Just yesterday, July 8th, the House of Representatives passed a bill that would prohibit the PCAOB from requiring auditor rotation for public companies. The Reps voted in overwhelming favor, 321 to 62, to pass H.R. 1564, the Audit Integrity and Job Protection Act. One of the stunning factors involved in this latest stage of the ongoing battle is that this was a bi-partisan bill sponsored by Reps. Robert Hurt, R-Va., and Gregory Meeks, D-N.Y. Kudos to these guys for showing everybody that working together can be productive.
The President of the AICPA, Barry Melancon, testified in front of the House in March 2012, stating that mandatory rotation is actually a detriment to audit quality. [The House Gives PCAOB a Smackdown]
The PCAOB itself has not been able to provide evidence of the rotation being beneficial and admits that there are hurdles there.
The bill would amend the Sarbanes-Oxley Act and still needs to pass the Senate and the President’s desk before it becomes official. Read more about it here.
The reason this is big news for nonprofit readers is that many boards, in an effort to show good governance, wanted to implement SOX at their organizations to the level it was practical. The thing is, not much of it is all that practical for small nonprofits and none of it is easy. The easiest part? Implement auditor rotation policies. Many accounting staff (on both sides of the audit) suffered the inefficiencies and increased audit risk that this caused but convincing the boards to change the policy hasn’t been easy. This bill provides more oomph to the argument.