On June 1, 2017, the Public Company Accounting Oversight Board (“PCAOB”) announced the adoption of a new auditor reporting standard, subject to SEC approval. Although the standard maintains the current pass/fail opinion in auditor reports it does make substantial changes to the report. Most significantly, the new standard requires the auditor to communicate any critical audit matters that arose during the audit.
The Public Company Accounting Oversight Board (“PCAOB”) initially introduced a concept proposal in August of 2011 considering mandating audit firm rotation – i.e., limiting the number of consecutive years an auditor could audit a public company client. Out of over 600 comment letters received before the initial public comment period expired on December 14, 2011, 94% opposed mandatory audit firm rotation. During a March 28, 2012 hearing on the matter, members of the House Financial Services Committee joined in criticism publicly expressed by the U.S. Chamber of Commerce that such proposals by the PCAOB represent “mission creep” and an inappropriate exercise of policy-making authority that exceeds its responsibility for regulating the conduct of the public accounting profession.
Despite such seemingly overwhelming disfavor of the proposal, the PCAOB has held numerous open meetings on the matter and solicited further comment, with the latest comment period closing in November of 2012. According to the PCAOB’s latest standard setting agenda issued September 30, 2013, the PCAOB continues to analyze its next steps and contemplate adoption of this proposal. Although they certainly do not appear to be moving quickly on the matter – for now, there is no projected date for when (or if) it will take the next step of issuing a proposed new standard for public comment.
Further, in an attempt to preemptively disallow any such action by the PCAOB, in July of this year the House of Representatives approved H.R. 1564, the Audit Integrity and Job Protection Act, by a bipartisan vote of 321-62. This Act would prohibit the PCAOB from requiring companies to use specific auditors or requiring the use of different auditors on a rotating basis. The bill is now being considered by the Senate Committee on Banking, Housing, and Urban Affairs. If passed, the Act would also require PCAOB to revisit a 2003 study on the potential effects, including costs and benefits, of mandatory audit firm rotation. Whether the bill will receive any support in the Senate remains to be seen.
Regardless of the success of H.R. 1564, while the PCAOB may seemingly continue to entertain the concept of mandatory audit firm rotation, it seems that there is enough opposition for the PCAOB to keep kicking this idea down the road.