Jul 09

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House Prohibits Mandatory Audit Firm Rotation

In 2011, the Public Company Accounting Oversight Board (“PCAOB”) issued a Concept Release on Auditor Independence and Audit Firm Rotation, seeking public comment on:

ways that auditor independence, objectivity and professional skepticism could be enhanced. One possible approach on which the Board is seeking comment is mandatory audit firm rotation.”

Apparently, the House of Representatives had a strong opinion, which it made clear yesterday by approving a bill prohibiting the PCAOB from requiring mandatory audit firm rotation for public companies.  This action was consistent with the recommendation of the AICPA, who subsequently issued a statement:

“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,” Melancon said. “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.”

Prior posts here and here discussed the traction that mandatory auditor rotation is getting in Europe.  An additional post described the substantial lobbying dollars the Big Four accounting firms spent fighting auditor rotation in the U.S., which appear to have achieved at least one of their key objectives with this bill.

About the author

Renee Howdeshell

Renee Howdeshell is a founding member of Fulcrum Inquiry, an accounting, finance and economic consulting firm that performs damage analyses for commercial litigation, forensic accountings, royalty & distribution audits, financial investigations, and business valuations. Ms. Howdeshell holds a degree in Finance and Marketing from the University of Virginia's McIntire School of Commerce and is a Certified Public Accountant (CPA) and a Certified Fraud Examiner (CFE). She has testified as an expert witness in federal court, CA state court and arbitration regarding the results of her work. She can be reached at (213) 787-4112 and her resume is available at www.fulcrum.com.

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