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January 28, 2023

PCAOB Member Jay Hanson Can’t Imagine a World with Auditor Rotation

On Monday, PCAOB Chairman James Doty gave a speech where he mentioned, among other things, that "auditor term limits" was something the Board would consider in order to "protect the auditor's independence." 

Undoubtedly, this was disheartening news to auditors who count themselves as the Big 4 variety because they've gone on record to voice opposition and Ernst & Young even issued a report that has pretty much everyone saying that this rotation idea is the worst idea in the history of ideas. And yet the debate clings to life, not unlike the career of the partner in your office who has an inordinate number of audit clients who have had restatements.

HOWEVER, PCAOB member Jay Hanson shared something very interesting yesterday at day two of the AICPA Conference on SEC and PCAOB Developments:

During a question and answer session at the AICPA Conference on SEC and PCAOB Developments in Washington, Hanson said that many obstacles to mandatory audit firm rotation make its implementation unlikely. “I can’t imagine that we’d go forward,” he said.
In an interview after Tuesday’s Q&A session, Hanson elaborated on his comments. He said that in order to create a mandatory rotation requirement that would have a chance of being approved, the PCAOB would have to consider statistical evidence that firm tenure is linked to audit failures and deficiencies. The board would have to complete an analysis showing that the benefits of mandatory firm rotation would outweigh the costs, he said.
“We’ve got all those things to do before we could meaningfully propose or adopt mandatory firm rotation,” Hanson said. “I’m skeptical as to whether we’d ever get there with all those hurdles in front of us.”
Okay! So this is just JH's personal opinion about the likelihood that this policy would be and NOT his personal feelings about effectiveness of said policy and it is NOT meant to be attached to anyone else at the Board, but STILL! Big 4 opiners are probably giddy to know that someone at the PCAOB is not-so-subtly suggesting that this would be an uphill battle.
Which shouldn't be a surprise; the man is a former auditor, after all. Even so, JH's admits that his doubts are not absolute:
“I’ve been wrong before, as my wife continues to remind me.”
Sounds like Jay isn't the only one in his house that can exercise some professional skepticism.

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