In a recent Jason Zweig article, he asks the question of whether accounting firms should have term limits for the work they perform for companies. Zweig cites some attention-grabbing statistics:
According to Audit Analytics, a research firm in Sutton, Mass., 30% of the 1,000 leading U.S. companies have used the same firm to audit their books for at least a quarter-century. Fully 11% have used the same audit firm continuously for 50 years or more. Eight companies haven’t changed auditors in at least a century; the last time any of them hired a new accounting firm, William Howard Taft was in the White House.
Pretty shocking, right? Kinda makes you want to say that there needs to be a change. However, after reading through some of the comments to the article, the idea of term limits seems to be misguided and would likely not improve the chances of catching fraud. As one commenter put it, “Rotating the execution of a poorly designed process won’t fix anything. It might be time to go back to square one.” Also, there is already a requirement that the engagement partner of the auditing firm be rotated every five years. Furthermore, there already is a lot staff rotation with turnover, promotions and re-assignments.
So despite those attention-grabbing stats, it seems people should be always be hesitant to implement new laws or regulations, especially when there doesn’t seem to be any evidence that making a change would have net benefits.