[Congressional Record Volume 159, Number 96 (Monday, July 8, 2013)]
[House]
[Pages H4182-H4184]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                 AUDIT INTEGRITY AND JOB PROTECTION ACT

  Mr. HURT. Mr. Speaker, I move to suspend the rules and pass the bill 
(H.R. 1564) to amend the Sarbanes-Oxley Act of 2002 to prohibit the 
Public Company Accounting Oversight Board from requiring public 
companies to use specific auditors or require the use of different 
auditors on a rotating basis, as amended.
  The Clerk read the title of the bill.
  The text of the bill is as follows:

                               H.R. 1564

       Be it enacted by the Senate and House of Representatives of 
     the United States of America in Congress assembled,

     SECTION 1. SHORT TITLE.

       This Act may be cited as the ``Audit Integrity and Job 
     Protection Act''.

     SEC. 2. LIMITATION ON AUTHORITY RELATING TO AUDITORS.

       Section 103 of the Sarbanes-Oxley Act of 2002 (15 U.S.C. 
     7213) is amended by adding at the end the following:
       ``(e) Limitation on Authority.--The Board shall have no 
     authority under this title to require that audits conducted 
     for a particular issuer in accordance with the standards set 
     forth under this section be conducted by specific registered 
     public accounting firms, or that such audits be conducted for 
     an issuer by different registered public accounting firms on 
     a rotating basis.''.

     SEC. 3. STUDY OF MANDATORY ROTATION OF REGISTERED PUBLIC 
                   ACCOUNTING FIRMS.

       (a) Study and Review Required.--The Comptroller General of 
     the United States shall update its November 2003 report 
     entitled ``Study on the Potential Effects of Mandatory Audit 
     Firm Rotation'', and review the potential effects, including 
     the costs and benefits, of requiring the mandatory rotation 
     of registered public accounting firms. In addition, the 
     update shall include a study of--
       (1) whether mandatory rotation of registered public 
     accounting firms would mitigate against potential conflicts 
     of interest between registered public accounting firms and 
     issuers;
       (2) whether mandatory rotation of registered public 
     accounting firms would impair audit quality due to the loss 
     of industry or company-specific knowledge gained by a 
     registered public accounting firm through years of experience 
     auditing the issuer; and
       (3) what affect the Sarbanes-Oxley Act of 2002 has had on 
     registered public accounting firms' independence and whether 
     additional independence reforms are needed.
       (b) Report Required.--Not later than 1 year after the date 
     of enactment of this Act, the Comptroller General shall 
     submit a report to the Committee on Banking, Housing, and 
     Urban Affairs of the Senate and the Committee on Financial 
     Services of the House of Representatives on the results of 
     the study and review required by this section.
       (c) Definition.--For purposes of this section, the term 
     ``mandatory rotation'' refers to the imposition of a limit on 
     the period of years in which a particular registered public 
     accounting firm may be the auditor of record for a particular 
     issuer.

  The SPEAKER pro tempore. Pursuant to the rule, the gentleman from 
Virginia (Mr. Hurt) and the gentlewoman from California (Ms. Waters) 
each will control 20 minutes.

[[Page H4183]]

  The Chair recognizes the gentleman from Virginia.


