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House panel OKs bill to prohibit mandatory auditor rotation

By Sarah N. Lynch

WASHINGTON (Reuters) - In a rare show of bipartisanship, the U.S. House Financial Services Committee unanimously approved a bill on Wednesday that would prohibit mandatory rotation of auditors among companies to avoid fraud and financial misconduct.

The bill comes after the Public Company Accounting Oversight Board, an auditor watchdog, debated whether a new policy requiring audit firms to rotate clients every few years would help promote auditor independence.

The PCAOB was created by the Sarbanes-Oxley Act as a response to accounting scandals, such as Enron and Worldcom. The Enron case led to the demise of Enron's auditor, the accounting firm Arthur Andersen.

Those who favor requiring audit firm rotation, such as former Federal Reserve Chairman Paul Volcker, say it would help keep firms from becoming too cozy with corporate management.

But the idea has prompted strong opposition from the industry, including PricewaterhouseCoopers, KPMG, Deloitte & Touche LLC and Ernst & Young LLP.

"It is boards of directors, management and shareholders who should ultimately make the decision about which accounting firms should audit a company's financial statements -- not the PCAOB," said Jeb Hensarling, Republican chairman of the House committee.

The committee also approved a bill that would place additional requirements on the U.S. Securities and Exchange Commission and the Department of Labor before they can adopt rules to establish a new ethical standard for brokers who give financial advice.

SEC officials have been considering imposing a uniform fiduciary standard for brokers and investment advisers. A second rulemaking at the U.S. Department of Labor would impose fiduciary responsibilities only on advisers to retirement plans.

Critics have raised concerns about potential discrepancies between the two approaches by the two agencies.

The bill would delay rulemaking efforts at both agencies by requiring the SEC to take more steps before adopting a rule and requiring the Labor Department to wait for the SEC to complete its rulemaking first.

(Reporting by Sarah N. Lynch; Editing by Kenneth Barry)

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