The watchdog for U.S. auditors has been debating some of the toughest reforms in many auditors’ memories this year. Now some legal experts are questioning whether it has the authority to impose its most controversial idea – making companies switch, or rotate, audit firms after a set number of years.
In a letter to the Public Company Accounting Oversight Board, members of the American Bar Association joined a long line of critics of rotation. The lawyers cited the 2002 Sarbanes-Oxley act, which created the PCAOB, and questioned where it gave the board any authority to mandate rotation.
The letter was signed by the chairs of ABA’s federal regulation of securities committee and its law and accounting committee.
If they are correct, it would be a blow to investor advocates, who fought for years to have an independent standard-setter with broad powers over audit firms.
Before Sarbanes-Oxley, the audit profession set its own standards, which were often criticized for being laced with qualifications that helped auditors avoid legal liability.