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Mandatory Audit Firm Rotation: Regulatory Sit ‘n’ Spin

It's been about a year since the PCAOB crapped out Release No. 2011-006, "Concept Release on Auditor Independence and Audit Firm Rotation." Some people in the profession think the PCAOB has no real intention of mandating audit firm rotation; rather, these professional skeptics believe the PCAOB just brought it up to appear relevant.

The PCAOB started the release by downplaying the controversial part, stating its purpose was "to solicit public comment on ways that auditor independence, objectivity and professional skepticism could be enhanced." And then adding, "One possible approach on which the board is seeking comment is mandatory audit firm rotation." Kinda like after the 8th grade skating party, when you were talking to Dana, the cute girl from science class, and said, "I think it would be cool to get to know you better. One possible way to achieve that outcome is for you to show me your boobies." 
 
Then in March, PCAOB Chairman James Doty said: 
The board, of course, has not proposed mandatory audit firm rotation. Rather … the PCAOB is engaged in a deep and wide-ranging public dialogue about ways to enhance the independence, objectivity and professional skepticism of public company auditors.
No, Dana, I didn't ask you to show me your boobies. I just said that it was one of the many, wide-ranging possibilities of how we could get to know each other a little better. Jeesh, whore.
 
Personally, I think an audit firm rotation mandate would be impotent regulatory BS. However, partners who are afraid of it are being stupid. Like a lot of other regulation, mandatory rotation could be used to justify higher fees, and if firms aggressively market themselves, they could capture new business that has been locked down for decades. If the game is played shrewdly, crafty partners and marketing teams could rotate in more clients than they have to rotate out. But chances are, if you are on the lower half of the corporate totem pole, mandatory rotation would suck donk. Staff would suffer under increased pressure and increased hours with no upside other than maybe being able to convince themselves that they have a skosh more job security. 
 
But one thing that everyone can enjoy throughout this public dialogue is watching important people say stupid shit. My favorite comes from C. Brian Fox, founder of Confirmation.com:
What would a fraudster say about audit firm rotation? The answer is obvious; a fraudster would be whole-heartedly against it. […] If I were a fraudster, I’d have written the PCAOB not just one comment letter against audit firm rotation, I’d have written four letters using four different company names and letterheads since anyone can copy and paste legitimate company logos using the Internet. 
Not only does Mr. Fox express his support for mandatory rotation, he implies that if you are against it, you should be in jail. It's also nice to see that he's perfected his exposure-draft-ballot-stuffing technique.
 
Steven Thomas, partner at Thomas, Alexander, Forrester LLP, said:
I ask an auditor what the P in CPA means and they don’t know it stands for public. […] The auditors don’t have an incentive to act in the public interest. They only have an incentive to act in their financial interest. We need to change the incentives. Auditor rotation is good, but you can’t put another fox in the henhouse. We have to change the incentives, particularly for audit committees.
I thought it stood for "profiteering." Now I'm no farmer, but I do feel that regulations should be enacted to criminalize the act of putting a second fox into a henhouse that already contains one or more foxes. However, I also believe that mandatory henhouse rotation won't solve anyone's fox problem. 
 
But let's talk about incentives. If you want people to act outside of their financial interest, then financial incentives are off the table. That leaves cookies and good feelings. Of course, all Jeff Skilling really needed was a snickerdoodle and a hug.
 
Former SEC chairman Harold Williams supports mandatory rotation but isn't sure it will "produce the desired result of breaking up the oligopoly of the Big Four." Who ever stated that as a desired result? No one. Just like no one ever stated "putting H&R Block out of business" as a desired result of tax return preparer registration (even though we all thought it). Breaking the oligopoly of the Big 4 may be a desired result for Moss Adams and Grant Thornton, but it seems like Harry's the only one saying it out loud, and he definitely didn't get it from the PCAOB's concept release.
 
Possibly the most cathartic moment in the public discourse was when Rep. Scott Garrett, R-N.J., chairman of the House Capital Markets and Government Sponsored Enterprises Subcommittee, said:
I think it is important to remind the PCAOB that it is not a policy-making entity; Congress and this committee are the policy-makers. … I am very concerned about some of the recent activist proposals put forth by the PCAOB.
It's kind of fun to watch the PCAOB get bitch-slapped by a congressional subcommittee that I've never heard of before.