17 Jul House Passes Bill to Prevent Auditor Rotations in Public Companies

The US House of Representatives recently passed a bill to prevent the Public Company Accounting Oversight Board (PCAOB) from requiring public companies to rotate their auditors every few years. You can find the text of the bill at http://www.govtrack.us/congress/bills/113/hr1564/text. As we know the PCAOB is overseen by the SEC.

The bill also requires a study looking at whether mandatory auditor rotation could be good and help prevent conflicts, and report back in a year. That amendment came from Rep. Maxine Waters (D-CA). The bill was sponsored by Rep. Gregory Meeks (D-NY) and Rep. Robert Hurt (R-VA). The bill passed with wide bi-partisan support at 321-62. This gives it a shot in the Senate.

The Sarbanes-Oxley Act of 2002 does require auditing firms to change the partner responsible for an audit client on a regular basis. One of the problems that led to the demise of energy giant Enron was the entrenched relationship it had with a particular senior partner at their auditing firm (Arthur Andersen, since defunct). The PCAOB has been contemplating requiring auditor rotation, and this bill would pre-emptively strike against that.

Some commentators feel this is too much in the weeds for Congress, which has better things to do. My view: the disruption from mandatory auditor rotation could be significant. Also it would make strange bedfellows of the various accounting firms, who would have to tee up their successors from among their competitors every few years. I like the bill.