Goldman Sachs has stuck with the same auditing firm since 1926,Coca Cola since 1921,General Electric since 1909 and Procter & Gamble since 1890. Thats going back 85,90,102 and 121 years. Each has relied on a different one of what are known today as the Big Four accounting firms. And now some US accounting reformers are thinking that perhaps enough is enough: the time has come to rotate auditing firms. Quashed a decade ago during congressional audit reform debates,the hot-button topic of auditor rotation is back,setting up a potential clash between reformers and the firms themselves. Broached at a meeting of the US Public Company Accounting Oversight Board (PCAOB) in March,mandatory auditor rotation is expected to be part of a concept release due soon from the PCAOB. While the partner on an accounting job must be switched every five years,there are no term limits on the audit firms themselvesa policy that has left intact long-term client relationships and raised questions about how independent such auditors can be. Its not to say that anyone who has had the same auditor 20 years or longer is corrupt,or the auditor is not doing what they should be doing, said Mark Grothe,an analyst at Glass Lewis. Yet after 50 years theres no way you could think the auditor is remaining as skeptical as a new auditor coming in, he said. Strong pushback is expected from the audit industry,which could be forced to surrender some of its most lucrative clients if the PCAOB were to require mandatory auditor rotation. Any rule change is far from certain at this point. The PCAOB has yet to issue a concept release; that would have to be followed by a proposed rule and then a final rule,which would have to be approved by the Securities and Exchange Commission. About 175 companies in the S&P 500 index have had the same auditor for 25 years or more,according to data compiled by Audit Analytics at the end of last year. Seven companies have had the same auditor for over a century. Ultra-long auditor stints have for years been a concern to investor groups. Auditors might be inclined to perform tougher audits if they knew their work would be checked when their term ends and a new audit firm comes in,said Lynn Turner,head of a PCAOB subcommittee that recommended mandatory rotation. Switching audit firms too frequently would be disruptive,said Scott Magnuson,senior principal at GHP Horwath. Switching auditors also may be difficult for the largest companies,given that only the Big Four auditorsDeloitte,PwC,KPMG and Ernst & Younghave the resources to audit big,multinational firms,experts said.
