Considering a Change in Auditors?

TimMccutcheonBy: Tim McCutcheon

Many not-for-profit organizations (NFPs) have audit firm rotation polices requiring a change in audit firms—not just audit partners—every few years, most typically every five years. Some call for rotation in as little as every three years. Policies such as these have become the norm only in the past dozen years or so. Why is this, and does it make sense?

The rise of audit partner or audit firm rotation policies, in large part, is attributable to the Sarbanes-Oxley Act of 2002 (SOX, or the Act). Curiously, with the exception of two very narrow provisions of the Act dealing with document destruction and whistleblower policies, the Act does not apply to NFPs unless an NFP is also an issuer of publicly traded securities or has filed as a registrant to issue such securities under the Securities Exchange Act of 1934 or the Securities Act of 1933, respectively. So, if SOX doesn’t apply to NFPs, why have so many adopted its audit partner rotation policy, or going even further, turned the policy into one of audit firm rotation?

The article looks back at the Act, the effects it has had—intended or otherwise—on the relationships between NFPs and their auditors since its passage, and offers considerations for NFPs when evaluating their own policies. Clink here to read the full article.

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