The Public Company Accounting Oversight Board is traveling to the West Coast to hear firsthand what public companies, auditors, and users of financial statements think about rotating audit firms to promote auditor independence.
The board said it will hold a roundtable in San Francisco on June 28 to gather views on its concept release asking for ideas on whether some system of term limits on audit firms would cause auditors to think and act more objectively, more skeptically, and more independent of their public company clients. The PCAOB held a similar roundtable event in Washington in March, hearing from dozens of speakers who were mostly critical of the idea. More than 600 comment letters to the board in response to the release also reflected little support for rotation.
The question of whether to establish some system of mandatory rotation is perhaps the most contentious issue on the PCAOB's agenda. The European Union is considering legislation that would establish term limits for audit firms, in part to address concerns about independence but also in the hopes that it will foster more competition among audit firms.
PCAOB Chairman James Doty spoke more forcefully about the benefits of rotation when he first introduced the idea in early 2011, but has softened somewhat after he was called to testify before the House Financial Services Committee and instructed by the committee to tread cautiously. The committee has threatened to pursue legislation barring the PCAOB's authority to establish a rotation requirement.
Doty conceded during a recent keynote address at the Compliance Week 2012 conference that rotation is not an easy topic to discuss. “Some form of term limits may or may not provide more independence, but I believe we must explore the range of approaches available to free the auditor to think and act independently,” he said. In a statement announcing the San Francisco roundtable, Doty said the discussion raises important issues about how to fulfill the core purpose of the audit.
The format for the San Francisco meeting will be similar to that for the Washington meeting; panelists will be invited to present their views on the issues raised in the concept release, and board members will ask panelists follow-up questions. The schedule and list of panelists is yet to be determined.