A broad bipartisan coalition of lawmakers in the House of Representatives passed legislation July 8, 2013, to block the PCAOB from forcing public companies to rotate their outside auditors every few years.

The bill, supported by the Big Four audit firms, the AICPA, and large businesses, passed 321-62. Its smooth sailing through the House was presaged by a 52-0 vote in the House Financial Services Committee. Although the bill enjoyed easy passage in the lower chamber, a press aide for the lead sponsor, Rep. Robert Hurt (R-VA), said no one in the Senate has committed to taking it up, though Hurt is working with “members on both sides of the aisle.”

Since taking over the audit regulator in 2011, Chairman James Doty has pushed for some significant reforms that he has said would combat the conflicts of interest that still plague the way audit firms deal with their clients and weaken investor protections.

Some large public companies have used the same accounting firm for a century; others for decades. Doty and some market reformers see the many years of business ties as a sign that audit firms identify too closely with a client and don’t stand apart to protect investors, which is what they’re legally required to do. Forced rotation is viewed as a way to prompt auditors to carry out their obligations to shareholders.

The AICPA threw its support behind the bill early, and it appeared to bring its influence to bear on the House floor. Along with EY, Deloitte & Touche LLP, PricewaterhouseCoopers LLP, and KPMG LLP, and the Center for Audit Quality, the AICPA stressed that there’s no evidence that mandatory rotation would improve audit quality.

The bill’s supporters said it could harm audit quality by placing auditors unfamiliar with a company’s activities on the job, and that public companies would incur extra, unnecessary costs.Passage of the bill will prevent “rule making that would have serious consequences for American business owners, investors and consumers,” Hurt said before the House Financial Services Committee’s June vote. “It would significantly impair the quality of audits, impose unnecessary costs that impede investment, and harm consumers.”

With the European Union considering a similar measure, the bill’s supporters say it was important for Congress to send a message across the Atlantic that the U.S. wouldn’t be imposing mandatory rotation. Legislation requiring audit firm rotation after up to 14 years passed a committee of European Parliament in April, and the full body is expected to consider the bill later this year.

“In the absence of evidence that mandatory audit firm rotation would enhance audit quality, the House has sent regulators in the U.S. and Europe a clear message that the time has come to end the debate over rotation,” said Barry Melancon, president and CEO of the AICPA. Citing a “misimpression in Europe” that the continued discussion surrounding audit firm rotation in Congress and by the PCAOB signaled that the U.S. would take that step, Melancon said the House vote “will go a long way toward alleviating confusion and uncertainty for policy makers and stakeholders on both sides of the Atlantic.”

The PCAOB did not comment specifically on the vote, but it did not say it considered the matter of mandatory audit firm rotation decided. With the bill’s fate in the Senate uncertain, it appears the issue is not dead yet.

If you have questions about this or any other matters, contact your Warren Averett partner, or any member of our SEC Practice Division at (813) 229-2321.