Public Company Accounting Oversight Board Firm Rotation

Mina Boutros

Dr. Vincent O'Reilly

Ethics and Professionalism in Accounting

December 9, 2011

Public Company Accounting Oversight Board

1666 K Street, N.W.

Washington, D.C. 20006-2803

18 November 2011

PCAOB Rulemaking Docket Matter No. 37

Concept Release on Auditor Independence and Audit Firm Rotation

I believe auditor independence, objectivity and professional skepticism are of paramount importance as underpinnings of confidence in the audit profession. Such attributes are central to the accounting profession and the industry. The auditor is appointed by the audit committee of the Board of Directors to advocate on behave of the shareholder and find adequate evidence that financial statements produced by the firm are free from material misstatement. I acknowledge that despite the fact that auditors report to the audit committee and board of directors as a fiduciary representative of shareholder, the auditor's well-being is influenced by management's recommendation regarding his reappointment. Therefore, the auditor must maintain a good relationship with management without compromising his independence of his firm or the audit quality of the engagement.

More importantly, the audit quality and the application of objectivity and professional skepticism by auditors have improved considerably since the passage of the Sarbanes-Oxley Act of 2002 and the creation of the PCAOB. However, I believe that further progress can be achieved, and accounting firm should be focused on and continually invest in in actions that reinforce the independence, objectivity and professional skepticism of its people. It is essential that the accounting industry works with the PCAOB to explore actions that would further improve audit quality and better serve the interests of investors.

Auditors approach their duties with an application of principles and ethics and a strong sense of professional skepticism. Unfortunately, many individuals underestimate or do not have a high degree of visibility into the extent of skepticism that is involved in a typical audit. Challenging the accounting and financial reporting decisions of the audited companies is required, and expected. A common directive should exist among independent auditors, independent audit committees, the PCAOB, and public company shareholders regarding the objectives of a public company audit. Rather than imposing mandatory firm rotation, the interrelationships among auditors, audit committees, audit oversight authorities and shareholders should be examined to determine whether their relationship can be strengthened even further.

I support the PCAOB efforts to strengthen the role of independent audit committees as a means to further promote audit quality and auditor skepticism. Among other things, audit committee transparency should be increased. Public accounting independence has been critical to the viability of the profession. Its independence is a testament to the accountant's professional pledge; promising to put the public interest and shareholders of the corporation ahead of its own interests.

I do not believe mandatory audit firm rotation is necessary to promote auditor skepticism. There is no evidence that indicates that auditor rotation would improve audit quality. Moreover, there are many identifiable and known downsides to such a policy with little to no certain benefit. A mandatory audit firm rotation model would not only give rise to substantial costs and disruptions, but also would, we believe, impair audit quality, undermine sound corporate governance, ultimately to the disadvantage