DAY 2: US mid-tier accounting firms agree with
their Big Four peers and Grant Thornton that mandatory audit firm
rotation is a ‘bad idea’.
The last day of the US Public Company
Accounting Oversight Board (PCAOB) hearing, heard more arguments
against the proposal with similar comments as on day one that it
would increase costs, reduce audit quality and could cause firms to
loose valuable talent.
BDO International global head of audit and
accounting Wayne Kolins said mandatory rotation is “not the answer
and could have adverse consequences”.
Crowe Horwath chief executive Charles Allen
said there are other solutions apart from rotation that could help
to improve independence, objectivity and professional scepticism
while EisnerAmper chief executive Charles Weinstein suggested
mandating re-tender every three years with the possibility to keep
the existing auditor.
Weinstein was not the only one who advocated
for increasing the frequency of tendering for public companies as
the PCAOB heard similar suggestions from investors, academia and
audit committee chairs earlier in the day.
Some of the panellists felt that mandating
retendering would keep the “existing auditor on their toes” and
prevent the auditor/client relationship getting “comfortable” as
well as increasing competition in the market.
The mid-tier firms also agreed that mandating
audit firm rotation would actually diminish the power of the audit
The academics on also agreed with the firms
and City University of New York professor Al Ghosh noted only 25%
of existing mandatory audit rotation studies globally found there
are benefits to it.
Role of the audit
Throughout the PCAOB hearing it was implied
that 94% of the comment letters in response the oversight body’s
consultation, were against mandatory rotation and only a few
isolated voices showed support.
Despite wide spread opposition, there were
several recommendations made to increase the power of the US
Securities and Exchange Commission to improve the work of the audit
committee as another way to enhance objectivity, scepticism and
PCAOB chairman James Doty listened with
interest when audit committee chairs, internal auditors and the so
called ‘money managers’ said the PCAOB should consider issuing
guidance and best practice examples for audit committees.
Society of Corporate Secretaries and
Governance Professionals chairman Robert Smith said audit committee
members should know their role better and suggested the PCAOB be
the ones to help with their education.
On the role of the audit committee,
Norteastern University professor Arnold Wright said the problem “is
still that management makes most of the decisions regarding the
auditor and not the audit committee”.
However, he added that he does not believe
rotation would “solve problems in the market and encourages
strengthening audit committees”.
Following two long days of debate with more
than 60 stakeholders the PCAOB is now expected to analyse the
comment letters and panellists’ witness statements received and
then issue a report that might propose some form of legislative
action later this year.
As the vast numbers of stakeholders were
against mandating audit firm rotation, it seems highly unlikely the
board would consider it further, however as the European Union
forms its opinion on audit market reforms more proposals might be
issued by the PCAOB in the future.