‘Round and ‘Round the Auditor Rotation Circle

Do you ever feel like our profession goes around in circles with the issues we face?  We talk about a major issue, it creates all kinds of sound and fury, it goes away for a while and then returns?  The SEC’s consideration of IFRS for domestic issuers is an issue that has been “going around” for years.    The FASB’s projects on leases, financial instruments, and revenue recognition are not the first time the board has addressed these areas.

I think one of the theme songs of our profession could be Joni Mitchell’s “Circle Game”:

“We can’t return, we can only look behind from where we came, and go round and round and round in the circle game”

(BTW, here is a great youtube video of her performing the song live: http://www.youtube.com/watch?v=AbIuC9hTY9Y&feature=kp )

I think the number of times an issue goes around this circle is directly related to complexity and the level of controversy it creates.

One hugely controversial and complex issue which many hope will move to the low end of the cycle is mandatory auditor rotation.

The PCAOB moved auditor rotation to the high end of the cycle back in August of 2011 with its Concept Release on Auditor Independence and Audit Firm Rotation.  While it was only a concept release it stirred enormous discussion and controversy.  Congress even got involved with the House passing a bill, although no Senate action occurred.

We have all been going round and round the auditor rotation circle.

As we come around the circle this month, the latest news on this front is that in the SEC’s hearings about the PCAOB’s budget last Thursday, in response to a question from Commissioner Gallagher, PCAOB chairman James Doty told the SEC:

“We don’t have an active project or work going on within the board to move forward on a term limit for auditors or mandatory rotation project.  It is not part of the budget – not budgeted in what you are approving today.”

However, Doty added, the PCAOB would “continue to think about what impacts independence.”

(BTW, you can listen to the recorded video webcast at: http://www.sec.gov/news/openmeetings/2014/020514openmeeting.shtml It is entertaining and suspenseful as, …, well, I am not sure what, but you should try it once!)

Perhaps this means that for the time being we will not be seeing any action on this front, at least for a while!

I suppose that this is not the last time this issue will come around.  As you may have heard, the EU is moving forward with a rotation proposal.

Considering how all this works, maybe the theme song should be “The Wheels on the Bus go Round and Round….”

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