On February 6, PCAOB Chairman James Doty told the SEC that the Board was no longer pursuing the idea of requiring mandatory audit firm rotation. Chairman Doty made his comments at a public meeting of the SEC at which the Commission considered and approved the PCAOB’s $258 million 2014 budget. In response to Commissioner questioning, he stated: “We don’t have an active project or work going on within the Board to move forward on a term limit for auditors.” He added that the Board was continuing to look at other ways of strengthening auditor independence and skepticism.
As described in the July 2013 Update, the PCAOB originally floated the possibility of requiring public companies to periodically change auditors (e.g., every 10 years) in a 2011 concept release. The idea attracted strong opposition, particularly from audit committees and public companies, and, in July 2013, the House of Representatives passed a bill that would have precluded the PCAOB from requiring rotation.
Comment: Mandatory rotation may not be completely dead. Chairman Doty appears to remain personally committed to the idea, and, in the event of a major U.S. audit failure, he might seek to revive it. Moreover, as discussed in the January 2014 Update, Europe is moving forward with a mandatory 10-year rotation requirement. U.S. policy-makers will likely closely follow the perceived success or failure of that initiative.