Last week, I blogged about the PCAOB’s concept release on mandatory audit firm rotation – which essentially floats the idea of mandatory firm rotation every 10 years, at least for large companies. Here’s some thoughts from a Forbes’ article penned by Francine McKenna. And here’s a reaction from an inhouse member:
The thing that surprised me the most as I read through this release is that it essentially admits that not only have the regulators not found any correlation between audit failures and long-term audit firm tenure — but academic studies essentially have found the opposite. On a related note, the concept release quotes heavily from a detailed GAO study issued in 2003 that recommended against mandatory rotation for a variety of reasons, including estimates that initial year audit costs would increase by over 20% and that there would be an increased risk of audit failures in the early years of the audit. The concept release even admits that based on its experience conducting inspections since the GAO report, the PCAOB believes that audit quality has improved since then — yet they still put out this release, stating generally that “more can be done to bolster auditors’ ability and willingness to resist management pressure.”
In light of all this, I have to believe that some comment letters will be tempted to quote from the recent proxy access decision, to remind the regulators that they must adequately consider the effect of any new rules upon efficiency, competition and capital formation. In addition, that case reminds the regulators that they must rely on sufficient empirical evidence when claiming benefits of a new rule – the agency must examine the relevant data and articulate a satisfactory explanation for its action, including a rational connection between the facts found and the choices made. I understand that we are just at the concept release phase – and do not even have proposed rules never mind final rules to fight at this stage. But I think the PCAOB really has an uphill battle on this one, and I can’t figure out why they are pursuing something like this at this time.
Voluntary Early Disclosure of Material Events: Is it OK to Stop?
I just finished reading the July-August issue of The Corporate Counsel that was just mailed and I was struck by this question because it’s something I’ve often been asked. In other words, whether an issuer that chooses to report under Item 8.01 of Form 8-K material events that are not required to be reported on Form 8-K has created a duty to continue filing voluntary 8-Ks when similar events occur in the future? The theory is that the duty would be based on an implied representation to investors that such events will be disclosed promptly rather than after the end of the quarter, on Form 10-Q/K. This question is different from the question of whether an issuer has a “duty to update” previously disclosed information. Check out your copy of the July-August issue to read Alan Dye’s analysis on this challenging topic (or if not yet a subscriber, try a “Rest of 2011 for Free” when you try a ’12 No-Risk Trial).
Mailed: July-August Issue of The Corporate Counsel
The July-August issue of The Corporate Counsel was just mailed to subscribers. This issue includes important practical guidance on:
– What You Should Be Doing Now With Respect to Proxy Access
– Staff Confirms/Clarifies 8-K and S-K Item 401 Interpretations
– Disclosure of Broker Non-Votes on the Say-on-Frequency Proposal
– Use of Non-GAAP Financial Measures to Demonstrate (vs. Explain) Pay for Performance
– The CSX Case–Still Not Clear Whether Cash-Settled Equity Swaps Confer 13(d) Beneficial Ownership
– Voluntary Early Disclosure of Material Events–Is it OK to Stop?
– Whither the Devon Energy Corp. 701 No-Action Letter?
– Communications with Auditors: Citing the Right Auditing Standard
Act Now: Get the “Rest of 2011 for Free” when you try a ’12 No-Risk Trial now.
– Broc Romanek