US lawmakers block ‘auditor rotation’

US lawmakers have overwhelmingly voted against a controversial proposal that would have forced companies to switch accountants every few years.

The Republican-controlled House of Representatives voted 321 to 62 in favour of a bill which bans mandatory “auditor rotation” – an idea first floated by the US Public Company Accounting Oversight Board. The PCAOB was created in the aftermath of the WorldCom and Enron scandals to help strengthen the US accounting system.

The PCAOB and regulators including Paul Volcker, the former Federal Reserve chairman, have argued that requiring companies to routinely change auditors would help break up the cosy relationships between businesses and their accountants. Many auditors were criticised for failing to report weaknesses in companies’ financial statements in the run-up to the financial crisis.

The PCAOB proposal was met with heavy criticism and lobbying from the accounting and financial industry, which said there was little evidence that switching auditors would help prevent future scandals.

Accounting firms including PwC, KPMG and Deloitte & Touche, as well as some of their clients, including Lloyds Banking Group and Royal Bank of Scotland, have voiced opposition to the PCAOB initiative or a similar regulatory project in Europe.

The UK’s Competition Commission said earlier this year it was considering limiting the maximum tenure of a FTSE 350 audit firm to seven, 10 or 14 years.

The bill voted on by the House on Monday had already passed a panel committee in a rare unanimous vote last month. The Democratic-controlled US Senate has not yet taken up the auditor rotation issue.

Barry Melancon, president of the American Institute of Certified Public Accountants, welcomed the result of Monday’s House vote.

“In the absence of evidence that mandatory audit firm rotation would enhance audit quality, the House has sent regulators in the US and Europe a clear message that the time has come to end the debate over rotation,” he said.

Article from The Financial Times

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