Public Company Accounting Oversight Board Chairman James Doty blasted the accounting industry in June for a continued “disturbing lack of skepticism” in audits of public companies. Citing cases where the PCAOB found auditors permitting the backdating of major contracts and the altering of a company’s rules to help it avoid retracting an earnings announcement, Doty said the PCAOB would consider mandatory audit firm rotation. Congress looked at requiring companies to change auditors regularly—something that perhaps only one or two Fortune 500 companies do voluntarily—in the wake of Enron and WorldCom. After heavy lobbying by the accounting industry, only the rotation of partners and staff was required.
The Securities and Exchange Commission now says audit partners and concurring partners on public company audits must rotate every five years and not return to that client for five years. Team members can work on one client for seven years, but then must be off that job for two.