29–006 

113TH CONGRESS REPORT " ! HOUSE OF REPRESENTATIVES 1st Session 113–142 

AUDIT INTEGRITY AND JOB PROTECTION ACT 

JULY 8, 2013.—Committed to the Committee of the Whole House on the State of 

the Union and ordered to be printed 

Mr. HENSARLING, from the Committee on Financial Services, 

submitted the following 

R E P O R T 

[To accompany H.R. 1564] 

[Including cost estimate of the Congressional Budget Office] 

The Committee on Financial Services, to whom was referred the 

bill (H.R. 1564) to amend the Sarbanes-Oxley Act of 2002 to prohibit the Public Company Accounting Oversight Board from requiring public companies to use specific auditors or require the use of 

different auditors on a rotating basis, having considered the same, 

report favorably thereon with an amendment and recommend that 

the bill as amended do pass. 

The amendment is as follows: 

Strike all after the enacting clause and insert the following: 

SECTION 1. SHORT TITLE. 

This Act may be cited as the ‘‘Audit Integrity and Job Protection Act’’. 

SEC. 2. LIMITATION ON AUTHORITY RELATING TO AUDITORS. 

Section 103 of the Sarbanes-Oxley Act of 2002 (15 U.S.C. 7213) is amended by 

adding at the end the following: 

‘‘(e) LIMITATION ON AUTHORITY.—The Board shall have no authority under this 

title to require that audits conducted for a particular issuer in accordance with the 

standards set forth under this section be conducted by specific auditors, or that such 

audits be conducted for an issuer by different auditors on a rotating basis.’’. 

SEC. 3. STUDY OF MANDATORY ROTATION OF REGISTERED PUBLIC ACCOUNTING FIRMS. 

(a) STUDY AND REVIEW REQUIRED.—The Comptroller General of the United States 

shall update its November 2003 report entitled ‘‘Study on the Potential Effects of 

Mandatory Audit Firm Rotation’’, and review the potential effects, including the 

costs and benefits, of requiring the mandatory rotation of registered public accounting firms. In addition, the update shall include a study of— 

(1) whether mandatory rotation of registered public accounting firms would 

mitigate against potential conflicts of interest between public accounting firms 

and issuers; 

(2) whether mandatory rotation of registered public accounting firms would 

impair audit quality due to the loss of loss of industry or company-specific 


smartinez on DSK6TPTVN1PROD with REPORTS
2 

knowledge gained by a public accounting firm through years of experience auditing the issuer; and 

(3) what affect the Sarbanes-Oxley Act of 2002 has had on registered public 

accounting firms’ independence and whether additional independence reforms 

are needed. 

(b) REPORT REQUIRED.—Not later than 1 year after the date of enactment of this 

Act, the Comptroller General shall submit a report to the Committee on Banking, 

Housing, and Urban Affairs of the Senate and the Committee on Financial Services 

of the House of Representatives on the results of the study and review required by 

this section. 

(c) DEFINITION.—For purposes of this section, the term ‘‘mandatory rotation’’ refers to the imposition of a limit on the period of years in which a particular registered public accounting firm may be the auditor of record for a particular issuer. 

PURPOSE AND SUMMARY

H.R. 1564, the ‘‘Audit Integrity and Job Protection Act,’’ amends 

section 103 of the Sarbanes-Oxley Act of 2002 (‘‘Sarbanes-Oxley’’), 

18 U.S.C. 1514A et seq., to prohibit the Public Company Accounting 

Oversight Board (PCAOB) from requiring U.S. public companies to 

use specific auditors or require the use of different auditors on a 

rotating basis. H.R. 1564 also requires the Government Accountability Office (GAO) to update its November 2003 ‘‘Study on the Potential Effects of Mandatory Audit Firm Rotation,’’ and report to 

Congress on the potential effects, including the costs and benefits, 

of requiring mandatory rotation of audit firms. 

