Auditor Rotation: ASIC Policy Proposal

On 10 April 2006, ASIC released its Policy Proposal on auditor rotation. Auditor rotation dates back to the Corporate Law Economic Reform Program (Audit Reform and Corporate Disclosure) Act 2004 ("CLERP 9"), which made changes to Part 2M.4 of the Corporations Act 2001 in connection with listed companies or registered managed investment schemes. Two auditor rotation obligations exist. The first is known as the "time-out rule" (section 324DA(1) refers) and the second is the "5/7 rule" (section 324DA(2) refers). The time-out rule prevents an individual auditor from playing a significant role in an audit where that individual has done so for five successive financial years. The 5/7 rule complements the time-out rule and provides that an individual cannot play a significant role in an audit for more than five out of seven successive financial years. ASIC has the power to modify the operation of section