In the U.S. House of Representatives, it seems, no battle against sensible regulatory reform is too small to throw your weight behind. Hence on Monday night the House of Representatives passed H.R. 1564, the “Audit Integrity and Job Protection Act,” a bill that prohibits the Public Company Accounting Oversight Board  from requiring companies to “use specific auditors or require the use of different auditors on a rotating basis.” The legislation — a proposed amendment to the Sarbanes-Oxley Act of 2002 — whizzed through the House Financial Services Committee in the spring, and was overwhelmingly passed, 321-62.

When, prior to this, has Congress pre-empted action by an industry watchdog on such an isolated issue? Forget about auditor rotation a minute. What is the House of Representatives doing stepping into an intramural debate about a relatively arcane accounting controversy, with so much other work to be done on vital national issues like immigration reform? Aren’t questions about auditor independence better left to a knowledgeable regulator like the Securities and Exchange Commission, which has to hold a comment period and approve any rules adopted by the PCAOB?

Barbara Roper, director of investor protection for the Consumer Federation of America, expressed her disbelief in an email to CFO: “Regulators around the globe have expressed concern over the persistent lack of independence and professional skepticism in the audits of public companies. Congress’s response? To make it more difficult for the PCAOB to take even modest steps to address that problem. You’d think that, after dozens of major financial institutions either failed or were saved from failure by a government bailout, Congress might want to know why the auditors failed to provide any advance warning or, better yet, to prevent any of the accounting games that helped put those financial institutions at risk. But apparently they are more concerned with assuring that nothing changes in our dysfunctional financial system.” 

Or assuring that no vulnerable piece of the Dodd-Frank Wall Street Reform and Consumer Protection and Sarbanes-Oxley Acts remains untouched. The House Financial Services Committee, especially lately, has been singularly focused on rolling back these financial regulations in the name of removing “the red tape burden on job creators.” A bill that made it through the Financial Services Committee in June would exempt advisers to private-equity funds from registration requirements under Title IV of Dodd-Frank, for example. And an upcoming hearing of one of its subcommittees on July 9 will examine “whether sections of the Dodd-Frank Act concerning ‘Too Big to Fail’ financial institutions are unconstitutional.”

But the move to block the PCAOB seems particularly flagrant example of pandering to business interests in the financial arena.

The PCAOB never formally proposed mandatory auditor rotation or put it to a vote. In the 684 comment letters about the PCAOB’s two-year-old concept release on audit firm rotation, it’s hard (nay, impossible) to find one that wholeheartedly backs the idea of public companies having to periodically rotate their auditors. The consensus among those that don’t vehemently oppose the concept is that working toward greater auditor independence is important, but rotation probably isn’t the best way to do it. An idea so reviled by auditors and clients alike would hardly have a chance of getting enacted.

Indeed, H.R. 1564 seems to be about the PCAOB more than it is about auditor independence and objectivity, or that jobs will be lost if Fortune 500 companies have to switch audit firms every five years. As a private-sector, nonprofit corporation, the PCAOB is a sitting duck for politicians and the well-funded auditing industry. They clearly want to drain it of its power. The PCAOB earned the vitriol of auditing firms early on because it supplanted their system of self-regulation under audit standards penned by the American Institute of Certified Public Accountants. As CFO reported in July 2003, when the independent-minded PCAOB first came on the scene, Congress and then-President George W. Bush, made it clear via Sarbox that the AICPA would no longer be the arbiter of standards for the audit industry. (The AICPA makes substantial donations to federal political candidates through its political action committee — almost as much as the large auditing firms do through theirs.)

But although the PCAOB has since become an easy target, the AICPA and its members still fear it.

“After nearly 10 years of inspecting the audits of issuers, the PCAOB has identified hundreds of engagements that did not meet PCAOB standards in significant respects,” said PCAOB Chairman James Doty in an April 2013 speech. In 2012, the director of the PCAOB’s enforcement unit stated publicly that the board faces considerable resistance from accounting firms – and even tampering — when it has to look over their work. In 2011, for example, it banned an Ernst & Young partner for three years for backdating documents that the PCAOB was using to evaluate an audit.

Then there’s the fact that in the Senate the PCAOB has some allies. In April, Sens. Jack Reed, D-R.I., and Chuck Grassley, R-Iowa, reintroduced a bill that would make the PCAOB’s disciplinary proceedings against auditing and accounting firms public. The bill, the PCAOB Enforcement Transparency Act, would bring auditing deficiencies to light in a timely manner and thus deter violations, they say.

Public hearings of auditing firms have as much chance of happening as mandatory auditor rotation does. But a ban on auditor rotation could happen. If it did, might legislators be heading toward marginalizing an organization that has made progress at independently overseeing auditors? It’s not that far-fetched an idea. Maybe this isn’t such a small fight after all.

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