Rotating in Quality?

Proposal would require companies
to switch auditing firms regularly

Many in the auditing community are up in arms over a recent federal proposal that would require public companies to regularly switch the auditing firms they use.

A federal panel said the change is necessary to improve the quality of audits, as well as boost companies’ accountability and transparency. But many in the auditing community said the move will actually hurt the quality of audits and cost everybody more.

The plan—proposed by the Public Company Accounting Oversight Board (PCAOB) last year and still in its early stages—would require term limits on the number of consecutive years a registered public accounting firm could serve as an auditor for a public company.

These limits—which could be set at 10 years—would eliminate some of the "chumminess" between some audit firms and their clients, designers of the plan said.1

The plan also is intended to help instill more investor confidence in companies, which would be required to rotate auditors even if the auditors had been serving the companies without any problems.

"One cannot talk about audit quality without discussing independence, skepticism and objectivity," said James Doty, PCAOB chair.2

Audit firms opposed to the rotation are pressuring Congress to intervene. In March, the House Financial Services subcommittee held hearings to discuss the plan, which was unveiled last August.

"We believe audit quality has improved in recent years," Stephen Howe, Americas managing partner of Ernst & Young, said during testimony before the subcommittee. "The board and profession should seek to build on this foundation rather than strike out in a new and, we believe, damaging direction that poses risks not only to audit quality, but to our capital markets as well."3

In some ways, the quality of audits would suffer if companies are forced to rotate audit firms, opponents of the plan say. There’s a certain degree of specialty and expertise to conduct an audit with certain companies.

For many auditors, it takes time to begin work with a new client, understand needs and ramp up service. A regular rotation of firms also would increase the risk of audit failure and mistakes in the first years of an audit. That means the possibility of more misunderstandings, delays and rework.

To address concerns about auditors’ objectivity and independence, some have proposed having companies’ audit committees periodically review whether changing auditors is needed and explain why if they decided not to change.4

Cindy Fornelli, executive director for the Center for Audit Quality, said she believes that audit committees "should be further strengthened and encouraged to take an even more proactive role in their oversight of the independent auditor."5

Others suggested additional auditor training and professional development to raise auditors’ technical abilities, which would instill more confidence in auditors and their performances.

"In the quest to improve audit quality, I also believe we need to work toward strengthened coordination between internal auditors and external auditors, to leverage the knowledge, skills, experience and expertise of internal audits," Lawrence Harrington, chairman of the North American board of the Institute of Internal Auditors, said at the PCAOB hearing.6

This issue will remain on the radar screens of many for months to come. Doty and the PCAOB said they want to review the proposal through the end of this year.

—Mark Edmund, associate editor


  1. Rajendra Bhika and Andrea Francis, "Will Rotating Accounting Firms Enhance Audit Quality?" Business 2 Community, May 7, 2012.
  2. Ibid.
  3. Ken Tysiac, "PCAOB Panelists Say Mandatory Firm Rotation Could be Harmful, Helpful," Journal of Accountancy, March 21, 2012.
  4. Dena Aubin, "PCAOB’s Debate Over Auditor Rotation Moves to Congress," Reuters, March 29, 2012.
  5. Tysiac, "PCAOB Panelists Say Mandatory Firm Rotation Could be Harmful, Helpful," see reference 3.
  6. Bhika, "Will Rotating Accounting Firms Enhance Audit Quality?" see reference 1.


Hospitals Getting the Hang of IT Systems

Hospitals seem to be getting better at handling healthcare IT systems, but still face challenges implementing, adjusting and advancing these IT systems and tools, a healthcare advocacy group said.

Hospitals across the country have been voluntarily tested by the Leapfrog Group for Patient Safety on their ability to use a web-based tool that simulates computerized provider order entry (CPOE) systems to catch common medication errors.

Two years ago, 214 hospitals participated in the assessment. The hospitals’ systems missed half of the routine medication orders and one-third of the potential fatal orders.

Last year, 253 hospitals participated in the same assessment. The missed routine medication orders dropped to slightly more than one-third, and the fatal orders dropped to just more than 1%.

