Audit partner rotation requirements will change for periods beginning on or after 15 December 2018. The changes will affect Key Audit Partners (KAPs) of Public Interest Entities (PIEs). KAPs can be classified as Engagement Partners (EPs), Engagement Quality Control Review (EQCR) Partners and other Key Audit Partners.

There will be an increase in the time allowed for an audit partner of a PIE to serve in the same role for a maximum of seven years. The change will also see an increase in the time required for an audit partner of a PIE to cool-off if they are either an EP or the EQCR Partner.

A summary of the changes to the current rotation requirements is as set out below:

Note:

1. Cooling-off period is the minimum number of consecutive years that a KAP must cool-off from the engagement.
2. Time-on period is the maximum number of cumulative (but not necessary consecutive) years that a partner can perform a KAP role on an engagement.

This document provides answers to questions that the Staff of the Institute (the Staff) commonly receive from auditors on the revised partner rotation requirements in Malaysia.

This document does not constitute an authoritative or official pronouncement of the Institute.

Auditors are expected to use professional judgement in determining if the questions are both appropriate and relevant to their circumstances.

Q1. The EP for the audit of a PIE served for five cumulative years in that role with the completion of the calendar year 2016 audit. The individual subsequently did not participate in the 2017 and 2018 audits. Would that individual be able to come back as EP for the 2019 audit for a new seven-year term?

The above situation is illustrated in the table below:

Yes. As the new provisions become effective only for audits of financial statements for periods beginning on or after 15 December 2018 (i.e., effectively beginning with calendar year 2019 audit) and the individual has served the time-on limit of five cumulative years with the 2016 audit, the current cooling-off requirement of two consecutive years applies. The individual would therefore have to cool-off for the 2017 and 2018 audits and could begin a new seven-year term beginning with the calendar year 2019 audit under the new provisions.

Q2. The EP for the audit of a PIE served for five cumulative years in that role with the completion of the calendar year 2017 audit. Would that individual be able to serve as EP for the 2018?

The above situation is illustrated in the table below:

No. As the new provisions become effective only for audits of financial statements for periods beginning on or after 15 December 2018 (i.e., effectively beginning with calendar year 2019 audit), the current time-on requirement limit of five cumulative years apply.

Q3. The EP for the audit of a PIE served for five cumulative years in that role with the completion of the calendar year 2017 audit. The individual subsequently did not participate in the 2018 audit. Would that individual be able to come back as EP for the 2019 and 2020 audits?

The above situation is illustrated in the table below:

Yes. The new provisions are effective for audits of financial statements for periods beginning on or after 15 December 2018. Therefore, from calendar year 2019 audit, the new stay-on period of seven years applies. Accordingly, the individual would be able to serve as EP for an additional two years (i.e., for the 2019 and 2020 audits) before reaching the cumulative time-on period of seven years. He or she would then need to cool-off for three consecutive years (cooling-off period applicable to audits of financial statements during the transition period) starting from the 2021 audit.

Alternatively, the individual could remain off the engagement for the 2019 and 2020 audits to reach a cooling-off period of three consecutive years applicable to EPs under the new provisions, and then come back to the 2021 audit in any KAP role for a new seven-year time-on period.

The two options are illustrated in the tables below:

Q4. The EP for the audit of a PIE served for five cumulative years in that role with the completion of the calendar year 2017 audit. The individual subsequently did not participate in the 2018 and 2019 audits. Would that individual be able to come back as engagement partner for the 2020 and 2021 audits?

The above situation is illustrated in the table below:

Yes. The new provisions are effective for audits of financial statements for periods beginning on or after 15 December 2018. Therefore, from calendar year 2019 audit, the new stay-on period of seven years applies. Accordingly, the individual would be able to serve as EP for an additional two years (i.e., for the 2020 and 2021 audits) before reaching the cumulative time-on period of seven years. He or she would then need to cool-off for three consecutive years (cooling-off period applicable to audits of financial statements during the transition period) starting from the 2022 audit

Q5. The EP for the audit of a PIE served for five cumulative years in that role with the calendar year 2018 audit. Can the individual participate in the 2019 and 2020 audits?

