In the U.S. House of Representatives, it seems, no battle against sensible regulatory reform is too small to throw your weight behind. Hence on Monday night the House of Representatives passed H.R. 1564, the “Audit Integrity and Job Protection Act,” a bill that prohibits the Public Company Accounting Oversight Board from requiring companies to “use specific auditors or require the use of different auditors on a rotating basis.” The legislation — a proposed amendment to the Sarbanes-Oxley Act of 2002 — whizzed through the House Financial Services Committee in the spring, and was overwhelmingly passed, 321-62.
When, prior to this, has Congress pre-empted action by an industry watchdog on such an isolated issue? Forget about auditor rotation a minute. What is the House of Representatives doing stepping into an intramural debate about a relatively arcane accounting controversy, with so much other work to be done on vital national issues like immigration reform? Aren’t questions about auditor independence better left to a knowledgeable regulator like the Securities and Exchange Commission, which has to hold a comment period and approve any rules adopted by the PCAOB?
Barbara Roper, director of investor protection for the Consumer Federation of America, expressed her disbelief in an email to CFO: “Regulators around the globe have expressed concern over the persistent lack of independence and professional skepticism in the audits of public companies. Congress’s response? To make it more difficult for the PCAOB to take even modest steps to address that problem. You’d think that, after dozens of major financial institutions either failed or were saved from failure by a government bailout, Congress might want to know why the auditors failed to provide any advance warning or, better yet, to prevent any of the accounting games that helped put those financial institutions at risk. But apparently they are more concerned with assuring that nothing changes in our dysfunctional financial system.”
Or assuring that no vulnerable piece of the Dodd-Frank Wall Street Reform and Consumer Protection and Sarbanes-Oxley Acts remains untouched. The House Financial Services Committee, especially lately, has been singularly focused on rolling back these financial regulations in the name of removing “the red tape burden on job creators.” A bill that made it through the Financial Services Committee in June would exempt advisers to private-equity funds from registration requirements under Title IV of Dodd-Frank, for example. And an upcoming hearing of one of its subcommittees on July 9 will examine “whether sections of the Dodd-Frank Act concerning ‘Too Big to Fail’ financial institutions are unconstitutional.”
But the move to block the PCAOB seems particularly flagrant example of pandering to business interests in the financial arena.