For as long as I've been eligible to vote, I've always been a proponent of term limits. I believe being elected by a voter constituency to serve in any capacity is an honor and privilege, not an occupational annuity.
Lawmakers whose string of re-election victories can often span decades, are usually the ones who get far too comfortable in their jobs, are bereft of fresh ideas and energy, and, too often, wind up on the wrong end of a scandal.
There's sort of an interesting parallel in the accounting profession, in light of last week's concept release by the Public Company Accounting Oversight Board proposing that public companies change their auditing firms after a pre-determined number of years.
Although far from a new or radical proposal, it's one that has gained some momentum outside the U.S. - particularly in Europe - and bluntly addresses the inherent conflict of interest that exists in an auditing engagement since the firm is paid by the client. That's not so different from an eatery paying a state health inspector to be objective in checking its sanitary conditions.
The PCAOB said that term limits would serve to reduce pressure auditors face to "develop and protect" their long-term client relationships, which run counter to the interests of investors and the capital markets.
On the surface it would be hard to debate that point, particularly when you hear anecdotal evidence of auditor-client relationships that span a half-century, or hearken back about eight years to the Enron-WorldCom scandals as expensive evidence of auditing implosions that took public accounting years to re-burnish its image.
But unlike term limits in politics, there are some cogent arguments being made in defense of long-term audit relationships.
Not surprisingly, the first and hardest to ignore is cost.
Opponents of the measure contend that audit quality might suffer in the early years of an engagement as the audit firm and the client are in a learning process and a rotation could only serve to compound that problem. It could inevitably lead to higher upfront costs and audit fees.
Secondly, there's the problem of scale and resources to meet the audit requirements for Fortune 500 companies. After the top six firms or so, the eligible list scales down dramatically.
As one top managing partner asked rhetorically, how many firms are capable of auditing an auto manufacturer?
Or conglomerates like GE for that matter?
Comments are due back to the PCAOB by December 14.
I'll let far brighter minds than mine slug it out on what obviously would impact the profession in a quantum change sort of way. But if early returns are any indication, the board will get more mail than it ever asked for.
