By Ruth Razook,Founder & CEO
RLR Management Consulting, Inc.

We have been asked many times about 1) Some level of audit firm rotation and is that a good thing or a bad thing and 2) Should I use a single audit firm, or use more than one? Short answers – 1) Mandatory audit firm rotation, or “switching just to switch” is not necessary and can be costly to an organization, 2) Using more than one audit firm in any given year can present certain challenges. We will discuss both:

Some level of audit firm rotation – There are really two schools of thought on this. The pro-rotation side takes the position that a different set of eyes might see something the other missed. This is certainly a valid position and probably originated with Sarbanes-Oxley (SOX), since SOX does require audit partner rotation every 5 years for publicly held companies. This provision only applies to the lead auditor and the auditor responsible for reviewing the audit, not the auditing firm.

Surveys by the Government Accounting Office indicated that audit partner rotation (using different individuals within an audit firm) would achieve the same benefits as an audit firm rotation (using different audit firms).

Changing audit firms can also be somewhat disruptive as the new firm must get up to speed on the institution’s control environment. Maintaining the same auditor may actually improve the quality of subsequent audits as the auditor’s knowledge of the Financial Institution (FI) improves, specifically, familiarity with policies and procedures, good rapport with Risk or Audit Manager, same look to workpapers and audit reports, one contact for scheduling and/or discussing issues.

The FFIEC is mostly silent on the practice of auditor rotation, stating only that “management should ensure that there are no conflicts of interest and that the use of these services does not compromise independence.”

In the absence of a regulatory mandate there is really only one overriding concern for the FI – are your examination results satisfactory? If so, and there are no conflicts of interest or other independence concerns, there really is no compelling reason to change auditing firms or use more than one audit firm. It is a good idea to periodically request a different set of eyes to perform the audit within the audit firm.