WASHINGTON (Reuters) - Former Federal Reserve Chairman Paul Volcker backed a controversial proposal to impose term-limits for audit firms on Wednesday, saying it would serve as a powerful incentive to maintain professional discipline.
It does seem to me that regular audits should not become a sort of long-term annuity for the accounting firm paid for by the company being audited, rather than being responsive ... to the investing public, Volcker said at a roundtable convened in Washington by the Public Company Accounting Oversight Board.
The PCAOB, which polices audit firms across the United States, has been weighing whether to impose term limits on auditors. The idea is to bolster auditors' independence from clients and to prevent audit firms from becoming complacent over time and less willing to question senior management.
But the proposal would effectively break up business relationships that have existed for years, and it has provoked strong opposition from the accounting industry.
Volcker said he understands that the idea of requiring rotation of audit firms every so often makes the firms uneasy.
But he said his personal experiences, including his deep involvement in probing accounting failures at Arthur Andersen, convince him that this is the right path forward.
Volcker previously chaired an independent oversight board charged with reviewing accounting failures by Andersen, which collapsed in the wake of the book-cooking scandal at Enron Corp, which was an Andersen audit client.
More recently, Volcker has become best known for serving for a time as an economic adviser to President Barack Obama and for his signature Volcker rule, a part of the 2010 Dodd-Frank Wall Street reform laws. The rule curbs banks' proprietary trading.
Volcker also on Wednesday said that audit partners should be required to sign audit reports, saying it would help add to their sense of personal responsibility.
The PCAOB is considering requiring audit partners to put their names on audit reports accompanying financial statements.