On August 16, 2011, the Public Company Accounting Oversight Board (PCAOB) issued a concept release to solicit public comment on ways that auditor independence, objectivity and professional skepticism can be enhanced, including through mandatory rotation of audit firms.
Mandatory audit firm rotation would limit the number of consecutive years for which a registered public accounting firm could serve as the auditor of a public company.
Audit firm rotation has been discussed since the 1970s. The concept release notes that proponents of rotation believe that setting a term limit on the audit relationship could free the auditor, to a significant degree, from the effects of client pressure and offer an opportunity for a fresh look at the company’s financial reporting. The concept release also notes that opponents have expressed concerns about the costs of changing auditors and believe that audit quality may suffer in the early years of an engagement and that rotation could exacerbate this phenomenon.
The concept release invites responses to specific questions, including, for example, whether the PCAOB should consider a rotation requirement only for audit tenures of more than 10 years or only for the largest issuer audits. The concept release also seeks comment on whether there are other measures that could meaningfully enhance auditor independence, objectivity and professional skepticism. Comments are due by December 14, 2011.