Financial transparency is one of the cornerstones of trust between a syndicate’s board of directors and its co-owners. In medium-sized or large co-ownerships, using a Chartered Professional Accountant (CPA) to prepare audited financial statements—or at least reviewed financial statements—represents an excellent governance practice. This mechanism not only helps ensure the reliability of financial information, but also strengthens the credibility of the board of directors in the exercise of its duties.
However, one question comes up regularly at annual meetings or during budget discussions: is it necessary to change auditors every five years?
A rule that does not apply to syndicates
Contrary to a belief that is still widespread, mandatory rotation of the auditor every five years does not apply to syndicates of co-owners.
In law and in accounting practice, the rotation requirement targets a very specific context: publicly traded companies. In those situations, Canadian independence standards do not require replacing the accounting firm, but rather rotating the partner responsible for the audit engagement after a specified period, in order to prevent risks associated with a long-standing relationship between the auditor and management.
This requirement stems from the independence standards incorporated into the Code of Ethics of Chartered Professional Accountants, which CPAs are expressly required to follow.
In this regard, section 36.4 of the Code of Ethics of Chartered Professional Accountants clearly provides that:
“The Chartered Professional Accountant must, when applicable, comply with the independence standards set out in Rule 204 of the CPA Canada Code of Ethics, adopted on June 20, 2016 by the CPA Canada Public Trust Committee, and with any subsequent amendments.”
These standards—including Rule 204.4 (page 45) relating to long association—apply primarily to reporting issuers and listed entities, and not to syndicates of co-owners, which are neither publicly traded companies nor public interest entities within the meaning of those rules.
These criteria, designed to govern complex relationships between accounting firms and large corporate entities, do not reflect the legal and organizational reality of syndicates of co-owners.
WHAT TO KEEP IN MIND: As a result, no rule of law requires the periodic rotation of a syndicate’s auditor, unless such a requirement is expressly provided for in the declaration of co-ownership.
Possible advantages of changing auditors
That said, the absence of a legal obligation does not mean that changing auditors is always unnecessary. In certain situations, it may offer real advantages.
A new auditor may, in particular:
In a context marked by internal conflicts, past irregularities, or a lack of trust in management or the board of directors, bringing in a new auditor can also help restore a perception of independence and ease tensions within the collective.
The often underestimated challenges of changing auditors
However, changing auditors also entails significant drawbacks, which directors sometimes underestimate.
The main issue is the loss of the syndicate’s organizational memory. In practice, auditors often remain in place longer than:
In an environment where directors change regularly and transitions can be challenging, the auditor often becomes the keeper of the syndicate’s financial history: past decisions, accounting practices, particularities of the declaration of co-ownership, former allocation keys, prior adjustments, and more.
This continuity represents considerable added value.
A real cost in time, energy, and efficiency
A new auditor must necessarily:
This process can:
In some cases, the transition itself becomes a source of inefficiency.
So, should the auditor be changed? The real question to ask
The question is therefore not whether the auditor should be changed after five years, but rather: does the current auditor comply with professional standards, maintain independence, and provide quality service?
If the answer is yes, there is no objective advantage to replacing them.
Conversely, if serious doubts exist regarding independence, competence, or quality of service, a change may be warranted—but based on clear criteria, not on an arbitrary rule.
A recommended approach: annual evaluation
Rather than imposing rigid rules, syndicates should favor an annual reassessment of their relationship with the auditor, asking questions such as:
This flexible approach is fully compatible with sound governance.
WHAT YOU SHOULD KNOW! The law imposes no obligation to rotate the auditor of a syndicate of co-owners, regardless of the length of the mandate.
WHAT TO KEEP IN MIND: Auditor continuity can be a major asset in co-ownership, particularly because of the organizational memory developed over the years.
WARNING! Changing auditors solely to “follow a five-year rule” that does not exist can lead to delays, indirect costs, and a loss of efficiency, with no real benefit to the syndicate.
Aline Désormeaux, CPA auditrice, CA
Désormeaux Patenaude inc
1312 Sherbrooke est
Montréal, Québec H2L 1M2
Téléphone : 514-437-8800 EXT. 207
[email protected]
www.dpcpa.ca/
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