                             General Leave

  Mr. HURT. Mr. Speaker, I ask unanimous consent that all Members have 
5 legislative days within which to revise and extend their remarks and 
submit extraneous materials for the Record on H.R. 1564, as amended, 
currently under consideration.
  The SPEAKER pro tempore. Is there objection to the request of the 
gentleman from Virginia?
  There was no objection.
  Mr. HURT. Mr. Speaker, I yield myself such time as I may consume.
  I rise in support of H.R. 1564, the Audit Integrity and Job 
Protection Act, a bipartisan bill I introduced with my colleague, 
Representative Meeks. I thank him for his leadership on this issue.
  If enacted, this bill would eliminate the threat of mandatory audit 
firm rotation by prohibiting the Public Company Accounting Oversight 
Board, which is the self-regulatory organization charged with 
overseeing the auditors of public companies, from moving ahead with a 
potential rulemaking that would have serious negative consequences for 
American businesses, investors, and consumers.
  In 2011, the PCAOB issued a concept release to impose mandatory audit 
firm rotation, which is a directive requiring public companies to 
change their independent auditors every few years.
  Implementing this proposal would significantly impair the quality of 
public audits, reduce the supervision and oversight of audit 
committees, and impose significant, unnecessary costs that impede 
investment and harm investors and consumers. In fact, a GAO study 
conducted pursuant to Sarbanes-Oxley found that initial-year audit 
costs under mandatory audit firm rotation would increase by more than 
20 percent over subsequent-year costs in order for the new auditor to 
acquire the necessary knowledge of the public company.
  Additionally, the GAO noted concerns about negative effects on audit 
quality during the initial years of a new audit firm's tenure. The 
consequences of the costs imposed by audit firm rotation would decrease 
access to capital and investments in our communities that help our 
local businesses and get people back to work.
  Beyond harming the competitive position of American public companies, 
I have heard from private companies in Virginia's Fifth District, 
including from many of our biotech firms and our banks, that mandatory 
audit firm rotation would create one more disincentive to go public in 
light of the increased costs and an already complex regulatory scheme.
  Both the SEC and Congress have previously rejected mandatory audit 
firm rotation. Most recently, the JOBS Act explicitly banned audit firm 
rotation for emerging growth companies. In exerting its legislative 
prerogative to ensure this harmful policy was not enacted on these 
emerging companies, Congress took away this disincentive from companies 
exploring accessing the public markets.
  Now Europe is considering imposing an audit firm rotation regime, in 
part, because it believes that the United States will move forward on 
the PCAOB's concept draft. Despite the overwhelming opposition to the 
concept release--over 90 percent of the more than 700 comments filed--
the PCAOB has left this issue unresolved. To my knowledge, the concept 
release has not been withdrawn nor have there been any statements from 
the PCAOB that it will not be moving forward with a proposal. This 
continued uncertainty is having a detrimental effect on American 
businesses. The decision of changing an audit firm is best left to 
companies' audit committees, not regulators, who are trying to impose a 
one-size-fits-all approach.

