Auditor Term Limits: Another Irrelevant Idea

Arthur Levitt, former SEC Commissioner, has weighed in favor of "auditor term limits."  This will do nothing but impose costs on companies, and, as usual, those costs will fall disproportionately on smaller companies which don't have armies of people in finance, tax, treasury and accounting.  As a stockholder, already facing meager returns, I wouldn't get excited by this proposal.

It will also add to SOX expenses for no value-added, as auditors will not agree on the identity and number of key controls, which in turn will lengthen audit committee deliberations, particularly for companies which are trying to remediate already existing weaknesses and deficiencies.

This foolish idea will not:

1. Result in higher quality audits
2. Reduce risk for institutional investors.
3. Improve transparency or utility of financial statements produced by issuers.
4. Make auditors work harder on existing engagements.
5. Have any economic benefit beyond political window dressing.

Expect to see board expenses go up because of more audit committee meetings, legal fees go up for outside counsel reviews, and watch audit fees and SOX consulting fees rise also.

As we enter the campaign season, it makes for good headlines, though.