Former Auditors Issues - Essay Example

The Specific legislative requirements which apply to former audit firm partners are found in Sub Section 324 CK. According to the requirements laid down, a former audit firm partner, who holds a position in a company of which he was previously the auditor and in the given situation if any other partner of that firm also had a position in that company, the requirements of the section are contravened and independence is impaired. Similarly, Sub Section 324 CI does not allow a former partner of an audit firm to become a member of the board of directors or another officer of a Public Company which is listed, if that former partner has remained part of the audit team being involved in the audit of that public listed company at any time during the preceding two years of that partner’s retirement.

On the other hand, more specific legislative requirements relating to the independence test of the former auditors can be found in Sub Section 324 CF (7), which states that a person is regarded as satisfying the test of independence if,
- He does not have any control over the operations or financial policies of the audit firm of which he was a partner or an employee;
- He does not involve himself in the activities and other operating matters of the audit firm of which he was a partner or an employee;
- He does not hold any kind of rights as against the audit firm or any of the members of the audit firm concerning the termination of such person from the partnership of that audit firm or other interest whatsoever;
- He has no monetary arrangements or agreements concerning the performance of any professional service with the audit firm from which he so retired. However, this does not include:
- An agreement under which the partner so retired will be given payments of specific amounts at regular intervals of time, provided that such payments are predetermined and are independent in direct and indirect ways from the earnings being made by the audit firm, or
- An agreement under which the partner so retired will be given payments of specific amounts at regular intervals of time provided that such payments, although not predetermined, are calculated on a predetermined basis and are independent in direct and indirect ways from the earnings being made by the audit firm; and
- He has, apart from the agreements mentioned above, no other financial or monetary arrangements or agreements with the audit firm for the receipt of payment under any name which is related, either directly or indirectly, to the revenues earned by the audit firm, whether such businesses do or do not relate to such person (Corporations Act).

The independence test requirements as presented in (I), (ii) and (v) above are independent of each other and these requirements do not seem to cater for any serious issues related to the independence test about a former audit partner or another professional. In other words, these requirements are not the determinants of the fact that independence exists. This is so because a retiring or former professional cannot eliminate the existence of his past relationship with an audit firm or other professional body (Brayshaw).

All these independence testing requirements and regulations are meant for ensuring that a retired or former audit firm partner has not continued his apparent relationship with the audit firm after his retirement by way of providing any kind of consultancy services, offering or accepting the usage of his name or goodwill or showing eagerness in guiding companies to his former audit firm to obtain some reward, commission or other consideration. The requirements stated in (iv) - (a) and (b) seem to be encompassing the occurrence of common issues in which former audit partners are paid for a particular period in pursuance of an agreement between the former partner and the audit firm (Brayshaw).