The above situation is illustrated in the table below:

Yes. The new provisions are effective for audits of financial statements for periods beginning on or after 15 December 2018. Therefore, from calendar year 2019 audit, the new stay-on period of seven years applies. Accordingly, the individual would be able to serve as EP for an additional two years (i.e., for the 2019 and 2020 audits) before reaching the cumulative time-on period of seven years. He or she would then need to cool-off for three consecutive years (cooling-off period applicable to audits of financial statements during the transition period) starting from the 2021 audit.

Q6. The EP for the audit of a PIE served for five cumulative years in that role with the completion of the calendar year 2018 audit. How long should the individual cooloff before starting a new seven-year term?

The new provisions are effective for audits of financial statements for periods beginning on or after 15 December 2018. Therefore, from calendar year 2019 audit, the new cooling-off provisions apply.

The EP could remain off the engagement for the 2019, 2020 and 2021 audits, reaching the cooling-off period of three consecutive years (cooling-off period applicable to audits of financial statements during the transition period), and then come back to the 2022 audit in any KAP role for a new seven-year time-on period.

The above situation is illustrated in the table below:

Q7. The EP for the audit of a PIE served for seven cumulative years in that role with the calendar year 2021 audit. How long should the individual cool-off?

The new provisions are effective for audits of financial statements for periods beginning on or after 15 December 2018. Therefore, from calendar year 2019 audit, the new cooling-off provisions apply.

The EP needs to complete a cooling-off period of three consecutive years (cooling-off period applicable to audits of financial statements during the transition period). The length of the cooling-off period depends on when it begins under the new provisions. The individual could come back to the 2025 audit in any KAP role for a new seven-year time-on period.

The above situation is illustrated in the table below:

Q8. The EP for the audit of a PIE served for seven cumulative years in that role with the calendar year 2023 audit. How long should the individual cool-off?

The EP needs to complete a cooling-off period of five consecutive years (cooling-off period applicable to audits of financial statements after the transition period). The individual can come back to the 2029 audit in any KAP role for a new seven-year time-on period.

The above situation is illustrated in the table below:

Q9. A firm accepts a new PIE audit client that had previously been audited by another firm. In the course of auditing the current period’s financial statements, it was determined that the newly engaged firm should re-audit the prior two periods for comparative purpose only (with no updated audit reports to be issued). For the purposes of the partner rotation provisions, does this engagement constitute one year or three years of service by the KAPs?

This constitutes one year for the purposes of determining when the individuals would need to rotate.

Q10. A firm accepts a new PIE audit client. The newly engaged firm is required to audit three successive financial years within the first calendar year of their appointment. For the purposes of partner rotation, does this engagement constitute one year or three years of service by the audit partner?

A firm accepts a new PIE audit client. The newly engaged firm is required to audit three successive financial years within the first calendar year of their appointment. For the purposes of partner rotation, does this engagement constitute one year or three years of service by the audit partner?

Q11. A firm audits two periods due to change in the Company’s financial year end (July 20XX-1 to June 20XX and July 20XX to December 20XX). Does the partner’s service as EP for audits of the two periods constitute two years for the purposes of partner rotation?

The service period would constitute two years for the purposes of determining when the individual would need to rotate.

Q12. A firm audits an eighteen-month period due to change in the Company’s financial year end (July 20XX-1 to December 20XX). Does the partner’s service as EP constitute a year for the purposes of partner rotation?

This constitutes one year for the purposes of determining when the individual would need to rotate.

Q13. Are there other resources available to assist members in adoption and implementation of the revised partner rotation requirements?

On 14 March 2018, the Institute issued Circulars MF 6/2018 and 25/2018, Change in Partner Rotation Period. Included in the Circulars are the IESBA Staff Questions and Answers – Long Association of the International Ethics Standards Board for Accountants which highlight, illustrate, or explain aspects of the revised partner rotation requirements including breaks in service, combination of roles and shorter cooling-off period established by law or regulation.