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Bill prohibiting mandatory audit firm rotation passes U.S. House

Bill prohibiting mandatory audit firm rotation passes U.S. House

The U.S. House of Representatives on Monday approved a bipartisan
bill that would prohibit the PCAOB from requiring mandatory audit firm
rotation for public companies.

The bill, sponsored by Reps. Robert Hurt, R-Va., and Gregory Meeks,
D-N.Y., was introduced on April 15. It would amend the Sarbanes-Oxley
Act of 2002 to prohibit the PCAOB from requiring public companies to
use specific auditors or requiring the use of different auditors on a
rotating basis.

Representatives voted 321 to 62 in favor of the bill, H.R. 1564, the
Audit Integrity and Job Protection Act. The bill would have to be
approved by the Senate, which has not taken up the issue, and signed
by the president to become law.

The legislation was drafted in response to an August 2011 PCAOB
concept release
. The release sought comment on whether mandatory
audit firm rotation would significantly enhance auditors’ objectivity
and ability and willingness to resist management pressure.

During subsequent public hearings, the PCAOB has heard numerous opinions
on mandatory audit firm rotation as well as other ideas for increasing
auditors’ independence, objectivity, and professional skepticism.

But PCAOB member Jay Hanson said in December that mandatory audit
firm rotation faces numerous hurdles and that he struggles to see how
the board would ever be able to require rotation for public companies.

Possible statutory intervention was one of the hurdles that Hanson
mentioned.

The AICPA has opposed mandatory audit firm rotation. AICPA President
and CEO Barry Melancon, CPA, CGMA, issued a statement Monday night
thanking the bill’s co-sponsors and supporters.
 
“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.”

Numerous other prominent business organizations also signed a letter
to members of the House Financial Services Committee in support of the bill.

An AICPA
comment letter
on the PCAOB’s concept release opposed mandatory
audit firm rotation, saying it carries significant costs and may have
unintended consequences that could hinder audit quality.

Mandatory audit firm rotation has gained some legislative support in
Europe. In April, the European Parliament’s Legal Affairs Committee approved a draft law
that would require public-interest entities to rotate audit firms
every 14 years, although the period could be extended to 25 years when
certain safeguards are put into place. But that draft law has numerous
procedural hurdles to clear.


Ken Tysiac (

ktysiac@aicpa.org
) is a JofA senior editor.

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