PCAOB Chairman Considers Audit Firm Rotation

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In a wide-ranging speech to the SEC and Financial Reporting Institute's 30th Annual Conference on June 2, James Doty, Chairman of the Public Company Accounting Oversight Board (PCAOB) raised for discussion and review the possibility that the PCAOB may require audit firm rotation.

In his speech, Chairman Doty described a lack of "independence and skepticism" that has surfaced over eight years of inspections of the largest audit firms conducted by the PCAOB. He stated that PCAOB inspectors have reviewed more than 2,800 engagements and "discovered and analyzed hundreds of cases involving... audit failures." Mr. Doty attributes such failures to both a lack of professional skepticism and an "inappropriate mindset" that continues to exist despite auditor independence rules. "Auditors are, after all, paid by the clients they are charged with policing. As in other professions, auditors want to advance in their chosen profession which often means keeping the client happy and growing their business."

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