NYSSCPA Sends Message to D.C. About Baucus Pitch, Firm Rotation

By:
CHRIS GAETANO
Published Date:
Feb 24, 2014

The NYSSCPA is urging Sen. Charles E. Schumer (D-N.Y.) to lend his voice to two critical accounting issues making the rounds on Capitol Hill. In a letter dated Dec. 18, the Society wrote to Schumer concerning a proposal put forward by Sen. Max Baucus (D-Mont.), chair of the Senate Finance Committee. In November, Baucus issued a Cost Recovery and Accounting staff discussion draft that, among other things, suggested that all entities be required to change to the accrual method of accounting if their average gross receipts exceed $10 million. However, the Society cautioned, this would eliminate exceptions that currently exist for “all natural persons, certain pass-through entities (i.e., partnerships and S corporations), farmers and personal service corporations” and would create undue burdens.

“The provision … would require these companies to change to the accrual method, force their owners to pay tax before they have the cash to pay it, and add unnecessary complexity and costs,” the Society said. “As CPAs, we believe tax reform should promote simplicity and economic growth and should not create unnecessary administrative and financial burdens.”

In a second letter, sent to Schumer on Jan. 2, the NYSSCPA expressed support for S. 1526, the Audit Integrity and Job Protection Act, a measure that would prevent the Public Company Accounting Oversight Board (PCAOB) from mandating audit firm rotation among public companies. The Society urged Schumer to co-sponsor the bill, which passed the House in July, and must now go to the Senate for consideration.

The PCAOB has been exploring mandatory audit firm rotation as one way to increase auditor independence, noting in an August 2011 concept release that its inspections “frequently find audit deficiencies that may be attributable to [auditors’] failure to exercise the required professional skepticism and objectivity.”

But in a December 2011 comment letter authored by members of its Auditing Standards and SEC committees, the Society disagreed with the idea, saying that the PCAOB failed to effectively link audit failures with lack of independence. Furthermore, the Society asserted that mandatory auditor rotation would be disruptive to the audit industry. 

“We remain concerned that mandatory audit firm rotation could have unintended consequences and ultimately reduce audit quality,” the Society wrote to Schumer. “Mandatory firm rotation will limit the accumulation of knowledge and experience upon which an audit firm develops an understanding of a specific company’s operations.” 

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