"When CPOE systems are implemented the right way and hospitals and vendors follow up to monitor and improve it, the result is what every patient hopes for when their life is at stake: the perfect harmony of caregiver and technology working for them," said Leah Binder, Leapfrog’s CEO.

The assessment was part of Leapfrog’s hospital survey, a national patient safety survey that measures and reports how well patients fare, resources used to care for patients and management practices that promote safety. For more information, visit www.leapfroggroup.org.


Give Credit Where Credit Is Due

World Accreditation Day, scheduled for June 9, will focus on how accreditation supports the availability of safe food and clean drinking water.

The global initiative was jointly established by the International Accreditation Forum (IAF) and the International Laboratory Accreditation Cooperation (ILAC).

For a short video and more details about the day, visit the IAF and ILAC YouTube channel at www.youtube.com/user/iafandilac.


New Book Focuses on Stem Ideas, Issues

A collection of papers and workshops from last year’s science, technology, engineering and mathematics (STEM) conference has been published.

Advancing the STEM Agenda: Quality Improvement Supports STEM, sponsored by ASQ’s Education Division and the University of Wisconsin-Stout, presents high-impact ideas from the 2011 event.

It’s available at the ASQ Quality Press website at http://asq.org/quality-press/display-item/index.html?item=H1429. The cost is $36 for ASQ members and $60 for nonmembers.

The 2012 STEM conference will take place July 16-17 on UW-Stout’s campus and is again sponsored by ASQ’s Education Division and UW-Stout. For more information about the event, visit http://asq.org/conferences/stem-agenda/index.html.


Small, Mid-Size Firms Plan to Add Staff This Year

Most small and mid-size manufacturers said they expect to add employees this year, according to a recent survey.

About 56% of respondents to the Prime Advantage Group Outlook Survey said they planned to add staff in 2012, up from 48% a year ago.

Seventy-two percent of respondents to the survey also said they expect to see revenues increase this year, slightly down from 73% a year ago.

Most manufacturers also said they are actively deploying efficiency improvement programs and procedures, the survey showed. Lean was the most frequently cited improvement method, being used at 69% of the respondents’ facilities.

Prime Advantage is a buying group with more than 750 manufacturers. For more results from the survey, visit www.primeadvantage.com.

Short Runs

TO HELP MARK its 25th anniversary, the Baldrige Performance Excellence Program has launched a webpage that includes photos, quotations and Baldrige trivia. Visit www.nist.gov/baldrige/25th/index.cfm for regular updates.

THE AMERICAN NATIONAL Standards Institute (ANSI) has approved a standard aimed at increasing the safety of commercial motor vehicle operations. The revised standard, Safe Practices for Motor Vehicle Operation, Z15.1-2012, was developed by the American Society of Safety Engineers (ASSE) and goes into effect Aug. 20. For more information, visit https://www.asse.org/cartpage.php?link=standards.

THE QFD INSTITUTE has issued a call for papers for its symposium on quality function deployment and training Nov. 2 in St. Augustine, FL. Abstracts or paper proposals are due June 11. For more information about requirements, visit http://www.qfdi.org/call_for_papers.html.

THE INTERNATIONAL ASSOCIATION for Food Protection’s annual conference is scheduled for July 22-25 in Providence, RI. For information about the event, visit www.foodprotection.org/annualmeeting.


Turn Up the Volume

This month, listen to an audio interview with Tracy Owens and Caroline Fritz, co-authors of the cover article "Up and Away," discussing more about five techniques you can use to spark creativity and innovation efforts at your organization.

Quick Poll Results

Each month at www.qualityprogress.com, visitors can take an informal survey, and we post the results.

Here are the numbers from a recent Quick Poll:

"When ISO 9001 is revised, what clause do you think will affect your organization the most?"

  • Leadership. 50%
  • Planning. 26.4%
  • Operation. 17.6%
  • Support 5.8%

Visit www.qualityprogress.com for the most recent poll question:

"What most stymies innovation and creative thinking?"

  • Fear of failure.
  • Lack of leadership support.
  • Inadequate resources.
  • No dedicated time.

