AICPA Opposes PCAOB's Mandatory Audit Firm Rotation Proposal

January 9, 2012

The AICPA said recently in a comment letter to the Public Company Accounting Oversight Board that mandatory audit firm rotation is not likely to accomplish the goals the PCAOB intends to achieve in its Concept Release on Auditor Independence and Audit Firm Rotation. 

AICPA Chairman Greg Anton, CPA and AICPA President and CEO Barry Melancon, CPA said the AICPA believes mandatory audit firm rotation “carries significant costs and possible unintended consequences that have the potential to hinder audit quality” in a Dec. 14, 2011 comment letter.

The Concept Release was issued on Aug. 16, 2011, and the Board has said it is intended to enhance auditor independence, objectivity and professional skepticism.  

The PCAOB acknowledged in its concept release, however, that there is little evidence linking audit firm tenure to audit failures or lack of auditor independence, objectivity and professional skepticism.  The PCAOB also recognized that mandatory audit firm rotation would represent a significant change in practice and would increase costs and cause disruptions for companies and external auditors. 

In their letter, Anton and Melancon provide multiple arguments against mandatory firm rotation, including that the Sarbanes-Oxley Act of 2002 (SOX) assigned responsibility for the audit to independent audit committees of public companies. 

“Mandatory rotation could prevent the audit committee from selecting and retaining the most qualified audit firm to perform the company’s audit,” they said.  “Since the audit committee is responsible for the selection and oversight of the audit firm, the audit committee should be able to use its discretion and judgment when determining which audit firm is best suited to perform the company’s audit.” 

Anton and Melancon also refer to SOX requirements that the SEC implement “stringent independence rules to enhance auditor independence, objectivity and professional skepticism.”  They said, “These rules included prohibitions on the provision of certain nonaudit services, prohibitions on hiring former auditors (including a “cooling-off” period), and a requirement for lead and concurring partner rotation every five years and rotation of other audit partners every seven years.”

Read the Dec. 14, 2011 Journal of Accountancy article for more information.