6.3 Rotation of Audit Partners
The SEC’s independence rules require that the audit partner and the engagement
quality reviewer (generally another partner in the independent registered public
accounting firm) serve in those roles for a maximum of five consecutive years.
Certain other partners3 on the audit engagement or those in equivalent roles are limited to seven
consecutive years of service. Before a registration statement is filed and the
auditor’s report under PCAOB standards is issued, the audit engagement team needs to
reassess the time that partners have served on the audit engagement before being
engaged to perform the PCAOB audit. Certain periods during which partners subject to
rotation served on AICPA audits may be factored into the determination of compliance
with the rotation requirements under SEC rules.
Under SEC rules, the audit partner rotation measurement period generally begins
with the earliest audit period included in the initial registration statement or a
JOBS Act confidential filing. If a partner on the audit engagement was involved in
the prior-year AICPA audits and is continuing in that role for the reissuance of
those auditor reports for inclusion in the registration statement, each financial
statement period included in the initial and amended registration statements counts
as one separate year of service toward the SEC rotation period. Any years of service
by those individuals before the financial statement periods included in the
registration statement do not count toward the SEC rotation period. The measurement
period of required audit partner rotation could be affected by (1) potential delays
in the effectiveness of the registration statement and (2) performing first-time
financial statement audits of multiple periods as the successor auditor.
Example 6-1
The partner who served as the audit
engagement partner for AICPA audits of 20X0, 20X1, 20X2, and
20X3 financial statements will continue serving in that role
for the reissuance of the auditor’s report on the 20X1,
20X2, and 20X3 financial statements to be included in the
initial registration statement (public or confidential
filing).
After many amendments to the registration
statement, the SEC declared the company’s registration
statement effective in March 20X5 (the registration
statement declared effective included the audited financial
statements for the years ended December 31, 20X2, 20X3, and
20X4).
For SEC partner rotation purposes, the
partner (1) would be viewed as having served as the audit
engagement partner for four years (20X1, 20X2, 20X3, and
20X4), counting all the years included in the registration
statements filed with the SEC, and (2) has one year (20X5)
remaining before starting a five-year time-out period from
the audit client and its affiliates.
Example 6-2
XYZ Company hired an independent registered
accounting firm in 20X3 to perform a multiple-period audit
concurrently as part of the registration process, and the
auditor had not previously been involved in providing any
attest services to this entity or its affiliates.
In this example, Partner A is serving as the
audit engagement partner on XYZ Company’s multiple-period
audit for the years ended December 31, 20X0, 20X1, and 20X2.
The first audit opinion issued in accordance with PCAOB
standards is included in XYZ Company’s registration
statement filed in 20X3 and contains the audited financial
statements for the years ended December 31, 20X0, 20X1, and
20X2. After some amendments to the registration statement,
the SEC declares XYZ Company’s registration statement
effective in June 20X3. (The registration statement declared
effective includes the audited financial statements for the
years ended December 20X0, 20X1, and 20X2.)
For SEC partner rotation purposes, Partner A
would be viewed as having served only one year for SEC
purposes since the three years were audited at the same
time. Partner A may serve in the role of audit engagement
partner for XYZ Company for four more years before starting
a five-year time-out period from the audit client and its
affiliates.
Footnotes
3
In this Roadmap, the term “partner” refers to a partner,
principal, or managing director, as applicable to the particular
circumstances of the role being served and the audit engagement.