BACKGROUND AND NEED FOR LEGISLATION

H.R. 1564 responds to an August 16, 2011 PCAOB Concept Release on Auditor Independence and Audit Firm Rotation (‘‘Concept 

Release’’), which sought public comment on ‘‘whether mandatory 

auditor rotation would significantly enhance auditors’ objectivity 

and ability and willingness to resist management pressure.’’ The 

Concept Release sets forth the arguments for and against mandatory audit firm rotation, as well as the history of proposals for 

audit firm rotation dating back to 1977, when Congress created the 

Cohen Commission after several corporate scandals. The Cohen 

Commission ultimately decided against mandating audit firm rotation, and instead recommended that audit committees retain discretion in deciding whether to rotate audit firms or make periodic 

personnel changes within the audit team of the auditing firm. Mandatory audit firm rotation was raised again in 2002 during congressional debate on what ultimately became Sarbanes-Oxley, but was 

again rejected. In November 2003, the GAO released its Study on 

the Potential Effects of Mandatory Audit Firm Rotation, as required under Sarbanes-Oxley, which concluded ‘‘that mandatory 

audit firm rotation may not be the most efficient way to strengthen 

auditor independence and improve audit quality. . . .’’ 

The original comment period for the PCAOB’s Concept Release 

ended in December 2011. But after receiving more than 600 comments—with 96 percent of comments opposed to the concept of 

mandatory audit firm rotation—the PCAOB extended the comment 

period to the end of April 2012. The PCAOB also hosted two days 

of roundtables on the issue in March 2012. The PCAOB has yet to 

issue any rules requiring mandatory audit form rotation for U.S. 

public companies. 

Rather than promoting auditor independence, objectivity, and 

professional skepticism, imposing a mandatory audit firm rotation 


smartinez on DSK6TPTVN1PROD with REPORTS
3 

requirement on U.S. public companies would likely degrade audit 

quality by hindering the ability of auditors to develop detailed 

knowledge of their clients’ management and operations through 

long-term audit engagements. On December 14, 2011, BlackRock, 

Inc., the world’s largest asset management firm, wrote to the 

PCAOB, ‘‘We do not support mandatory auditor rotation, principally because we are not aware of any empirical evidence that indicates that mandatory rotation would improve auditor independence and skepticism. While auditor rotation may theoretically reduce certain risks, it also is likely to create other risks, such as 

auditor loss of institutional knowledge and a reduced incentive for 

audit firms to invest in the audit relationship by relocating the 

most qualified personnel or investing in travel and training to 

learn the business.’’ Similarly, on May 23, 2013, Robert Smith, Corporate Secretary, Vice President & General Counsel of NiSource, 

Inc., testified on behalf of the Society of Corporate Secretaries and 

Governance Professionals before the House Committee on Financial 

Services’ Subcommittee on Capital Markets and Government Sponsored Enterprises, ‘‘Evidence in the [PCAOB] Release indicates that 

audit quality in the first years of an engagement tends to be lower, 

and therefore could lead to a greater risk of audit failure. With a 

mandatory rotation rule in place, companies will spend more time 

in a short-tenure audit situation, and overall audit quality will be 

negatively impacted.’’ 

Moreover, any benefits of mandatory audit firm rotation are 

questionable given that there are often only a limited number of 

firms available to conduct public company audits, particularly for 

the largest multi-national corporations. On December 14, 2011, the 

Walt Disney Company wrote to the PCAOB, ‘‘We believe that only 

four audit firms (the Big 4) currently have the scope of operations 

and experience that most large, global, multi-segment companies 

require for an effective audit; the periodic elimination of one of 

those firms will substantially reduce viable options.... Thus, 

mandatory auditor rotation may force the selection of a sub-optimal 

firm and, ironically, reduce audit quality.’’ In a December 14, 2011 

letter to the PCAOB, The Proctor & Gamble Company voiced similar concerns, stating, ‘‘As a large multinational company, we employ all of the ‘Big 4’ account firms—one as an independent auditor 

and the other three through various consultative capacities . . . . 

Requiring us to rotate auditors on a regular basis would have a 

detrimental impact on our ability to source our non-audit consulting needs. At a minimum, we would need to effectively decide 

on our auditors one or two rotations out in order to insure the new 

auditors are independent at the time of rotation. This would effectively lock us into our next auditor and eliminate any fee leverage 

we have in selecting our auditors. This could dramatically increase 

the audit costs and be harmful to shareholders.’’ 

