Tuesday, February 18, 2020

The European Commissions Proposal Essay Example | Topics and Well Written Essays - 1250 words

The European Commissions Proposal - Essay Example 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, whi ch 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. and hence the quality of audit would consequently improve. Another potential advantage of the obligatory audit rotation is that the clashing dissimilarities of judgment amid management and the auditor are not hazardous to the auditor if a rotation is planned in the coming future anyway. Reviews have confirmed the widespread expectation that consequent to this new reform

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