The US Public Company
Accounting Oversight Board (PCAOB) has issued a consultation on
independence and mandatory audit firm rotation.
The consultation seeks public comment on
ways that auditor independence, objectivity and professional
scepticism can be enhanced, including through mandatory rotation of
audit firms.
Mandatory audit firm rotation would limit the
number of consecutive years for which a registered public
accounting firm could serve as the auditor of a public company.
The PCAOB said the concept
release notes that proponents of rotation believe setting a term
limit on the audit relationship could free the auditor, to a
significant degree, from the effects of client pressure and offer
an opportunity for a fresh look at the company’s financial
reporting.
The oversight body does
acknowledge that there have been concerns about the costs of
changing auditors and believe that audit quality may suffer in the
early years of an engagement and that rotation could exacerbate
this issue.
PCAOB chairman James Doty
said to discuss independence, scepticism and objectivity relating
to audit quality the profession must take into account the
fundamental conflict of the audit client paying the auditor.
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By GlobalData“The reason to consider
auditor term limits is that they may reduce the pressure auditor’s
face to develop and protect long-term client relationships to the
detriment of investors and our capital markets,” Doty added.
The concept release is
seeking comments on questions such as whether the PCAOB should
consider a rotation requirement only for audit tenures of more than
10 years or only for the largest issuer audits as well as if there
are other measures that could meaningfully enhance auditor
independence, objectivity and professional
scepticism.
Deadline for comment is 14
December. The PCAOB will also convene a public roundtable on
auditor independence and mandatory audit firm rotation in March
2012.
