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wants to be the one to lose. At the same time,
we should be concerned about the relatively
new audit that the auditor may hope to turn
into a long-term engagement.”
On the first day of the two-day hearing, the
PCAOB heard from former Federal Reserve
Chairman Paul Volcker, who came out in fa-
vor of mandatory rotation. “It does seem to
me that regular audits should not become a
sort of long-term annuity for the accounting
firm paid for by the company being audited,
rather than being responsive ... to the invest-
ing public,” he said.
Former SEC Chairman Arthur Levitt noted
that most auditing work today is done by staff
members who rotate from firm to firm. “The
real continuity is by the partners who oversee
the work,” he said. “The argument about insti-
tutional memory seems to me misplaced.”
Former SEC Chairman Richard Breeden
said that he did not have a specific yes or no
answer, but noted that the level of concentra-
tion of audit firms limits the practical choices
of audit committees, and means that rota-
tion now would be much more difficult than
it might have been 20 years ago.
Rotation
FROM PAGE 1
AUDIT FIRM CHIEFS TESTIFY
The PCAOB also heard from the heads of
the Big Four and other major auditing firms.
While they by and large opposed mandatory
auditor rotation, they did acknowledge the issues it is meant to address, and in some cases
offered alternative suggestions.
“Audit firm tenure over a period of many
decades can create the perception of im-
paired objectivity, and, in some instances,
increase the risk of a reduced level of auditor
objectivity,” said Grant Thornton CEO Ste-
phen Chipman. “In circumstances of extreme
tenure, mandatory audit firm rotation could
be a component of a potential solution to this
perceived loss of auditor objectivity.”
“The current system is sound,” said Deloitte
LLP CEO Joe Echevarria. “It could be im-
proved, but it’s the best system in the world.”
He noted that in Deloitte’s comment letter,
the firm included over a dozen ideas aimed
at building up the strength and effectiveness
of audit committees and otherwise boosting
auditor independence.
Stephen R. Howe, Americas managing
partner at Ernst & Young LLP, recommended
empowering the PCAOB to recommend firm
rotation to an audit committee in situations
where it has been demonstrated through the
PCAOB’s enforcement process that objectivity was significantly lacking.
KPMG LLP chairman and CEO John B.
Veihmeyer warned, “A constant stream of
retendering would likely create a potentially
adverse increased sales culture at the audit
firms. Mandatory audit firm rotation would
increase those forces and could decrease a
skeptical mindset.”
The heads of several other auditing firms,
who testified on the second day of the dis-
cussion, generally did not favor mandatory
rotation, either.
CORPORATE PERSPECTIVE
Witnesses from the corporate side were mixed
in their opinions.
Theodore Bunting, senior vice president
and chief accounting officer at the energy
company Entergy, noted in his testimony
that the utility industry is complex and re-
quires expert auditors. “These complexities
can require significant time to comprehend,”
he said. “Mandatory change in audit firms
would result in disruption to our business
and loss of auditor knowledge.”
Valarie L. Sheppard, senior vice president
and comptroller at consumer products giant
Procter & Gamble, cited a Government Ac-
countability Office estimate that initial audit
fees would go up about 20 percent after a
company changed audit firms. “We believe
this estimate is rather low,” she said.
THE CHAMBER WEIGHS IN
Some fireworks erupted late on the second
day when David Hirschmann, a senior vice
president at the U.S. Chamber of Commerce,
and president and CEO of the Center for Capital Markets Competitiveness, appeared. He
was asked by Chairman Doty about a letter
that had come “over the transom” the previous day from the chamber accusing the
PCAOB of “mission creep” and requesting
that the board withdraw its concept release
on mandatory audit firm rotation.
Doty asked Hirschmann if he understood
the process behind concept releases and
that the meeting was intended as a way to
get feedback from outside parties such as the
chamber. He asked Hirschmann, “You want
us to say we stopped the concept release be-
cause the chamber asked us to?”
In the letter, the chamber wrote, “The
chamber [is] concerned that the PCAOB
is engaged in mission creep, crossing the
threshold of audit regulation into an attempt
to regulate corporate governance.”
Hirschmann stood by the letter, and said,
“What we recommend you do, respectfully, is
that you step back from just looking at man-
datory rotation.”
CONGRESS RESPONDS
In wrapping up the two-day meeting, PCAOB
Chairman Doty noted that it would take a
while to assemble all of the information and
suggestions from the panelists and their organizations. He said that he expects the broader
discussion to continue into 2013, and that
the board plans to conduct further meetings
around the country to elicit feedback on the
proposal — some of which may have come a
little sooner than expected.
Members of the House Capital Markets
and Government Sponsored Enterprises Subcommittee held hearings just a week later,
on March 28, and gave the board something
of a dressing-down on auditor rotation. “I
think it is important to remind the PCAOB
that it is not a policy-making entity; Congress
See ROTATION on
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