Mandatory audit firm rotation may also result in significant 

added costs for public companies. On July 17, 2012, the Business 

Roundtable informed the PCAOB of a survey it conducted which 

found that companies ‘‘that had changed audit firms within the 

past ten years estimated that the cost of doing so, including additional management time and company resources, ranged from 

$500,000 to over $5 million.’’ On May 23, 2013, Robert Smith testified before the Subcommittee on Capital Markets and Government 


smartinez on DSK6TPTVN1PROD with REPORTS
4 

Sponsored Enterprises, ‘‘Mandatory auditor rotation will lead to 

both increased audit costs as well as increased costs for audit-related services. This is supported by the GAO’s 2003 Report, which 

found that nearly all of the larger audit firms surveyed estimated 

that initial audit year costs would be more than 20% higher than 

subsequent year’s costs; the responses from the Fortune 1000 public companies were similar.’’ 

In addition, mandatory audit firm rotation would encroach on 

important corporate governance responsibilities traditionally exercised by public company audit committees. On December 14, 2011, 

the National Association of Corporate Directors (NACD) wrote to 

the PCAOB, ‘‘NACD has not seen evidence that supports the proposition that mandatory audit firm rotation improves the auditor’s 

independence, objectivity, skepticism, or otherwise improves audit 

quality, and consequently, the quality of financial reporting. Rather, we believe that mandated audit firm rotation could potentially 

undermine the statutory responsibility and authority of audit committees to select the best auditor for their companies.’’ On May 23, 

2013, Thomas Quaadman, Vice President of the U.S. Chamber of 

Commerce Center for Capital Markets Competitiveness, testified 

before the Subcommittee on Capital Markets and Government 

Sponsored Enterprises, ‘‘Mandatory audit firm rotation would reduce the supervision and oversight of the audit committee and 

management, rolling back strong corporate governance policies....With the continued consideration of the concept release 

on mandatory audit firm rotation. . . .the PCAOB is leaving the 

realm of audit regulation and crossing the threshold of regulating 

corporate governance, a subject area that has been left to state corporate law and the Securities Exchange Commission. 

HEARINGS

The Committee on Financial Services’s Subcommittee on Capital 

Markets and Government Sponsored Enterprises held a hearing on 

H.R. 1564 on May 23, 2013. 

COMMITTEE CONSIDERATION

The Committee on Financial Services met in open session on 

June 19, 2013, and ordered H.R. 1564, as amended, to be reported 

favorably to the House by a recorded vote of 52 yeas to 0 nays (recorded vote no. FC–18), a quorum being present. 

COMMITTEE VOTES

Clause 3(b) of rule XIII of the Rules of the House of Representatives requires the Committee to list the record votes on the motion 

to report legislation and amendments thereto. The sole recorded 

vote occurred on the chairman’s motion to report H.R. 1564, as 

amended, favorably to the House. The motion was agreed to by a 

vote of 52 yeas to 0 nays, as follows: 

RECORD VOTE NO. FC–18 

Representative Yea Nay Present Representative Yea Nay Present 

Mr. Hensarling ...................... X ........... ............. Ms. Waters ........................... X ........... .............

Mr. Gary G. Miller (CA) ......... ........... ........... ............. Mrs. Maloney (NY) ................ X ........... .............


smartinez on DSK6TPTVN1PROD with REPORTS
5 

RECORD VOTE NO. FC–18—Continued 

Representative Yea Nay Present Representative Yea Nay Present 

Mr. Bachus ........................... X ........... ............. Ms. Vela ́zquez ...................... X ........... .............

Mr. King (NY) ........................ ........... ........... ............. Mr. Watt ............................... X ........... .............

Mr. Royce .............................. X ........... ............. Mr. Sherman ........................ X ........... .............

Mr. Lucas .............................. ........... ........... ............. Mr. Meeks ............................. X ........... .............

Mrs. Capito ........................... X ........... ............. Mr. Capuano ........................ ........... ........... .............

Mr. Garrett ............................ X ........... ............. Mr. Hinojosa ......................... X ........... .............

Mr. Neugebauer .................... X ........... ............. Mr. Clay ................................ X ........... .............

Mr. McHenry .......................... X ........... ............. Mrs. McCarthy (NY) .............. ........... ........... .............

Mr. Campbell ........................ X ........... ............. Mr. Lynch ............................. X ........... .............

Mrs. Bachmann .................... X ........... ............. Mr. David Scott (GA) ............ X ........... .............

Mr. McCarthy (CA) ................ X ........... ............. Mr. Al Green (TX) ................. X ........... .............

Mr. Pearce ............................. X ........... ............. Mr. Cleaver ........................... ........... ........... .............

