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PCAOB Investigates Mandatory Audit Firm Rotation

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PCAOB INVESTIGATES MANDATORY AUDIT FIRM ROTATION


By Jim Pitrat, CPA - Practice Leader, Assurance & Advisory Practice
SEPTEMBER 6, 2011

PCAOB Investigates Mandatory Audit Firm Rotation In PCAOB Release No. 2011-006, Concept Release on Auditor Independence and Audit Firm Rotation is investigating the possibility of mandatory audit firm rotation and soliciting comments. The PCAOB believes that a renewed look at rotation is a good idea. The primary elements of the release are as follows: The PCAOB may deem a firm to not be independent if the firm has issued an opinion for more than a specified period of years. Duration of the Term of an Engagement The Board is considering the advantages and disadvantages of terms extending 10 years or beyond. The Board is considering whether it should address: Should different types of engagements have different term lengths? Whether audit effectiveness varies over the term a firm has an engagement. The time before a rotated firm could return to perform an audit engagement.

Scope and Transition The Board is investigating whether mandatory rotation should apply to all issuers or only to a subset of audits, based on size or other factors. The proposal and comment period is also intended to address the following: Would specialized industries find it difficult to find an auditor? Could firms terminate a non-audit (conflicted) arrangement to be engaged to conduct the audit? Can more frequent auditor changes impact a firms ability to perform high-quality audits?

Would there be an impact on the market for non-audit services, and would the change impact the propensity of issues becoming involved in opinion shopping?
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How the change would impact competition for audit engagements and would the change in the competitive environment impact audit quality?

Changes in Existing Standards and Other Matters The PCAOB is also investigating changes in existing requirements: Should firms be required to provide additional supervision and oversight in the first few years of an engagement and should additional procedures be required during the early years of an audit? Enhancing existing standards of predecessor auditor communications. Should there be protections to prevent an audit committee from removing an auditor prior to the conclusion of the auditors engagement term?

The Board is also asking for comments on whether: The Boards focus on auditor independence should be deferred. Mandatory audit firm rotation would strengthen objectivity and professional skepticism. There would be unintended consequences. The rule would substantially increase audit costs.

The Comment deadline is December 14, 2011. Comments should refer to PCAOB Rulemaking Docket Matter No. 037, Office of the Secretary of the PCAOB.

FOR FURTHER INFORMATION, PLEASE CONTACT ONE OF THE FOLLOWING:


JimPitrat: JPitrat@singerlewak.com 310.477.3924 PracticeLeader Assurance&Advisory HarmeetSingh: HSingh@singerlewak.com 408.294.3924
BusinessCombinationsSubjectMatterExpert

GaleMoore: GMoore@singerlewak.com 949.261.8600


BusinessCombinationsSubjectMatterExpert

LosAngeles,SiliconValley

Los Angeles, OrangeCounty,SanDiego

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