Question

What are the advantages and disadvantages of a firm using the same external auditors year after year?

What are the advantages and disadvantages of firms changing external auditors every few years?

Answer 1

Answer)

Advantages of having external Auditors year after year:

1)It takes the auditor very less time to get adjusted in next year as he is already aware about the organisation.

2)It will be easy to explain for the employees and other person's any changes that occur after previous year as the auditor is aware of the conditions present in the organisation previously.

3)The Auditors will be aware that degree of reliance that can be placed on internal controls,work done by internal auditor etc.

Disadvantages:

1)Chances for having the impact on Auditors Independence.

2)Chances for repeating same mistake every year due to wrong understanding about the organisation.

Advantages of changing external Auditors every few years:

1)The new Auditors have better Independence as the persons who are internal to the organisation doesn't know more about the Auditor.

2)Some companies invite bids for the audits and in this case new Auditors may charge less.

3)Chances of finding any mistaement casued by fraud or error which are not found by previous auditors.

Disadvantages:

1)The audit takes more time as the Auditor need to understand about the organisation.

2)There are chances of increasing indirect costs i.e auditors expenses etc as it takes more time for the new auditor to perform the audit compared to the old auditor due to lack of institutional knowledge.