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SOX Study Finds Corporate Support for Auditor Rotation

Tammy Whitehouse | June 15, 2012

Most companies are opposed to the idea of mandatory auditor rotation, according to feedback received by the Public Company Accounting Oversight Board, but a recent Protiviti study paints a very different picture.

In a recent survey of public companies assessing views on Sarbanes-Oxley a decade after its adoption, Protiviti also asked companies what they think of the PCAOB's recent suggestions that mandatory rotation might improve auditing. Nearly half of all survey respondents agreed that rotation would have a positive impact. Among large accelerated filers, Protiviti said 47 percent of companies were in favor of rotation, and 60 percent of nonaccelerated filers agreed with the idea as well.

Even Protiviti was taken back by the numbers. “These results are somewhat surprising as it can be expensive and time consuming to change external auditors, and such an action would represent a very substantial change in the external auditor arrangements for companies,” the firm noted in its report. “Further, the limited number of global network accounting firms significantly restricts rotation options.”

The PCAOB published a concept release in 2011 asking for views on whether term limits for audit firms imposing a system of mandatory rotation would improve auditing by causing auditors to become more skeptical, more objective, and more independent of their public company clients. More than 600 comment letters in response to the release carried mostly negative views, as did most of several dozen speakers who appeared before the PCAOB during a March roundtable session.

Public companies in particular told the PCAOB they are already hamstrung by the limited number of firms that have the capability to audit their financial statements and provide other consulting services, and a rotation system coupled with existing independence rules would further limit their options. They also cited concerns about cost and disruption to bring in a new auditor solely to meet a rotation requirement.

The recent Protiviti study is an annual exercise to examine issues related to the Sarbanes-Oxley Act. After nearly a decade, companies generally agree the compliance costs and efforts borne at the outset have led to improved internal control structures. However, the results suggest there are still plenty of opportunities for companies to automate controls, although companies have made significant progress, the report says.  According to the results, 41 percent of companies show that at least 20 percent of their key controls are automated compared with 20 percent of companies in the first year of compliance.