Q&A #18 – Is it reasonable to use the same CPA firm to do our audits for more than 6 years?

Question: My nonprofit has used the same CPA firm to do our audits for the past 6 years. In the past we have generally tried to change CPA firms after 5 to 6 years, because we understand that it’s generally a bad practice to have the same firm handle our audits for too long. However, in light of the current disruptions related to the pandemic, we are considering sticking with the same CPA firm for another year or two. Is this reasonable to do under the circumstances?

Answer: This is a very common and important question that must be considered on a regular basis. The key to the answer is defining and establishing what is the “regular basis” in your governance related financial statement audit management practices.

Auditor continuation, rotation, and selection processes and practices vary widely from organization to organization. Having a defined set of working rules that establish an auditor rotation pattern will provide the basis for a solid answer to this question.

There are basically two key considerations that inform best practices in this area:

Consideration #1 – It is not a best practice to change audit firms too often, as this is inefficient and can be costly in time and dollars, as well as to the organization’s reputation. This statement speaks for itself and is understandable. Changing audit firms every year or ever other year is generally a sign of underlying problems.

Consideration #2 – It is not a best practice to stay with the same audit firm forever or for a very long time. Even if the audit firm provides excellent services, Board members and the general public might perceive the organization as being averse to audit firm rotation. This can lead to questions about whether the audit firm is sufficiently independent.

A typical auditor rotation pattern, which I see often, is a three-year cycle. A new audit firm is expected to continue for three years. After three years, a new search for audit services and RFP process is implemented. For this search the current audit firm can participate and be eligible for selection. Three years later another search for audit services and RFP process is implemented, but this time the current audit firm would not be eligible to participate. Thus, the established procedure is to search for audit services every three years with an audit firm eligible to provide services for no more than two consecutive three-year cycles. I have also seen four-year and five-year patterns with some modifications.

Now to your question: during an unusual time like the crisis that is occurring now, is it reasonable to deviate from established procedures? The answer can often be yes, especially when the crisis-driven disruption could lead to the organization being in a much different position in the future (for example, ending up smaller in size, a candidate for merger or acquisition, relocating, or ceasing operations entirely and dissolving).

If the current crisis is not having a material effect on the organization, the current audit rotation cycles should not be changed even if there are temporary internal staffing pressures.

Planning Tip – Make sure that every year the audit committee and/or the Board of Directors address auditor continuation as part of its regular duties, even in the middle of a 3, 4, or 5-year cycle. The audit committee and/or Board should document all relevant factors and make an annual recommendation to continue or not continue with the current audit firm. This demonstrates an on-going and active evaluation process and provides a time and place to document any unusual circumstances that might affect auditor continuation.

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