Rotation of audit firms: the brazilian experience and the market's conclusions

Abstract

The rotation of audit firms was introduced in Brazil as a result of the corporate scandals involving financial institutions in the issue of their financial statements, and adopted by the CVM - Brazilian Securities Commission for publicly traded companies in Brazil. Aiming to preserve the independence of the auditor and to reduce frauds and accounting errors and misstatements of financial statements, audit firm rotation affects the commercial and professional relationship of the auditors with their clients, as well as the whole structure of the audit firm market. The article was prepared on the basis of the historical concept of audit firm rotation, the evaluation of the surveys carried out on the subject in other countries, and the philosophical structures that determine the ethical principles associated to audits. Furthermore, a field survey was carried out on aspects related to audit firm rotation. This survey collected the opinions of 127 financial market professionals, 84 of whom were executives from companies that work on or influence the preparation of financial statements, and 43 independent auditors who work directly in the accounting record auditing process. The main conclusion was the confirmation that audit firm rotation cannot ensure the independence of the auditor in his work, nor does it diminish the risks of accounting errors or frauds in the financial statement preparation.