                              {time}  1745

  H.R. 1564 will make clear that Congress does not believe that 
mandatory audit firm rotation will provide additional protections to 
investors or consumers and will stifle growth of job-creating small 
businesses while decreasing audit quality.
  I would like to thank Chairman Hensarling and Ranking Member Waters 
of the Financial Services Committee for their support and leadership on 
this issue as we were able to achieve a unanimous, bipartisan vote from 
the committee.
  I ask my colleagues to join me in voting ``yes'' on H.R. 1564 and 
pass this good bill from the House so that we may strengthen audit 
quality, remove the threat of unnecessary costs, and refocus the PCAOB 
on its mission to protect investors and the public interest by 
promoting informative, accurate, and, most important, independent audit 
reports.
  Mr. Speaker, I reserve the balance of my time.
  Ms. WATERS. Mr. Speaker, I yield myself such time as I may consume.
  Mr. Speaker, the 2008 financial crisis cost Americans more than $13 
trillion, leaving many families unable to make ends meet as they lost 
their jobs and saw their nest eggs disappear. Five years later, as we 
began to pick up the pieces of the mess largely caused by deregulation, 
the American investing public is now much more cautious when investing 
its valuable savings. As a member of the Financial Services Committee, 
I see my job to ensure that there are appropriate rules in place that 
will hopefully prevent such a debacle from ever happening again.
  One such initiative to improve the functionality of our markets is to 
improve the independence of the market's fact checkers--the public 
company auditors. These companies play a vital role of validating the 
authenticity of a company's financial statements and keep all public 
companies honest when reporting to investors how they have performed.
  I applaud the government regulator of the auditors, the Public 
Company Accounting Oversight Board, or PCAOB, for its persistent 
efforts to identify structural changes in the current system that may 
improve auditor independence. After all, we know that auditors 
generally performed poorly leading up to the 2008 financial crisis, 
failing to warn investors of the outsized risk posed by banks' bets on 
the housing market.
  Having said that, I understand that one such proposal floated by the 
PCAOB, the mandatory rotation of auditors, has raised serious concerns 
that will significantly increase costs for companies, as well as 
diminish the quality of information upon which investors base their 
investment decisions. For these reasons, I support H.R. 1564, which 
prohibits this proposal from being implemented.
  It is not clear to me that requiring a public company to change 
auditors every so many years would contribute to auditor independence. 
What's more, given the time it takes an auditing firm to truly 
understand the business of a company, there will be at least a few 
years of less than ideal audits as an auditor has to learn everything 
they need to know about the new firm.
  Additionally, the small number of major auditing firms, coupled with 
specialization within the auditing industry, means that requiring 
rotation, in many cases, will not leave companies with much choice at 
all. In my view, while enhancing auditor independence is a crucial 
goal, I do feel there may be better ways to accomplish it.
  I would also note that this bill does not in any way limit the 
ability of a company's audit committee to rotate its auditors. Such 
committees, as some investors have pointed out, are best suited to 
select their own auditors.
  Having said that, I do have concerns about tampering with the 
authority of a regulator when it raises an issue that we disagree with. 
The PCAOB asked the public for feedback on a range of proposals all 
targeting the concern that auditors have become too close and dependent 
on the companies they are supposed to examine. It's not unreasonable 
for the PCAOB to include this as one of a large range of issues it's 
examining.
  To address this concern with the bill, I offered an amendment during 
our markup of H.R. 1564 that requires the GAO to update its previous 
study regarding auditor rotation. The previous GAO study, completed 
shortly after the passage of the Sarbanes-Oxley Act of 2002, found that 
``mandatory audit firm rotation may not be the most efficient way to 
strengthen auditor independence and improve auditor quality.'' However, 
the GAO also noted that ``several years' experience with implementation 
of the Sarbanes-Oxley Act's reforms is needed before the full effect

[[Page H4184]]

