Section 3 of the
Ethical Standards for Auditors (Ireland) 2020, sets out the requirements to be applied where audit partners and staff in senior positions have a long association or extensive and/or regular involvement with an audit client. It requires the firm to assess the threats to integrity, objectivity and independence and apply appropriate safeguards.
Where appropriate safeguards cannot be applied, the firm shall not accept the engagement, shall resign from the engagement or not stand for reappointment, as appropriate.
Firms must establish policies and procedures to monitor the length of time they serve as auditor.
Paragraph 3.3 of the standard sets out potential safeguards which include the following;
- appointing a partner who has no previous involvement with the entity as the engagement partner;
- removing (‘rotating’) the partners and the other senior members of the engagement team after a pre-determined number of years;
- involving an additional partner, who is not and has not recently been a member of the engagement team, to review the work done by the partners and the other senior members of the engagement team and to advise as necessary;
- arranging an engagement quality control review of the engagement in question.
Once an engagement partner has held role of auditor for a
continuous period of ten years, careful consideration is given as to whether it is probable that an objective, reasonable and informed third party would conclude the integrity, objectivity or independence of the firm or statutory auditors as compromised. Where that individual is not rotated after ten years, it is important that:
(a) safeguards, such as those noted in paragraph 3.4, are applied; and
(b) the reasoning as to why the individual continues to participate in the engagement is documented, and the facts are communicated to those charged with governance of the entity in accordance with paragraphs 1.54 to 1.62 of the Ethical Standard.
The standard requires that firms have documented policies and procedures to manage this issue effectively and in accordance with the standard.