[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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