Audit rotation is a policy of replacing auditors within a certain period in accordance with applicable regulations. This policy is believed to be an effective solution to prevent fraud and fair judgments made on company reports.
This policy allows auditor. and the client is within the limits of professionalism without losing his independence. However, existing studies prove that this policy can have a positive or negative influence on the quality of audit results.
So, to what extent does this turnover affect audit quality? Is it within a certain period of time that an auditor is able to recognize and assess the company well? This article will discuss the definition, purpose, types, regulations, examples, and impact of audit rotation on the quality of its assessment.
What is audit rotation?
Definition Of Audit Rotation In General
In general, audit rotation can be understood as the turnover of auditors from a particular public accounting firm (PPA) towards its clients. This turnaround period refers to the policies in force in each country. With the replacement of auditors in assessing the company, this policy is expected to minimize the cases that occur, so that the auditor's independence is maintained.
Definition Of Audit Rotation According To Experts
According to Inas Aisyah Widyaningsih, Alumni of the Accounting Department of the Faculty of Economics and Business (FEB), Airlangga University, audit rotation not only refers to the replacement of auditors, but also refers to the replacement of audit offices that provide audit services.
Further, Alvin A. Arens in his book entitled Auditing and Assurance Services saying that, audit rotation is a rule of maintaining independence by rotating audit assignments after meeting a specified time limit. This auditor replacement is mandatory by the client company to increase the auditor's independence.
Purpose and importance of Audit rotation
So, broadly speaking, the replacement of auditors or the creation of this system aims to promote or maintain the independence of auditors and the quality of audits made. That way, both the auditor and the client can get a good profit.
Types of audit rotations
In the field of accounting and auditing, there are several types of audit rotations that are important for a company to know. The difference between the types of audit rotation is related to the actors who experience replacement and who replaces them. Further, here is the explanation.
1. Internal and external Audit rotation
On the type of rotation internal audit internal auditor replacement refers to the replacement of auditors from within the company. Internal auditors are usually tasked with evaluating the organization's internal control functions, governance processes, and risk management.
This audit replacement involves not only internal employees, but also the audited division. For example, si A initially audits reports in the Finance Division. Then it undergoes rotation and is transferred to audit in the operational division.
While external audit rotation refers to the replacement of auditors from outside the company, namely from the KAP who is working with the company (client). Replacement of auditors in this case, aims to minimize the auditor's proximity to clients that can affect the assessment and quality of audit results.
2. Partner rotation vs public accounting firm rotation (KAP)
Different from before, the replacement in partner rotation and KAP rotation in question is an external auditor (from outside the client company). Partner rotation refers to the replacement of an auditor or someone from a particular KAP who is tasked with providing an assessment of the company.
Meanwhile, the rotation of the hood refers to the replacement of the hood. For example, PT Sekawan Media Informatika has used Kap audit services straight away. However, the cooperation has reached its maximum limit, which is 6 years. Therefore, the company performs straight hood rotation and replaces it with other hood services.
3. When Should Audit Rotations Be Performed?
Replacement of the auditor or KAP can be done when the period of cooperation between the company and the auditor or KAP reaches a maximum limit, which is 3 consecutive years for the auditor and 6 consecutive years for the KAP. This kind of rotation, is mandatory, because both parties must comply with government rules.
However, the company can still make replacements before reaching the maximum limit. This condition is referred to as voluntary rotation, since the decision on the replacement of Service services is in the hands of the company.
Examples of audit rotation
For example, ABD auditors have audited the financial statements of Pt Sekawan Media Informatika from 2023 to 2025. Based on Indonesian government regulations, accountants are only allowed to audit client reports for a maximum period of 3 consecutive years.
So in 2026, companies will have to use the services of audit services from different auditors. The implementation of this rotation must comply and comply with existing regulations. Including, the handover of audit documents from the old auditor to the new auditor.
Effect of audit rotation on Audit Quality
Audit rotation system, was originally created with the hope to maintain the independence of auditors. But in practice, this system reaps pros and cons from a number of parties. Existing studies provide results that, audit rotation can have a positive and negative effect on audit Quality.
The positive influence of the replacement of auditors arises on the basis that the policy can affect the quality of audits. As a party whose duty is to assess independently and reasonably, it is important for the auditor not to get too close to the client. That way, the rotation can maintain a professional relationship between the two.
On the contrary, negative influences arise, since there is no guarantee that the replacement of auditors can result in a quality audit. This is because investors do not care whether the auditor who expresses the audit opinion has ever made a rotation or not. As long as the reports are relevant and reliable, the auditor's tenure has no effect on investment decisions.
Audit rotation regulation and policy in Indonesia
The period of work of an auditor with a client in the field of accounting and auditing should not be done carelessly. Indonesia applies a policy of auditing period by Public Accountant (AP) and KAP for a company or client.
Refer to regulation of the Minister of Finance No. 17 / PMK.01/2008 on Public Accounting Services Article 3, the provision of audit services can be carried out by AP or auditor for a maximum of 3 years and KAP for a maximum of 6 consecutive financial years.
The AP or auditor may re-accept an audit assignment for the same client after a 1-year gap. This is calculated from the last year of providing audits for these clients.
Ethics in the implementation of Audit rotation
As with other professions, both auditors or KAP and companies that become clients must behave properly according to the code of ethics. Here are the ethics that must be owned by the auditor or KAP.
- Integrity - be honest, straightforward, and professional
- Objectivity - provide professional assessment without being influenced by any party
- Competence and prudence - the auditor must achieve and maintain his / her professional expertise and act conscientiously and professionally
- Confidentiality - auditors must maintain confidentiality from professional and business relationships
- Professional - the auditor must comply with the law, behave and act in accordance with the moral responsibilities of his profession, and avoid behavior that could harm the profession
As long as the two parties work together, the company that acts as a client must also have professional and good ethics during the partnership. Ethical principles that can be applied by the company such as, honesty, openness, do not put pressure or influence on auditors, professional, and maintain confidentiality.
In practice, when companies rotate auditors, it must be done transparently. The company needs to carry out the handover process from the old auditor to the new auditor. This process also involves the transfer of information by the old editor to the new auditor.
During this process, the company should not pressure the auditor to influence his assessment of the company's report at a later date.
Conclusion
Audit rotation is the replacement of auditors or KAP before or after the maximum period of work based on the regulation of the Minister of Finance. This replacement aims to maintain the independence of the auditor and minimize the existence of a deeper relationship between the auditor and the client.
Replacement of the old auditor to the new auditor, must be in accordance with applicable regulations and meet the existing code of ethics. That way, the rotation can take place professionally.
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