In an article entitled, More U.K. Companies Put Auditor Contracts Up for Bids, many large companies on the London Stock Exchange are looking for new auditors. This is in compliance with the new European Union rules. These rules are requiring regular auditor rotations every ten years.
Some may argue this is not a good strategy. In order to perform a good audit, the auditor must be knowledgeable about the company. And because companies are so large, its takes time to learn about them. People will argue that after spending years with a company, auditors have invaluable knowledge and information and it shouldn't be thrown away.
However, I think this is a good move on Europe's part. Auditors that have been with a company for ten years (or less) have less of a connection or attachment to the company. They are less likely to be eager to please. In addition, auditors that spend too long with a company get too comfortable.
If auditors are getting too comfortable, they overlook details. If auditors think they already know the company and its books, they might miss what's right under their nose. It's almost like giving the "ok" for the company to commit fraud. And isn't the biggest reason for auditing to uncover fraud?
While Europe has enacted these rules, the U.S. has not. I believe that eventually the U.S. should adopt the same rules. Even though there are cons, there are pros that outweigh them. I believe that stopping corrupt business practices is worth this change in rules.
