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GAO report says mandatory auditor rotation for SEC companies may not be efficient; loss of knowledge and additional costs outweigh benefits.

As directed by Congress in the Sarbanes-Oxley Act of 2002, the U.S. General Accounting Office was required to study the potential effects of mandatory audit firm rotation for companies reporting to the Securities and Exchange Commission. In its study released in Nov. 2003, Public Accounting Firms: Required Study on the Potential Effects of Mandatory Audit Firm Rotation (GAO-04-216), the GAO concludes that "mandatory audit firm rotation may not be the most efficient way to strengthen auditor independence and improve audit quality considering the additional financial costs and the loss of institutional knowledge of the public company's previous auditor of record, as well as the current reforms being implemented." It went on to say, "The potential benefits of mandatory audit firm rotation are harder to predict and quantify," though the GAO states it is fairly certain there will be additional costs.

The GAO believes several years of experience with implementation of the Sarbanes-Oxley Act's reforms are needed before the full effect of the Act's requirements can be assessed. It also suggests that audit committees, with their increased responsibilities under the Act, can play an important role in ensuring auditor independence.

For a copy of the report, visit the GAO's Web site at: (see GAO Reports)
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Title Annotation:regulatory matters; General Accounting Office, Securities and Exchange Commission
Publication:CPA Letter
Article Type:Brief Article
Geographic Code:1USA
Date:Jan 1, 2004
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