of the act's requirements can be assessed.'' The GAO needs to update 
this outdated study.
  This amendment requires the GAO again to evaluate the potential costs 
and benefits of mandatory audit firm rotation, now that more than 10 
years have passed since the passage of Sarbanes-Oxley. The amendment 
requires consideration of various factors, including whether rotation 
would actually mitigate against conflicts of interest between audit 
firms and issuers and whether audit quality could suffer due to audit 
firm rotation. And the study would also include an assessment of the 
impact of Sarbanes-Oxley on audit firm independence and whether 
additional reforms are needed.
  Importantly, this study will inform a future Congress as to the 
wisdom of the statutory prohibition on auditor rotation in H.R. 1564.
  With the adoption of my amendment, I and every member of the 
committee voted for this bill.
  Let me reiterate, I am supportive of the role and mission of the 
PCAOB but believe that the regulator would do well to look at the 
benefits to investors as it examines auditor independence. Doing so 
will take the PCAOB away from focusing on auditor rotation and towards 
other areas that provide more meaningful improvements in auditing and 
financial reporting.
  Mr. Speaker, I reserve the balance of my time.
  Mr. HURT. Mr. Speaker, as we are prepared to close, I reserve the 
balance of my time.
  Ms. WATERS. Mr. Speaker, I yield as much time as he may consume to 
the gentleman from New York (Mr. Meeks), who has put so much time and 
work into researching this whole issue about auditor rotation. He's 
worked very closely with Mr. Hurt and helped to educate the members of 
the committee about the difficulties and the complications of this 
whole issue of auditor rotation.
  Mr. MEEKS. I want to thank the gentlelady from California for all of 
her hard work.
  I rise to support H.R. 1564, which I cointroduced with my colleague, 
the gentleman from Virginia (Mr. Hurt). This bill will ensure we 
maintain strict auditing standards without imposing overly burdensome 
and ill-conceived rotation requirements on our public companies.
  I also want to point out the hard work the gentlelady from California 
put in with regards to the GAO study and why it is important so that we 
can continue to make sure that our markets are strong and sturdy; and 
that amendment, as she so indicated, is what enabled us to have a 
unanimous agreement coming out of our committee. It was us working 
together across the aisle to make sure that that happened. I think it 
was good for our markets. It helps to remove the uncertainty that the 
markets certainly would have right now had we not had this removed and 
had this study going forward.
  I think it's important for me to emphasize that this bill does not, 
first, weaken our auditing and accounting standards which were 
reinforced 10 years ago under the Sarbanes-Oxley Act, and that this 
bill does not weaken--nor do I want to weaken--or remove the regulatory 
powers of PCAOB, but we do want to remove the uncertainty.
  This bill does not, in any circumstance, provide an opportunity for 
more fraudulent accounting gimmicks. In fact, I want to remind my 
colleagues that we have supported and we have enacted here in the 
United States one of the toughest pieces of legislation against 
accounting fraud and that our existing laws already embrace the concept 
of rotation by requiring the replacement of the lead auditing partner. 
This selective rotation ensures that the opinions and interpretations 
of the reviews remain unbiased and do not remain under the authority of 
the same individual for prolonged periods. This provision puts us ahead 
of most developed countries when it comes to antifraud accounting 
rules, and I believe that it remains the right and smart approach.
  Imposing mandatory rotation of the entire auditing firm in the 
industry where companies often have none or, at best, one or two 
credible options to rotate to is simply unworkable, it is disruptive, 
and it imposes undue expenses on our public companies. In fact, studies 
conducted here in the United States show that requiring mandatory 
rotation would increase cost by 20 percent in the subsequent year and 
an additional 17 percent cost for selection process alone. In addition 
to cost, it is possible that it may actually force public companies to 
select less credible auditing firms that may not have the required 
expertise, or it may encourage the auditing firm to charge excessively 
high fees because mandatory rotation may impose the selection of the 
single remaining qualified auditing firm.
  Mr. Speaker, as I stated before, we did not introduce this bill 
simply because we're against the principle of rotation; but, rather, we 
introduced this bill because imposing rotation at all costs, by any 
means, regardless of market conditions, would simply be irresponsible 
and detrimental.
  Many of my colleagues, me included, do favor a more competitive 
auditing industry where companies can have more choices in selection of 
their auditing firms. Eventually, market conditions may evolve and we 
may have new auditing firms that emerge and gain the confidence of 
marketers and investors. As that happens, firm rotation, I believe, 
will naturally happen through market forces, but not through 
legislation. It is for that reason, Mr. Speaker, that I urge my 
colleagues to vote in support of H.R. 1564 and to support this 
commonsense regulation of our auditing industry.
  I thank both the chairman and the ranking member and my colleague, 
Mr. Hurt, who cosponsored this, for bringing this piece of legislation 
forward.
  Ms. WATERS. Mr. Speaker, as I have no additional speakers, I yield 
back the balance of my time.
  Mr. HURT. Mr. Speaker, I would just simply close by saying I think 
this is a good bill, a bill that not only strengthens investor 
protection, but also reduces unnecessary costs. It reduces uncertainty 
in the marketplace. We need certainty in the marketplace. This helps 
reduce that for public companies. So it is my request that this body 
pass this piece of legislation.
  Mr. Speaker, I yield back the balance of my time.
  The SPEAKER pro tempore. The question is on the motion offered by the 
gentleman from Virginia (Mr. Hurt) that the House suspend the rules and 
pass the bill, H.R. 1564, as amended.
  The question was taken.
  The SPEAKER pro tempore. In the opinion of the Chair, two-thirds 
being in the affirmative, the ayes have it.
  Mr. HURT. Mr. Speaker, on that I demand the yeas and nays.
  The yeas and nays were ordered.
  The SPEAKER pro tempore. Pursuant to clause 8 of rule XX, further 
proceedings on this motion will be postponed.

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