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Lawmakers blast audit watchdog as "activist"

By Sarah N. Lynch

WASHINGTON (Reuters) - Politicians slammed the U.S. auditing industry watchdog on Wednesday for its push toward publicizing disciplinary proceedings and for considering term limits for audit firms, saying such measures would amount to "regulatory overreach."

Republicans and some Democrats at a House of Representatives Financial Services subcommittee hearing criticized policy initiatives under way at the Public Company Accounting Oversight Board, or PCAOB, which polices the firms that audit corporations.

"I am very concerned about some of the recent activist proposals put forth by the PCAOB," said New Jersey Republican Scott Garrett, chairman of the panel that held the hearing.

Created by the 2002 Sarbanes-Oxley Act after book-cooking scandals at Enron Corp and other large businesses, the PCAOB has stepped up its scrutiny of audit firms since the financial crisis of 2007-2009 laid bare severe weaknesses.

LAWMAKERS TARGET ROTATION

One of the most controversial ideas being considered by the PCAOB is whether corporations should be made to switch audit firms every few years to boost their independence and keep them from becoming too cozy with corporate management.

Last week, the PCAOB held a two-day roundtable on the idea, known as auditor rotation, where it heard mixed views.

The Big Four audit firms - PricewaterhouseCoopers, KPMG, Deloitte & Touche LLC and Ernst & Young LLP - have been spending record-setting sums on lobbying and campaign donations in the face of several challenges from the PCAOB, including auditor rotation.

The firms oppose it and the U.S. Chamber of Commerce has been trying to persuade lawmakers to do the same. One Republican, Michael Fitzpatrick of Pennsylvania, has already drafted a bill that would strip the PCAOB of the authority to require rotation.

Other Republicans on the panel said they felt the PCAOB should not even start exploring the topic without first conducting a cost-benefit analysis to see if it is needed.

"Regulatory overreach at least appears to be alive and well at the PCAOB," said House Financial Services Committee Chairman Spencer Bachus.

He added he has "serious concerns" that auditor rotation could raise costs and reduce quality.

PCAOB Chairman James Doty told the panel the board had good reason to look into the issue, noting that examinations of audit firms by the PCAOB over time have uncovered examples where auditors' skepticism had been compromised.

"This is not an isolated issue," he said.

He also said the PCAOB is still in the very early stages of considering auditor rotation and it is too soon to say whether the board will even take any action.

"We are not committed to any particular approach to independence and objectivity," he said.

He added that it would be putting "the cart before the horse" to even begin a cost-benefit analysis at this point.

DISCIPLINE PLAN UNDER FIRE

On a related topic, some lawmakers on Wednesday attacked a push by the PCAOB for legislation to allow the board to make disciplinary proceedings against audit firms public.

Sarbanes-Oxley now bars the PCAOB from making such proceedings public unless both parties consent. The board argues this lets audit firms drag out legal proceedings for years while keeping audit committees in the dark.

The PCAOB has managed to win some bipartisan support for legal changes in the Senate, but House lawmakers have expressed skepticism.

"I understand the concern ... but I also want to hear whether there is any concern that by making these proceedings public, we are unnecessarily harming the reputation of a firm before any official action is taken," said Representative Carolyn Maloney, a Democrat. "Personally, I don't think we should do so unless there is an official action taken."

On the sidelines of the hearing, Doty later told reporters he was not overly concerned about lawmakers' skepticism and he expected them to have questions.

"This is a good start for us," he added.

(Editing by Kevin Drawbaugh and Andre Grenon)

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