PCAOB’s Auditor Rotation Project is Essentially Dead

February 7, 2014 Leave a comment

February 5, 2014, 5:45 PM ET

PCAOB’s Auditor Rotation Project is Essentially Dead

EMILY CHASAN

Senior Editor

The U.S. government’s auditor watchdog finally said Thursday it is no longer pursuing a project to impose auditor term limits on public companies, nearly three years after proposing the idea.

“We don’t have an active project or work going on within the board to move forward on a term limit for auditors,” said James Doty, chairman of the Public Company Accounting Oversight Board, adding “We nevertheless will continue to think about what impacts independence. There may be a change of focus here.”

Mr. Doty was addressing members of the Securities and Exchange Commission, which approved a $258.4 million 2014 budget for the PCAOB on Thursday.

The watchdog has encountered heavy resistance to the idea of auditor rotation, receiving hundreds of comment letters from corporate board members and companies who argued that auditor rotation would leave companies with inexperienced auditors and harm audit quality.  Research by the PCAOB itself showed that in several industries, companies faced a choice of just one or two big audit firms with expertise in their sector, complicating the feasibility of mandatory rotation.

Congress accused the PCAOB of potentially overreaching its mission, and in July theHouse of Representatives

passed a bill to prevent the board from ever requiring mandatory auditor rotation

Other countries, however, are still moving ahead with proposals. Last year, India proposed corporate auditor rotation after 10 years, and the European Union recently agreed in principle to require companies to rotate auditors every 10 to 24 years.

Mr. Doty said the project would remain on its activity list because it was proposed as a method to improve auditor independence in 2011. The board has said hundreds of its inspections continue to reveal serious deficiencies in auditor independence.

Last month, the SEC reminded auditors they couldn’t loan staff to their audit clients, meanwhile accounting firm KPMG LLP agreed to pay an $8.2 million fine to settle allegations it violated independence rules by providing bookkeeping services to companies it was auditing.

“Independence has of course been a perennial issue for all of us in the room,” Mr. Doty told the SEC commissioners.

Filed under Macro Trends

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Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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