You are a manager in Neeson & Co, a firm of Chartered Certified Accountants, with three offices and 12 partners. About one third of the firm’s clients are audit clients, the remainder are clients for whom Neeson & Co performs tax, accounting and business advisory services.

You have set up an internal discussion board, on which current issues are debated by employees and partners of Neeson & Co. One posting to the board concerned the compulsory rotation of audit firms, whereby it has been suggested in the press that after a pre-determined period, an audit firm must resign from office, to be replaced by a new audit provider.

Required:

(i) Explain the ethical threats created by a long association with an audit client. (3 marks)

(ii) Evaluate the advantages and disadvantages of compulsory audit firm rotation. (4 marks)