Corporate Compliance

Report: Public facilities should announce changes in auditors

Compliance Monitor, May 23, 2007

If your facility is a publicly-traded company, it should have to inform the public when it switches auditors, according to a report released by Glass, Lewis & Co., a research services firm.

However, under current law, it is not required.

According to the Corporate Crime Reporter, 1,322 U.S. public companies changed their independent accounting firms last year, including 66 companies that changed auditors at least twice. There was no explanation for the auditor split in more than 1,000 of those cases.

Glass Lewis says it also wants federal officials to require mandatory audit firm rotation every five to 10 years.

"We view the 'fresh-eyes' effect as a big benefit to switching auditors, especially in cases of corporate accounting frauds," the authors wrote in the report. "Auditor changes often are linked to financial restatements and discoveries of weak accounting controls. Restatements and material-weakness disclosures occur almost three times as often within one year of auditor changes than they do for all companies."

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