The House has approved a bill that prohibits the Public Company Accounting Oversight Board from forcing public companies to automatically change or rotate their independent auditing firms.
The PCAOB issued a concept release in August 2011 proposing mandatory audit firm rotation as one way to improve audit firm independence and held a series of roundtable meetings across the country last year to gauge sentiment from accountants, investors, academics, business leaders and other groups (see PCAOB Hears Input on Auditor Independence and Firm Rotation). After hearing a series of objections to the concept, the PCAOB has not yet formally said what decision it would make.
The congressional bill, H.R. 1564, the Audit Integrity and Job Protection Act, was introduced by Rep. Robert Hurt, R-Va., and Rep. Gregory Meeks, D-N.Y., with the goal of short-circuiting the process, and it passed the House Financial Services Committee last month (see House Committee Passes Bill Preventing PCAOB from Imposing Audit Firm Rotation). They argued that selecting a company’s external auditor should be a decision made by a public company’s board of directors and ratified by its shareholders, not a decision made by a regulator. H.R. 1564 would amend the Sarbanes-Oxley Act to allow public companies to maintain their auditing practices and avoid additional costs that ultimately are passed on to investors and consumers.
The bipartisan bill passed by a vote of 321-62 on Monday and will now be reported to the Senate. “I am pleased to see the Audit Integrity and Job Protection Act was approved by the full House of Representatives today with bipartisan support, and it is my hope that our colleagues in the Senate will recognize the importance of preventing unnecessary federal regulations and take action on this legislation,” Hurt said in a statement. “Our small businesses have been negatively affected by harmful policies put forth in Washington for too long. At a time when too many people in Virginia’s 5th District and across the country are out of work, it is critical that we in the House of Representatives advance policies that will remove the federal government as a barrier to job creation in order to encourage robust economic growth and provide the opportunity for our job creators to hire and expand.
“The Audit Integrity and Job Protection Act would prevent the threat of federal over-regulation so that our businesses can continue to focus on creating the jobs that our local communities need rather than cutting through more government red tape,” Hurt added. “By passing this legislation, the House of Representatives has taken one more step toward our goal of creating certainty for our job creators and getting our economy back on track so that our small business owners can get back to creating the jobs that 5th District Virginians and Americans across the country need and deserve.”
The American Institute of CPAs hailed passage of the bill. “In the absence of evidence that mandatory audit firm rotation would enhance audit quality, the House has sent regulators in the United States and Europe a clear message that the time has come to end the debate over rotation,” said AICPA president and CEO Barry Melancon in a statement. “In Europe, there is a misimpression that the continued consideration of the PCAOB’s concept release means that the U.S. is headed toward adoption of a mandatory firm rotation requirement. Today's House vote will go a long way toward alleviating confusion and uncertainty for policy makers and stakeholders on both sides of the Atlantic. I want to thank the measure's co-sponsors, Representatives Robert Hurt of Virginia and Gregory Meeks of New York, as well as its many congressional supporters.”
PCAOB spokesperson Colleen Brennan pointed out that the concept release only asked for views on the concept of mandatory firm rotation. "The PCAOB issued a Concept Release seeking information and opinion on a long-standing debate over mandatory audit firm rotation, and asking for views on other options to enhance auditor independence, objectivity and professional skepticism," she said in a statement. "The Board continues to pursue the best means of fostering auditor independence, objectivity and professional skepticism as well.”