Is auditor rotation a best practice? Not necessarily

Changing auditors every three to five years is considered by many to be a nonprofit best practice. But, like the recommendation to enforce strict term limits to insure board-member turnover, not everyone agrees.

Honolulu CPA James P. Hasselman is among the change-your-auditor skeptics. “There is no such benchmark,” he said. “It’s a myth, which has no support from the research or the regulatory bodies out there.” Why keep the same auditor year after year? “A good auditor is hard to find, and once they have taken the time to learn your business,” Hasselman said, “which typically takes about three audit cycles, it would be foolish to switch auditors, unless you have something to hide.”

Hasselman maintains that auditors provide good institutional knowledge, particularly for organizations that have gone through significant personnel changes. “You wouldn't change your legal counsel or your executive director or your CFO every three years,” he said. “The only time you should change your auditor is when you are not getting good service, when your auditor does not understand your business or industry, or when you are being overcharged.

Mandatory auditor rotation, Hasselman said, is not required in the U.S. or in other countries.  “If the SEC doesn’t require it of public companies then why would anyone else?  It is not helpful to nonprofits who have better things to do with their time than to train a new auditor on their business, systems, processes and controls.”

Click here for more on auditor rotation, an article by Professor Wanda A. Wallace of  College of William and Mary, Williamsburg, Va.