The US House of Representatives has signalled its opposition to plans by the Public Company Accounting Oversight Board (PCAOB) to introduce mandatory auditor rotation by voting in favour of legislation to rule this option out by a decisive majority of 321 to 62.
The vote was on a bill which aims to amend the Sarbanes-Oxley Act of 2002 to prohibit the PCAOB from requiring companies to use different auditors on a rotating basis. It has already passed a financial committee on a unanimous vote, but has yet to be heard in the US Senate.
The proposals for mandatory audit firm rotation formed part of PCAOB's Concept Release on Auditor Independence and Firm Rotation which sought to develop ways to improve auditor independence, objectivity, and professional scepticism following the financial crisis.
PCAOB's proposals have been heavily criticised by professional bodies and accountancy firms, which said there was little evidence that switching auditors would help prevent future problems. In a letter made public before the latest vote, the American Institute of CPAs (AICPA) and 18 other institutions described mandatory rotation as a 'wrongheaded practice that, if implemented, would harm investors, endanger the competitive position of American public companies, increase the incidences of undetected fraud, raise costs, and degrade audit quality.'
In the UK the Competition Commission is to issue its final report shortly on competition within the audit market, having indicated in its preliminary findings published earlier this year that it was considering limiting the maximum tenure of a FTSE 350 audit firm to seven, 10 or 14 years. AICPA warned that PCAOB's actions were giving the 'misimpression' that the US was heading towards adopting a mandatory requirement.
AICPA president Barry Melancon welcomed the result of yesterday's vote, saying: 'In the absence of evidence that mandatory audit firm rotation would enhance audit quality, the House has sent regulators in the US and Europe a clear message that the time has come to end the debate over rotation.'
