The Hidden Costs of Rotating Auditors

While there is little doubt that this rule was well intentioned, some commentators argued the new rotation standards would impose significant costs on clients, audit firms, and investors that would undermine effective audit regulation. Regulators persisted, citing the benefits of a fresh perspective and enhanced independence that a new audit engagement partner would bring. However, the accounting profession argued that not only would audit quality be harmed, but audit effort would drop, learning and training costs would increase, client-specific expertise would disappear, and inefficiencies affecting both the client and the auditor would rise. The Securities and Exchange Commission (SEC) eventually acknowledged that the more stringent rotation requirements might substantially raise audit fees and slow audits, but the rules remain.