6.3 Rotation of Audit Partners

The SEC’s independence rules require that the audit partner and the engagement quality control reviewer (generally another partner in the independent registered public accounting firm) serve in those roles for a maximum of five consecutive years. Certain other partners4 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. Potential delays in the effectiveness of the registration statement and performing first-time financial statement audits of multiple periods as the successor auditor at the same time could affect the measurement period of required audit partner rotation.

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 6-1A

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’s registration statement filed in 20X3 and contained the audited financial statements for the years ended December 31, 20X0, 20X1, and 20X2. After some amendments to the registration statement, the SEC declared XYZ Company’s registration statement effective in June 20X3. (The registration statement declared effective included 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

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.