Mr. Posey .............................. X ........... ............. Ms. Moore ............................. X ........... .............

Mr. Fitzpatrick ....................... X ........... ............. Mr. Ellison ............................ X ........... .............

Mr. Westmoreland ................. ........... ........... ............. Mr. Perlmutter ...................... X ........... .............

Mr. Luetkemeyer .................... X ........... ............. Mr. Himes ............................. X ........... .............

Mr. Huizenga (MI) ................. X ........... ............. Mr. Peters (MI) ..................... X ........... .............

Mr. Duffy ............................... X ........... ............. Mr. Carney ............................ X ........... .............

Mr. Hurt ................................ X ........... ............. Ms. Sewell (AL) .................... X ........... .............

Mr. Grimm ............................. X ........... ............. Mr. Foster ............................. ........... ........... .............

Mr. Stivers ............................ X ........... ............. Mr. Kildee ............................. X ........... .............

Mr. Fincher ............................ X ........... ............. Mr. Murphy (FL) ................... X ........... .............

Mr. Stutzman ........................ X ........... ............. Mr. Delaney .......................... X ........... .............

Mr. Mulvaney ........................ X ........... ............. Ms. Sinema .......................... X ........... .............

Mr. Hultgren .......................... X ........... ............. Mrs. Beatty ........................... X ........... .............

Mr. Ross ................................ X ........... ............. Mr. Heck (WA) ...................... X ........... .............

Mr. Pittenger ......................... X ........... .............

Mrs. Wagner .......................... X ........... .............

Mr. Barr ................................ X ........... .............

Mr. Cotton ............................. ........... ........... .............

Mr. Rothfus ........................... X ........... .............

COMMITTEE OVERSIGHT FINDINGS

Pursuant to clause 3(c)(1) of rule XIII of the Rules of the House 

of Representatives, the Committee has held hearings and made 

findings that are reflected in this report. 

PERFORMANCE GOALS AND OBJECTIVES

Pursuant to clause 3(c)(4) of rule XIII of the Rules of the House 

of Representatives, the Committee states that H.R. 1564 will, 

among other things, amend Sarbanes-Oxley to prohibit the PCAOB 

from requiring the rotation of auditors of public companies. 

NEW BUDGET AUTHORITY, ENTITLEMENT AUTHORITY, AND TAX

EXPENDITURES

In compliance with clause 3(c)(2) of rule XIII of the Rules of the 

House of Representatives, the Committee adopts as its own the estimate of new budget authority, entitlement authority, or tax expenditures or revenues contained in the cost estimate prepared by 

the Director of the Congressional Budget Office pursuant to section 

402 of the Congressional Budget Act of 1974. 

COMMITTEE COST ESTIMATE

The Committee adopts as its own the cost estimate prepared by 

the Director of the Congressional Budget Office pursuant to section 

402 of the Congressional Budget Act of 1974. 


smartinez on DSK6TPTVN1PROD with REPORTS
6 

CONGRESSIONAL BUDGET OFFICE ESTIMATES

Pursuant to clause 3(c)(3) of rule XIII of the Rules of the House 

of Representatives, the following is the cost estimate provided by 

the Congressional Budget Office pursuant to section 402 of the 

Congressional Budget Act of 1974: 

U.S. CONGRESS, CONGRESSIONAL BUDGET OFFICE, Washington, DC, July 3, 2013. 

Hon. JEB HENSARLING, 

Chairman, Committee on Financial Services, 

House of Representatives, Washington, DC. 

DEAR MR. CHAIRMAN: The Congressional Budget Office has prepared the enclosed cost estimate for H.R. 1564, the Audit Integrity 

and Job Protection Act. 

If you wish further details on this estimate, we will be pleased 

to provide them. The CBO staff contact is Susan Willie. 

Sincerely, 

ROBERT A. SUNSHINE

(For Douglas W. Elmendorf, Director). 

Enclosure. 

H.R. 1564—Audit Integrity and Job Protection Act 

H.R. 1564 would prohibit the Public Company Accounting Oversight Board (PCAOB) from requiring public companies to use a specific auditor or to use different auditors on a rotating basis. The bill 

also would require the Government Accountability Office (GAO) to 

update a report completed in 2003 that reviewed the potential effects of mandatory rotation for auditing firms. 

