A key recommendation of reformers back in the early 2000s, after the Enron and WorldCom frauds, was that public companies should have to rotate their auditors every few years, so that overly cozy ties didn't undermine the independence of auditors.
That never happened. Congress decided the issue needed to be "studied" further, and the matter soon disappeared. (Although Sarbanes-Oxley does require that specific partners rotate off a company's account every seven years.) But now, in the wake of the financial crisis, some powerful regulators are asking whether it's time to revisit the issue of auditor independence and mandate rotation of firms.
Last week, James Doty, chair of the Public Company Accounting Oversight Board (PCAOB), raised this issue in a speech in Pasadena. Among other things, Doty said that PCAOB has, in fact, now studied the issue of auditor independence by reviewing several thousand cases of how auditors have engaged with firms. Along the way, inspectors have identified hundreds of cases of "audit failures."