The European Commission’s Proposal - Essay Example

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The European Commission’s Proposal

To alleviate the danger of any impending conflict of interest owing to an acquaintance risk, the European Commission in its report has proposed that all publicly listed companies will have to obligatorily alter their auditor after each six years in case they had employed one auditor to execute the audit process, and after each nine years when two auditors were employed to perform the audit (Berger, 2012).This proposed reform is said to have a number of advantages in context of dealing with issues like conflict of interest and in so doing enhancing the quality of audit. The major advantage expected from this reform is the reinforcement of professional skepticism. In cases where the auditors have a long standing association with the company, it is likely that there would be dilution of professional skepticism. In view of the close relationship with their clients, auditors might develop a tendency to overlook areas of concern owing to their depending association with the management, which might hamper the actual independence of the auditors. Various researches have opined that the major rationale for the detrimental audit quality comprise of the personal long term association amid the company’s management and the auditor, the amalgamation of consulting as well as auditing services, in addition to the auditor’s objective of preserving the assignment (Myers, Myers & Omer, 2003). The mandatory rotation of audit would elevate the fear of public exposure in case of any discrepancy. ...
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Summary

This paper represents a review of the European Commission’s Proposal to introduce audit independence reform. This proposed reform is said to have a number of advantages in context of dealing with issues like conflict of interest and in so doing enhancing the quality of audit…
Author : gbeier

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