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APB amends rotation requirements for audit partners on listed entity audits

The Auditing Practices Board has issued a revised Ethical Standard 3: Long Association with the Audit Engagement. It amends the rotation requirements for audit engagement partners and engagement quality control review partners on listed entity audits.

The revised standard applies for audits of periods commencing on or after 15 December 2009 but as the changes amount to relaxation of the existing requirements, it can be applied with immediate effect from the date of issue, 6 October 2009.

The principal changes can be summarised as follows:

  • Audit engagement partner - maximum rotation period remains at five years, with a minimum of five years not involved in the audit afterwards. However, flexibility of up to an additional two years is permitted where the audit committee believes this is necessary to maintain audit quality and the extension is disclosed to shareholders. While not intended to be a default position, this is intended to permit greater flexibility than the existing provision which has been difficult to apply in practice.
  • Engagement quality control review partner - maximum rotation period extended from five to seven years, with at least five years not involved in the audit afterwards.
  • Other key audit partners - maximum rotation period remains at seven years, with at least two years not involved in the audit afterwards.

The ICAEW welcomes the early release of this revision, as partner rotation needs careful forward planning and it is useful for all to know where we are. However it is disappointing that the APB has not felt able to align the requirements on listed audit rotation fully with those of the International Federation of Accountants and the European Commission, especially taking into account the views of audit committee chairs. However, the changes that have been made to allow increased flexibility where it is merited and to extend the independent partner rotation period will be of help, particularly to businesses in unusual circumstances, and smaller accountancy firms that audit listed companies.