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 (firstname.lastname@example.org) is a JofA senior editor.