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Independence guide (PDF), 2013

Understand the requirements of APES 110 Code of Ethics for Professional Accountants.

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Rotation of auditors

The objective of auditor rotation is to promote auditor independence. Auditor rotation requirements apply to individuals who have played a significant role in the audit of listed companies or listed registered schemes.

A significant role in the conduct of an audit is defined by s. 9 of the Corporations Act 2001 (the Act) as:

  • the lead auditor (i.e. audit engagement partner)
  • the review auditor
  • a registered company auditor appointed as the auditor of the audited body.

Rotation requirements

Refer to section 324DA(1) and (2) of the Act. An individual may not play a significant role in the audit of a listed entity for more than five out of seven successive financial years.

Auditors may take steps to manage and mitigate any adverse impact on audit quality, especially when developing a rotation succession plan. This will require long-term employee planning, for example, it may be beneficial to plan for overlapping terms for the lead and review auditors so that both are not rotated simultaneously.

APES 110 Code of ethics for professional accountants prohibits a person from participating in the audit engagement for not less than two years after the end of the financial year representing the end of the five years' service as lead or review partner. APES 110 applies to members of CPA Australia. 

Section 323D(3) of the Act permits the synchronisation of financial years. The financial year may be extended up to 18 months.

Relief from rotation requirements 

ASIC can grant relief where there is an unreasonable burden on the auditor (or audit firm) and/or the audited body. ASIC policy statement PS 187 Auditor rotation outlines the criteria and cautions that the relief under s. 342A of the Act is limited.

Exemptions from the auditor rotation requirements

The Corporations Act's s. 342A does not provide for an exemption from the auditor rotation requirements. However, it does provide ASIC with limited relief power to modify the rotation requirements, as follows:

  • extend the period by not more than two successive financial years before the time-out rule applies
  • extend the period by allowing an auditor to play a significant role in the audit for not more than one additional financial year before the '5/7 rule' applies

Where an auditor has played a significant role in the audit for five continuous financial years, the relief stipulated in (1) applies. Where an auditor has played a significant role in the audit for five out of seven successive financial years, the relief stipulated in (2) applies. The five out of seven successive financial years ('5/7 rule') applies to lead auditors who were not involved with the client during some years out of the total period of seven years.