The U.S. House of Representatives recently passed a bill that would “prohibit the Public Company Accounting Oversight Board from requiring public companies to use specific auditors or require the use of different auditors on a rotating basis.”
The recorded vote by the full Congress on the bill, billed as H.R. 1564, The Audit Integrity and Job Protection Act, was:
- Yeas: 321 (211 R, 110 D)
- Nays: 62 (0 R, 62 D)
- Not Voting (22 R, 29 D)
FEI filed a comment letter in support of the bills, and other organizations supporting the bill in testimony at a May 23, 2013 hearing of the House Financial Services Committee, Capital Markets, and Government Sponsored Enterprises Subcommittee. A common factor in these letters is to place the decision as to changing audit firms in the hands of the Audit Committee, where these organizations view the Sarbanes-Oxley Act as having empowered Audit Committees to make just such decisions. Organizations argue the mandatory requirement would not be beneficial to companies, auditors or investors.
Damon Silvers, Policy Director and Special Counsel of the AFL-CIO, discusses his opposition about the bill. You can read about this and more here:
Among those opposed to the bill were the AFL-CIO. As communicated in the testimony, given at the May 23 House Financial Services Committee – Capital Markets and GSE’s Subcommittee hearing, at which various bills were considered to ‘reduce red tape,’ Damon Silvers, Policy Director and Special Counsel of the AFL-CIO noted that, “The AFL-CIO has a long-standing position in support of mandatory audit firm rotation.”
Silvers also made some interesting observations that went beyond auditor independence and skepticism.
- The issues raised by this bill are more complex than those of other bills, which is a result of the oligopolistic market for audit services.
- There are many signs that the lack of competition for audit firms has contributed to audit firms not asking the tough questions that might have given us better early warning over the financial crisis that began in 2007.
- Mandatory audit firm rotation may be the only effective tool regulators possess to encourage real competition in the audit of large capitalization public companies.
Silvers warned Congress about the dangers of trying to become accounting or auditing standard-setters, making some interesting points about PCAOB inspection reports.
- Regulators with inspection authority have expressed widespread concern over the consistent failures they are seeing by auditors to remain independent of their clients.
- Congress currently does not have access to the PCAOB inspection reports.
- Congress should add itself to those groups with whom the PCAOB can share its inspection results.
