Securities Law Prof Blog

Editor: Eric C. Chaffee
Univ. of Toledo College of Law

Wednesday, August 17, 2011

PCAOB Solicits Public Comment on Auditor Independence & Audit Firm Rotation

On August 16 the Public Company Accounting Oversight Board released a CONCEPT RELEASE ON AUDITOR INDEPENDENCE AND AUDIT FIRM ROTATION.  According to the summary:

The Public Company Accounting Oversight Board ("PCAOB" or "Board") is issuing a concept release to solicit public comment on ways that auditor independence, objectivity and professional skepticism could be enhanced. One possible approach on which the Board is seeking comment is mandatory audit firm rotation, which is explored in detail in this release. However, the Board seeks advice and comment on other approaches as well. The Board will also convene a public roundtable meeting in March 2012, at which interested persons will present their views.
details about the roundtable will be announced at a later date.

Chairman James Doty issued a statement:

There are, of course, considerable implementation challenges associated with mandatory rotation. The concept release invites study and consideration of whether there are ways to mitigate those challenges. But the reason to consider the concept is to resolve the question to which the discussion of independence, skepticism and objectivity always seems to return. That is the central question of this concept release:

will term limits, set at some appropriate length, with due regard for implementation complexities, reduce the pressures auditors face to develop and protect long-term client relationships to the detriment of investors and our capital markets?

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