A report in the context of the audit of public companies listed on the Essay

A report in the context of the audit of public companies listed on the London Stock Exchange regarding the two issues that the committee decided against implementing - Essay Example auditor’s bringing a fresh perspective and greater skeptism that would be lacking in the long-standing auditor-client relationship, the opponents maintain that because the auditor’s lack of familiarity with the industry and client, audit quality would suffer under such a regime (AICPA 1992). In late 2001, the Enron debacle followed by its high-profile collapse now focuses attention on the profession’s effectiveness in protecting the interests of the public. Thus, Sarbanes-Oxley Act 2002 mandated the General Accounting Office (GAO) to conduct a research on the potential effects of mandatory audit rotation as required by law. The study concluded that mandatory audit rotation would not necessarily strengthen auditor independence (G.A.O. 2003). The arguments for and against mandatory audit firm rotation contend whether the auditing firm’s long-term client-customer relationship and the profitable desire to maintain the client adversely affects the public accounting firm’s independence during the auditing of a company’s financial statements. Furthermore, reservations about the likely effects of the audit firm rotation include the fear of losing company-specific information gathered by an audit firm over years of experience as an auditor, and whether the intended benefits are likely to outweigh the costs. Additionally, the implementation of the Sarbanes-Oxley Act (as applied in the United States) has raised question as to its effectiveness of reforming the intended benefits of mandatory audit firm rotation. Furthermore, research studies and other publications specifically show that the advantages and disadvantages of mandatory audit firm rotation touch on auditor independence, audit quality, and increased costs. Interference with auditor independence or audit quality can result in failure and adversely affect the parties relying on the fair representation of the financial statements in conformity with established accounting standards. Proponents of audit