Accounting Case

Introduction

Due to the recent scandals surrounding the accounting profession, the credibility of accounting audits have suffered which provoked Congress to pass the Sarbanes Oxley Act of 2002, section 203 mandating audit-partner rotations (Chi 2011). There has been much controversy over the requirement for mandatory auditor rotation which is discussed throughout the study. The research considered in this study looks at the background and problems surrounding the movement to mandatory auditor rotation, the pros and cons of the situation, and possibilities of what should be done to solve these problems.

Background

In August 16, 2011 the Public Company Accounting Oversight Board (PCAOB) issued a Concept Release seeking comments on ways that auditor independence, objectivity, and professional skepticism could be increased (Hanson 2011). The focus of this press release was to introduce the concept of mandatory auditor rotation. There are many unanswered questions following the press release including whether audit committees who consider auditor tenure when evaluating independence ultimately set terms for their auditor, what were the factors considered when making the decision, do investors believe auditors are living up to the General Accounting Office’s standard, or should the decision be taken out of the audit committee’s hands completely with mandatory auditor rotation? (Hanson 2011). The idea of mandatory auditor rotation has been considered and discussed since the 1970s yet still there are concerns that remain about costs and the effectiveness (Kroll 2012).

Professional Literature Review

Section 207 of the Sarbanes-Oxley Act of 2002 (SOX) passed by Congress states a requirement of mandatory auditor rotation of registered public accounting firms (Chi 2011). Mandatory audit rotation is supported by section 301 of the SOX Act because