representing thousands of board directors around
"Global consistency on this issue is particularly important for Canadian
organizations that conduct business globally. They should not be
required to comply with conflicting external auditor requirements,"
GNDI's view is based on the following concerns with MAFR:
MAFR would result in losing the cumulative audit knowledge gained over
the years at arbitrary intervals. However, it should be noted that when
the same audit approach is followed continuously, there may be an
increased risk that errors remain undetected.
MAFR would increase the amount of time management spends during a
transition on educating the new auditors on the company's operations,
systems, business practices and financial reporting processes.
Shareholders indirectly bear those costs.
A regulatory time frame that sets out when MAFR should occur does not
provide the flexibility to enable companies to defer an MAFR when it is
at an inopportune time and may not be in the best interests of the
MAFR may reduce the ability of audit firms to accumulate sector/
industry expertise and impact on the ability of audit firms in
attracting and retaining talent in specialised industries or remote
MAFR may increase the complexity of audit compliance within global
companies as there may be differing audit rotation requirements in
MAFR would reduce the accountability and responsibility of the audit
committee for periodically assessing the performance of the auditor
and, based on that assessment, for determining if and when to require a
rotation or tendering of the audit.
MAFR would also eliminate the right and ability of shareholders from
determining who their auditors should be and when it is necessary to
change their auditors.
The imposition of mandatory time limits that restrict a company's choice
of auditor is an artificial impediment to the free deliberation of the
board or its audit committee.
"In this perspectives paper, directors are strongly arguing that
regulators should focus on improving the quality of the audit, by
reinforcing the board or its audit committee's responsibility for the
oversight of the audit, audit firm and quality and where necessary
enhancing the expertise of the audit committee and potentially
expanding communications between the audit firm and the audit
committee," said John Colvin, Chair of GNDI and CEO of the Australian
Institute of Company Directors.
"Further, work may be required to ensure that users of financial
statements increase their understanding of the role and nature of an
audit, thus narrowing the audit expectation gap."
GNDI is an international network among nine leading membership
organisations for corporate directors in Australia, Brazil, Canada,
Europe, Malaysia, New Zealand, South Africa, the United Kingdom, and
the United States.
The following membership organisations are members of GNDI and
collectively represent more than 100,000 corporate directors worldwide:
Australian Institute of Company Directors (AICD)
Brazilian Institute of Corporate Governance (IBGC) in Brazil
European Confederation of Directors Associations (ecoDa)
Institute of Corporate Directors (ICD) in Canada
Institute of Directors in New Zealand (IoDNZ)
Institute of Directors in Southern Africa (IoDSA)
Institute of Directors (IoD) in the United Kingdom
Malaysian Alliance of Corporate Directors (MACD), and
National Association of Corporate Directors (NACD) in the United States.
For further details please go to www.gndi.org
About the ICD
The Institute of Corporate Directors (ICD) is a not-for-profit,
member-based association representing Canadian directors and boards
across the for-profit, not-for-profit, and government sectors. The ICD
has more than 7,200 members and 11 local chapters across Canada. The
ICD fosters the sharing of knowledge and wisdom through education,
professional development programs and services, and thought leadership
and advocacy to achieve the highest standard of directorship. For more
information, please visit: www.icd.ca.
SOURCE: Institute of Corporate Directors (ICD)
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