Based on information from the PCAOB, CBO estimates that enacting H.R. 1564 would not affect direct spending or revenues; 

therefore, pay-as-you-go procedures do not apply. The PCAOB has 

no immediate plans to issue a ruling specifying how public companies should choose a financial auditor; therefore, the prohibition in 

H.R. 1564 would not change its workload. Based on information 

about similar reporting efforts, CBO estimates that implementing 

H.R. 1564 would have a discretionary cost of about $1 million for 

the GAO to complete the required study and report. 

H.R. 1564 contains no intergovernmental or private-sector mandates as defined in the Unfunded Mandates Reform Act and would 

not affect the budgets of state, local, or tribal governments. 

The CBO staff contact for this estimate is Susan Willie. The estimate was approved by Theresa Gullo, Deputy Assistant Director 

for Budget Analysis. 

FEDERAL MANDATES STATEMENT

The Committee adopts as its own the estimate of Federal mandates prepared by the Director of the Congressional Budget Office 

pursuant to section 423 of the Unfunded Mandates reform Act. 

ADVISORY COMMITTEE STATEMENT

No advisory committees within the meaning of section 5(b) of the 

Federal Advisory Committee Act were created by this legislation. 


smartinez on DSK6TPTVN1PROD with REPORTS
7 

APPLICABILITY TO LEGISLATIVE BRANCH

The Committee finds that the legislation does not relate to the 

terms and conditions of employment or access to public services or 

accommodations within the meaning of the section 102(b)(3) of the 

Congressional Accountability Act. 

EARMARK IDENTIFICATION

H.R. 1564 does not contain any congressional earmarks, limited 

tax benefits, or limited tariff benefits as defined in clause 9 of rule 

XXI. 

DUPLICATION OF FEDERAL PROGRAMS

Pursuant to section 3(j) of H. Res. 5, 113th Cong. (2013), the 

Committee states that no provision of H.R. 1564 establishes or reauthorizes a program of the Federal Government known to be duplicative of another Federal program, a program that was included 

in any report from the Government Accountability Office to Congress pursuant to section 21 of Public Law 111–139, or a program 

related to a program identified in the most recent Catalog of Federal Domestic Assistance. 

DISCLOSURE OF DIRECTED RULEMAKING

Pursuant to section 3(k) of H. Res. 5, 113th Cong. (2013), the 

Committee states that H.R. 1564 contains no directed rulemaking. 

SECTION-BY-SECTION ANALYSIS OF THE LEGISLATION

Section 1. Short title 

This Section cites H.R. 1564 as the ‘‘Audit Integrity and Job Protection Act.’’ 

Section 2. Limitation on authority relating to auditors 

This section amends Section 103 of Sarbanes-Oxley by removing 

any authority the PCAOB may have under that title to require that 

audits conducted for a particular issuer be conducted by specific 

auditors, or that such audits be conducted for an issuer by different 

auditors on a rotating basis. 

Section 3. Study of mandatory rotation of registered public accounting firms 

This section requires the GAO to update its November 2003 report entitled ‘‘Study on the Potential Effects of Mandatory Audit 

Firm Rotation,’’ and report to Congress within 1 year of the date 

of enactment of H.R. 1564 on the potential effects, including the 

costs and benefits, of requiring mandatory rotation of registered 

public accounting firms. 

CHANGES IN EXISTING LAW MADE BY THE BILL, AS REPORTED

In compliance with clause 3(e) of rule XIII of the Rules of the 

House of Representatives, changes in existing law made by the bill, 

as reported, are shown as follows (new matter is printed in italic 

and existing law in which no change is proposed is shown in 

roman): 


smartinez on DSK6TPTVN1PROD with REPORTS
8 

SARBANES-OXLEY ACT OF 2002 

* * * * * * * 

TITLE I—PUBLIC COMPANY 

ACCOUNTING OVERSIGHT BOARD 

* * * * * * * 

SEC. 103. AUDITING, QUALITY CONTROL, AND INDEPENDENCE STANDARDS AND RULES. 

(a) * * * 

* * * * * * * 

(e) LIMITATION ON AUTHORITY.—The Board shall have no authority under this title to require that audits conducted for a particular 

issuer in accordance with the standards set forth under this section 

be conducted by specific auditors, or that such audits be conducted 

for an issuer by different auditors on a rotating basis. 

* * * * * * * 

Æ 


smartinez on DSK6TPTVN1PROD with REPORTS