Insight - Whose turn next?

(From Financial Director)

Byline: Richard Willsher.

Parmalat is likely to go down in history as Italy's - and probably Europe's - Enron. Its impact will reverberate through political and financial circles for years to come, and not least among audit firms.

Italy is one of the few jurisdictions in the world to have adopted a policy of audit rotation. The principle is that auditors should be replaced periodically by another firm, or at least rotate audit partners, in order to ensure probity and so that any wrongdoing can be brought to light.

Some would argue that such a policy didn't work very well in the Parmalat case, where skulduggery is alleged to have gone on for some time. Others, such Lino de Vecchi, a council member of the Consiglio Nazionale dei Dottori Commercialisti (CNDC), the Italian chartered accountants body, argues to the contrary.

"From the Parmalat case, we can see that some kind of audit rotation is a good thing. Deloitte was the newly appointed firm that took over from Grant Thornton in June 2003. Once it had time to understand the situation, it raised doubts and that helped start the process of discovery," he says.

He believes rotation is common sense. "If you know someone is coming along after you to check up on you, and you know you are going to have to respond to them, the chances are that you will pay more attention. At the same time, if you know you are going to move on at the end of your period as auditor, you will be less inclined to close one eye on anything not totally above board. After all, if you work with the same people at the firm you are auditing year in year out, there is a risk that you become overfamiliar."