The Centre for Audit Quality (CAQ) executive director Cindy Fornelli has said mandatory audit firm rotation would not increase audit quality but decrease it.
Fornelli made the comments in a statement as a US Public Company Accounting Oversight Body (PCAOB) meeting to discuss the contentious proposal of audit firm rotation as a way to enhance auditor independence, objectivity and professional scepticism began.
“Mandatory firm rotation would limit the statutory authority of audit committees to hire and fire the auditor, engender cost and disruption for issuers, cause a scarcity in the choice of auditors for certain sectors and for global companies, and have a potentially negative impact on audit quality,” Fornelli said.
Fornelli, who is expected to share the statement with PCAOB panellists tomorrow, also said studies of experience with mandatory firm rotation in other jurisdictions reveal “significant costs, including diminished audit quality, and suggest that the benefits of mandatory firm rotation are speculative at best”.
The CAQ, a non-profit affiliate of the American Institute of Certified Public Accountants that acts as a spokesperson for the US accounting profession, also thinks audit committees, instead, should be further strengthened and encouraged to take a more proactive role in their oversight of the independent auditor.
Auditor communication standard
Fornelli expressed support for the PCAOB’s consideration of a revised auditing standard on the auditor’s communication with the audit committee.
The CAQ said a revised standard would expand current requirements and encourage constructive dialogue between auditors and audit committees on significant audit and financial statement matters that require judgment, such as critical accounting policies, practices and estimates, as well as significant unusual transactions, risks and going concern considerations.
The PCAOB public meeting, which is being held today and tomorrow, will hear from several stakeholders on their views on auditor independence and mandatory audit firm rotation as suggested in a consultation issued by the oversight board mid last year.
The full coverage of the PCAOB meeting will be available on The Accountant and International Accounting Bulletin websites.