A third reason for questioning the auditor rotation requirement is that the

A third reason for questioning the auditor rotation

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A third reason for questioning the auditor rotation requirement is that the accounting profession professed lukewarm support for the limited rotation requirement. That fact ironically stands as a testament to the requirement’s weakness. The AICPA submitted comments on the proposed requirement to the SEC in a sixty-two-page letter on January 9, 2003. The letter agreed with and supported the objectives of the Congress and the SEC in requiring partner rotation. It pointed out that the AICPA had required lead audit-partner rotation for the past twenty-five years. It recognized the importance of a ‘‘fresh set of eyes,’’ but maintained that the benefit must be balanced with the cost of continuity and ‘‘institutional knowledge’’ (AICPA [2003]). Most notable about the letter was that it stressed the AICPA’s objections to audit-firm rotation—the very concept that I believe is critically needed and conspicuously absent from the requirements of Sarbanes-Oxley. The letter stated 36. See AICPA (1978, pp. 1–5). While the prior lead partner-rotation requirements specified a seven-year period prior to rotation, the original rotation requirements developed by the SECPS speci- fied a five-year rotation period. 157 ETHICAL GUIDANCE AND CONSTRAINT
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that ‘‘audit firm rotation has significant costs that far outweigh the potential ben- efits.’’ The costs cited were increase in audit failures, increased start-up costs, increased difficulties in timely reporting, loss of institutional knowledge, oppor- tunity to disguise voluntary rotations, reduced incentives to improve efficiency and audit quality, and a sharp increase in time and resources dedicated to pro- posal process (AICPA [2003]). There are many possible reasons to explain the AICPA’s vehement objec- tions to audit-firm rotation, and some of them likely are based in political, finan- cial, and economic realities. It is common knowledge, for example, that the AICPA is heavily represented by members of the Big Four accounting firms and, as a result, are necessarily sensitive to protecting the interests of those firms. This mutually dependent relationship was affirmatively acknowledged in 2003 by Charles Bowsher, a former partner at Arthur Andersen who served as comptroller general of the United States for fifteen years and also as chairman of the PCAOB. In an interview with the editor-in-chief of the CPA Journal about the AICPA’s reaction to the Sarbanes-Oxley Act, he stated: I’m not sure if the AICPA is leading the Big Four or the other way around. The morale of all CPAs about their profession has sunk so low over the last two years, and to a great extent it is because the leaders of the big firms and the AICPA have undertaken initiatives that turned out to be disastrous. The AICPA has become a big public relations and lobbying machine. It does a good job with some of its education programming, but its involvement with auditing and professional standards setting has become de-emphasized (Morris [2003]).
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