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Finding a Healthy Distance Between Auditors and Banks

Auditors and their clients need to maintain an objective distance.

Last August, the Public Company Accounting Oversight Board announced that it would be considering ways to improve the "independence, objectivity and professional skepticism" of auditors. Now, it's soliciting feedback from academics and those connected to the issue for advice on how it can pass effective rules in a series of meetings.

Francine McKenna reports for American Banker that PCAOB has received responses that are overwhelmingly against the suggestion of mandating rotations between external auditors. Some of the biggest objections is that putting a limit on how long an audit firm can work with a client could lead to greater costs and that it would be too much work for auditors to field requests for proposals and market their services, McKenna says.

She cites research from Audit Analytics, which found that approximately 175 of the S&P 500 companies have had a relationship with one auditor for at least 25 years. Additionally, 20 businesses in the index have not changed their auditor for more than 50 years.

McKenna explains that she's against "mandatory auditor rotation because it's too much like term limits for elected officials … Companies would be forced to move their audit from one potentially corruptible audit firm to another."