UPDATE 1-US audit watchdog: term limit debate likely to '13

Wed Mar 21, 2012 5:41pm EDT

Related Topics

* Rule proposal will not be ready this year

* Ex-Fed Chair Volcker says audit rotation makes sense

* Former SEC Chair Levitt supports rotation

* Ex-SEC Chair Pitt says proposal goes too far (Recasts, adds comments from former securities and banking regulators)

By Sarah N. Lynch and Dena Aubin

WASHINGTON, March 21 (Reuters) - The U.S. watchdog for the auditing industry said on Wednesday that a debate over possibly forcing corporations to change auditors every few years would stretch at least into 2013.

No potential rule proposal on term limits for auditors will be ready this year, the Public Company Accounting Oversight Board (PCAOB) said, as critics and supporters including some ex-regulators descended on Washington this week to weigh in on the issue.

"We will be in 2013 before we can reasonably expect to get to any kind of a rule proposal," PCAOB chairman James Doty told Reuters on the sidelines of a two-day roundtable on auditor rotation.

Doty said Wednesday's roundtable is just the first of many public meetings he hopes to hold as the PCAOB weighs term limits, intended to boost auditors' independence from clients and keep auditors from becoming too complacent over time.

The PCAOB first floated the idea last August after uncovering numerous audit deficiencies over the years. See factbox:

Opposition has followed from audit firms and companies, many of which attended Wednesday's forum to press their case.

A mandatory rotation rule would disrupt many long-standing and lucrative business relationships between auditors and corporations, while also forcing audit firms to spend more money competing among themselves for business.

About 35 percent of companies in the S&P 500 index have had the same auditor for 25 years or more. Several have had the same auditor more than a century, according to Audit Analytics data.

In a move that could influence the PCAOB's decision, some former regulators at the forum supported rotation. Among them were Federal Reserve ex-Chairman Paul Volcker and former U.S. Securities and Exchange Commission Chairman Arthur Levitt.

"It does seem to me that regular audits should not become a sort of long-term annuity for the accounting firm paid for by the company being audited, rather than being responsive ... to the investing public," Volcker said.

THREE FORMER SEC CHAIRMEN WEIGH IN

Levitt, SEC chairman from 1993-2001, said mandatory auditor term limits make sense, particularly where an audit firm has worked for a company for a long time, has former partners working for clients, or performs a lot of non-audit services.

"Investors deserve the perspectives of different professionals every so often," he said in prepared remarks.

Not all former regulators were as supportive.

Harvey Pitt, another former SEC Chairman, warned that rotation would not benefit shareholders.

He instead urged new rules that would require audit committees of corporations' boards of directors to consider whether or not to switch auditors, and disclose their reasoning.

Since the PCAOB first started talking about auditor rotation last year, companies and auditors have worked hard against it.

"We do not support the proposal for mandatory audit firm rotation, nor are we convinced that these will achieve the PCAOB's desired improvements in these areas," said Darren Wells, the chief financial officer for Goodyear Tire and Rubber Co.

Another former SEC Chairman, Richard Breeden, also expressed skepticism that rotation would help objectivity.

"You would have some degree of musical chairs among audit firms and I really doubt that objectivity levels would rise that much as a result," he said. (Reporting by Sarah N. Lynch and Dena Aubin; Editing by Kevin Drawbaugh, Bernard Orr)

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