Video: Audit Partner Rotation

This lesson covers the concept of audit partner rotation, which aims to maintain objectivity and independence in the audit process. The discussion illustrates the importance of not allowing audit partners to become too close to their clients, as this may lead to a risk of fraud. The Sarbanes-Oxley Act requires lead auditing and review partners to rotate every five years, while all other audit partners must rotate every seven years. The lesson also defines what constitutes an audit partner and highlights exemptions for small firms that have less than 10 partners and five or less SEC clients.

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Video Transcript

Instructor: Nick Palazzolo

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Stox also created this concept of the audit partner rotation. Now, if you have an audit and you have an audit partner who is existing and conducting the audit for years and years, every year, the audit partner could become more buddy-buddy with the client. And the more buddy-buddy the audit partner becomes with the client, the more, and as the audit partner is the one who signs off on the, makes the opinion and signs off on it, that is concerning because the more that goes on, the more the audit partner could say, oh, it's just a personal favor to a friend. Let's just let them, just felt just a little bit of fun. So this rule exists to help maintain objectivity and independence. It requires that audit partners are rotated out. So, you know, within the accounting firm, you big firm, you've got a lot of partners and each partner is assigned to a specific client, right? You got the whole firm and it doesn't mean you have to fire the partner and not let them work for you anymore, but you need to rotate them to a different client so that, hey, it's a new client. I don't have a relationship with you. I need to start building that relationship, but this is a public company issue is they want to make sure that we're rotating these partners around and make sure that they're not getting too buddy-buddy with the clients. Because again, the more buddy-buddy you get with the clients, the more you might be able to allow fraud, right? You get to know them a little too well. The Sarbanes-Oxley Act requires the lead auditing and review partners to rotate every five years. So want to memorize that. New regulations add seven years rotation

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