Bill seeks ban of mandatory auditor rotation


When the PCAOB proposed the idea of mandatory auditor rotation back in 2011, it may not have been prepared for the emotional response, mostly negative, it quickly received. The proposal rapidly moved to the back burner. As of now, no one really thinks that the board will try to move forward with the idea.

Still, just for good measure, two Congressmen have proposed a law which would prevent the PCAOB from doing that, according to CFO Journal.

The bill, while facing a low likelihood that it will ever become a law, has managed to advance out of committee and toward a vote on the House floor. The sponsors of the bill, two Democrats, say they are trying to save companies from significant disruption and cost.

Given that mandatory auditor rotation is not likely to be required, this might seem like overkill. For some, however, supporting the bill makes for good politics, as it allows them to underscore their aversion to over-regulation and such. In the end, while the idea of mandatory rotation seems to have petered out. The idea's brief moment in the sun was useful in that it raised some interesting solutions that stopped short of mandatory rotation. One such idea came from Robert Pozen, chairman emeritus of MFS Investment Management. He suggested a requirement to periodically issue a formal RFP for audits while allowing the current auditor to bid.

The idea here is that even if the existing auditor wins the RFP, the bidding process would raise the probability that the audit committee would appoint a new auditor. That might encourage the auditor to maintain its professional skepticism more vigilantly.

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