PCAOB PROPOSES MANDATORY AUDITOR ROTATION
Washington, D.C. - The Public Company Accounting Oversight Board voted in mid-August to issue a concept release that proposes requiring public companies to change their auditing firms after a certain number of years.
The concept release aims to solicit comments from the public on this and other ways to encourage greater auditor independence, objectivity and professional skepticism. Comments are due back to the board by December 14.
"I believe that the long association of the largest audit firms with their major audit clients is an issue that must be addressed in order to fulfill the mission of the PCAOB," said PCAOB Chairman James Doty. "One cannot talk about audit quality without discussing independence, skepticism and objectivity. Any serious discussion of these qualities must take into account the fundamental conflict of the audit client paying the auditor. That leads to consideration of firm rotation as a counterweight to that conflict."
The concept release notes that opponents have expressed concerns about the costs of changing auditors. Some observers contend that audit quality might suffer in the early years of an engagement as the audit firm learns about the client, and that rotation could exacerbate this.
Commentators on the concept release are asked to respond to specific questions, including, for example, whether the PCAOB should consider a rotation requirement only for audit tenures of more than 10 years or only for audits of the largest issuers. The concept release also seeks feedback on whether there are other measures that could meaningfully enhance auditor independence, objectivity and professional skepticism.
The members of the PCAOB voted unanimously to issue the concept release. "The inspection findings of the PCAOB, as well as those of our international counterparts, indicate that more must be done in these areas," said board member Steven B. Harris.
The board plans to convene a public roundtable on auditor independence and mandatory firm rotation in March 2012.
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