Thursday, November 15, 2012

Business professor presents evidence favoring auditor rotation auditing standards

The Public Company Accounting Oversight Board (PCAOB) invited audit market professionals and academics to present evidence on the debate on requiring auditor rotation for public companies in the U.S. at a Houston (Texas) Roundtable on October 18.  The PCAOB is a nonprofit corporation established by Congress in 2003, to oversee the audits of public companies in order to protect investors and the public interest by promoting informative, accurate and independent audit reports. The PCAOB also oversees the audits of broker-dealers, including compliance reports filed pursuant to federal securities laws, to promote investor protection.

Dr. Scott Whisenant, associate professor in accounting at the University of Kansas School of Business, was one of those invited to discuss the implications of his research to members of the PCAOB and the Securities and Exchange Commission.  He presented the results from two current research projects that offered empirical evidence to the debate on mandatory auditor rotation.  In one study, he finds (with his coauthors Dr. Michael Willenborg from the University of Connecticut and Dr. Srinivasan Sankaraguruswamy from the National University of Singapore) that new audits (which would be expected to increase under a mandatory auditor rotation rule) are not associated with lowered audit quality.  The evidence is important since this is often argued as the primary reason against a forced rotation policy.  In the other study, Dr. Whisenant and his coauthor (Dr. Kathleen Harris from the University of Houston) find evidence of benefits to audit markets through an enhancement of overall audit quality following the adoption of rotation rules.  This research offered the PCAOB members insights into the experiences of other countries that have adopted forced rotation of audit firms for public companies.

“It was an honor to be invited,” Whisenant said. “Anytime a quasi-governmental agency, especially the PCAOB, calls up and wants your opinion on an issue that affects investors and our capital markets, you appreciate the opportunity to talk about your research.”

The webcast archive of the Houston roundtable is available on the PCAOB website.