Question

1. The Sarbanes-Oxley Act of 2002 has strengthened auditor independence by requiring that management

1. Engage auditors to report all fraud and illegal acts of the company being audited.
2. Hire a different CPA firm from the one that performs the company’s tax work.
3. Select auditors through the audit committee.
4. Require CPA firms to rotate off of an audit after five years.

Answer 1

The Sarbanes-Oxley Act of 2002 has strengthened auditor independence by requiring that management require CPA firms to rotate off of an audit after five years. The main goal of rotation is auditor's independence. When the auditor changes, they need to start from scratch with the client which means no longstanding relationship is in place. It helps to provide an unbiased attitude when performing the audit. It helps to break the familiarity that the auditor has with the client. The absence of collusion mandatory rotation removes the guarantee of future income when the firm is rotated off. Hence Answer D is correct.