News Highlights for October 2011
The PCAOB launched a new phase of its examination of potential limits on audit firm tenure with public companies. The board voted to issue a concept release on the topic. It plans to gather feedback by mid-December and hold a public forum on the issue in March 2012.
According to the release, the board is particularly focused on weighing the advantages and disadvantages of audit terms of 10 years or greater. The board is also mulling the scope of any potential requirement, such as whether the rules would apply only to audits of the largest public companies.
The 41-page document poses 21 questions about which the board is most interested in gathering opinions. The topics range from the appropriate length of the term, if term limits are imposed, to implementation considerations. The concept release is available at tinyurl.com/3l7ekcg. Comments are due Dec. 14.
“The primary focus of the concept release is mandatory auditor rotation. Before we determine whether that is in the best interests of investors and the public, we will need to weigh carefully whether its benefits would outweigh its costs and potential unintended consequences,” said PCAOB member Jay Hanson, a former national director of accounting for McGladrey & Pullen LLP and former chairman of the AICPA’s Financial Reporting Executive Committee. “We also need to further analyze our inspection results and other available information to determine whether audit deficiencies are attributable to a lack of auditor objectivity and skepticism and, if so, whether those symptoms are best remedied through mandatory auditor rotation or some other measure.”
If the board determined to move forward with development of a rotation proposal, it would also need to consider whether the requirement should be paired with other changes to existing requirements, the release states. Such procedures could include heightened internal supervision or oversight requirements for the first year or two of a new engagement, increased required communications between predecessor and successor auditors, or other steps auditors could be required to take during the transition from one firm to another.
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