PCAOB’s debate over auditor rotation moves to Congress
At a hearing on Wednesday, members of a House Financial Services subcommittee took aim at the Public Company Accounting Oversight Board, saying some of the items on its agenda, including term limits for audit firms and making its disciplinary proceedings public, would amount to regulatory overreach.
Investor advocates had expected for some time that PCAOB chairman James Doty would be called before Congress to defend his activist agenda. The rotation idea, still in its early stages, would upset some of the accounting industry’s longest-standing client relationships, and the business lobby has pressed Congress to intervene.
Likewise, accounting firms are nervous about the PCAOB’s push to publicize disciplinary proceedings before all appeals are exhausted. The PCAOB is forbidden by law from doing that now, a restriction that allows misconduct to remain secret for years while firms litigate.
Speaking on the sidelines of Wednesday’s hearing, Doty told Reuters reporter Sarah Lynch he expected questions from Congress about making disciplinary proceedings public sooner.
“This is a good start for us to be able to meet more members of this committee and talk to them,” he said.
The PCAOB was able to round up several supporters of rotation for a two-day forum last week, including Federal Reserve ex-Chairman Paul Volcker, former U.S. Securities and Exchange Commission Chairman Arthur Levitt and former TIAA-CREF head John Biggs.
A greater number of panelists, from board audit committees to accounting firm executives, panned the idea.
The forum did accomplish at least one thing Doty set out to do: it generated ideas to improve auditor independence if rotation turns out to be unfeasible. One option favored by several panelists was having audit committees periodically review whether a change of auditor was warranted and explain why if they decided not to change.
Jack Ciesielski, publisher of The Analyst’s Accounting Observer, advocated having companies buy insurance to cover investors against losses caused by false financial reporting. The insurers would be the ones to hire and fire auditors, which would eliminate auditors’ reliance on companies they audit for a revenue stream.
Doty has said he hopes to continue the discussion on independence at least through the rest of this year.