A joint guide from the Accounting Professional & Ethical Standards Board, Chartered Accountants Australia and New Zealand, CPA Australia and the Institute of Public Accountants.
How to understand the requirements of APES 110 Code of Ethics for Professional Accountants.
Rotation of auditors
The objective of auditor rotation is to promote 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.
Auditor rotation requirements
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. Refer to section 324DA(1) and (2) of the Act.
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 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 auditor rotation requirements
ASIC can grant relief if there is an unreasonable burden on the auditor or audit firm, or the audited body. ASIC Regulatory Guide RG 187 Auditor rotation outlines the criteria and cautions that limits relief under s. 342A of the Act.
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 power to modify the rotation requirements. It can:
- 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.
The following titles are available for members to borrow from the CPA Australia library. You’ll need an online account with us to access these resources.
The effect of non-audit services on independent auditor judgment
This study examines the effects of non-audit services on auditors’ risk and materiality judgments
Auditor independence: an international perspective
Examines the role of professional associations and governments in developing and promulgating standards to foster auditor independence.
Auditor independence: shared meaning between the demand and supply sides of the audit services market?
The purpose of the paper is to examine the extent to which there is shared meaning of the concept of auditor independence between the three major groups of parties on the demand and supply sides of the audit services market – auditors, financial report preparers and financial report users.
Exploring auditor independence: an interpretive approach
The purpose of this paper is to explore the construction of the meanings of auditor independence (AI) in an oil-rich autocratic state with an ideology straddling liberal market capitalism and Shari'ah (Islamic teachings).
The impact of auditor independence on total quality management
Total Quality Management (TQM) can increase the quality of processes in an organization and enhance customer satisfaction.
Audit guide sets context for inquiry
Auditors are under the microscope, but is a wholesale overhaul of the profession necessary?article
Licensed auditors: New Zealand
Practitioners who conduct audits in New Zealand must hold a licence
Qualified auditors: New Zealand
Learn more about becoming a qualified auditor in New Zealand through CPA Australia
Restructured code of ethics clarifies SMSF audit independence issues
Public practitioners with SMSF clients will need to review engagements where the firm conducts the accounting and audit. Here are some of the new requirements coming out of changes to the restructured codearticle
Audit and assurance
Tools, templates and resources for audit, review and assurance engagements
Advanced Audit and Assurance
This subject examines audit and assurance processes, methodologies and procedures