The Public Company Accounting Oversight Board
(PCAOB) is considering mandatory audit firm rotation as a way to
address auditor independence concerns.

PCAOB chairman James Doty told the Securities
and Exchange Commission and Financial Reporting Institute’s annual
conference that PCAOB inspectors had found auditors failed to show
a sufficient amount of independence from their clients.

“Considering the disturbing lack of scepticism
we continue to see, and because of the fundamental importance of
independence to the performance of quality audit work, the board is
prepared to consider all possible methods of addressing the problem
of audit quality, including whether mandatory audit firm rotation
would help address the inherent conflict created because the
auditor is paid by the client,” Doty said.

Doty added that he is, however, unsure whether
the watchdog should ultimately adopt “term limits” but it will
“take up the debate…and examine it, with rigorous analysis and the
weight of evidence in support and against”.

“My only predilection is that the PCAOB deepen
the analysis of how we can better insulate auditors from client
pressure and shift their mindset to protecting the investing
public,” Doty said.

The PCAOB will issue a paper to explore
whether there are other approaches that could more systematically
insulate auditors from forces that pull them away from the
necessary mindset.

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Doty also said the board is preparing a paper
on its efforts gathering opinions on whether the current auditor’s
report can better address investor needs. Recently, the PCAOB
gathered opinions from a range of people experienced in using or
preparing audit reports, including investors, auditors, preparers,
audit committee members, researchers and others.

The paper will lay out a range of options,
including more insight into procedures already included in the
audit such as areas of disclosure the auditors review.