There are often concerns that an auditor’s objectivity and ability to resist management pressure may be inhibited since the company being audited pays the audit fee directly to the audit firm. As such, the PCAOB requests comments on a number of options designed to help ensure that auditors approach audits with the required independence, objectivity and professional skepticism.
- Mandatory rotation of audit firms, meaning some companies would be required to switch auditors after a certain number of years with the same auditor. This approach is controversial due in part to the switching costs involved, and it is not supported by the National Association of Corporate Directors (NACD) and other leading governance organizations. (See MHM Messenger 16-11 for a discussion of the pros and cons of mandatory auditor rotation.)
- A requirement for joint audits in which two or more audit firms would produce a single audit report.
- A requirement for audit committees to solicit bids on the audit after a certain number of years with the same auditor.
- Requirements for techniques that enhance audit committee oversight.
As an additional option, the NACD has proposed a new model of oversight that combines enhanced auditor oversight with supplemental disclosures to investors. This model builds on research conducted earlier this year by the Association.
What do you think?
The comment period initially was scheduled to end in December 2011, but the PCAOB decided to hold a series of public roundtables on the subject and extend the comment period until November 19, 2012.
If you have any specific questions, comments or concerns that you would like to share, please contact Rich Howard of MHM’s Professional Standards Group or your MHM service professional.