ASQ News

NEW ENTERPRISE MEMBERS Two Fortune 200 companies—Kimberly-Clark Corp. and Xerox Corp.—have become ASQ’s latest enterprise members, joining 43 other organizations at this membership level. Visit http://asq.org/membership/organizations/current-members.html for more information about enterprise membership.

RECERTIFICATION DEADLINE Members with certifications that expired Dec. 31, 2011, have until June 30 to submit recertification journals to keep the certifications current. Recertification journals document the recertification units earned from professional activities. For more informa

tion, visit http://prdweb.asq.org/certification/control/recertification/rucredits/index.

ASQ-DUBAI QUALITY GROUP PACT ASQ Global and the Dubai Quality Group have signed a memorandum of understanding to exchange information that will be published in English and Arabic to benefit the members of the independent organizations. The partnership also will seek opportunities to host joint events, including workshops, seminars, conferences and award activities.

STANDARDS WEBINAR A webinar spotlighting ISO 28000 Specification for security management systems for the supply chain and how it can help organizations assess supply chains for adequate security measures and regulatory compliance is available from ASQ. The webinar features Inderjit Arora, president and CEO of Quality Management International, a global management systems consulting, auditing and training firm. In the recording, he explains the standard and its importance to global organizations. Find the link to download or listen to the webinar at www.asq.org/media-room/press-releases/2012/20120203-iso-28000-security-global-supply-chain.html.

DIVISION SCHOLARHIPS Three students have been awarded the ASQ Inspection Division’s H. James Harrington Scholarship. They are: Brandon Nguyen, a senior at William Howard Taft High School in Woodland Hills, CA, who plans to attend the University of California, San Diego; Robin Henicksman, a senior at Snake River High School in Bingham, ID, who plans to attend Idaho State University; and Matthew Karn, a junior at New England Institute of Technology in Warwick, RI, who also won this scholarship previously.

YOUNG PROFESSIONALS IN MEXICO An ASQ Quality in the 21st Century Dialogue was held earlier this year at Mexico’s Universidad de Monterrey in Monterrey, Nuevo León. At the event, 25 young quality professionals from different business sectors discussed the future of quality and the forces that will change Mexico and the world. James J. Rooney, chair of ASQ’s Board of Directors, and Belinda Chavez, director of Region 14A and chair of the Section Affairs Council, led the discussion. To see an executive summary of the dialogue, visit www.asq.com.mx/cms_prd_consump/groups/public/documents/meeting-documents/107648.pdf.

OCTOBER DIVISION EVENT ASQ’s Energy and Environmental Division will host its 39th training and education conference Oct. 14-17 in Tampa, FL. For more information, visit http://asq.org/ee/interaction/39th_eeetc.htm.

Who’s Who in Q

NAME: Sanjay L. Ahire.

RESIDENCE: Blythewood, SC.

EDUCATION: Doctorate in management science from the University of Alabama in Tuscaloosa.

CURRENT JOB: Professor of global supply chain and operations management and associate director of the Global Supply and Process Management Center at the Darla Moore School of Business, University of South Carolina (USC) in Columbia. Also the champion of the Sonoco-USC Lean Six Sigma Green Belt initiative.

INTRODUCTION TO QUALITY: Ahire considers an incident that happened to him when he was a year old as his first exposure to quality or a lack of quality: To treat his typhoid fever, his doctor mistakenly administered an injection using an infected and bent syringe. Ahire’s parents told him later he came close to dying as a result.

PREVIOUS QUALITY EXPERIENCE: Tenured full professor of operations management at the University of Dayton (UD) in Ohio, where he led the design and implementation of UD’s operations management program. Also launched the UD Operations Management Advisory Council consisting of operations executives and managers from manufacturing and service firms in Ohio.

ASQ ACTIVITIES: A regular reviewer for Quality Management Journal.

OTHER ACTIVITIES: Has been involved in more than 75 consulting projects at several Fortune 500 firms.

PUBLISHED WORKS: More than 25 scholarly refereed research publications in the field of quality, operations strategy and operations improvement.

RECENT HONORS: Recipient of the 2001 International Wick Skinner Teaching Innovation Achievements Award from the Production and Operations Management Society, the 2005 Southwest Ohio Higher Education Council Teaching Excellence Award and the 2005 University of Dayton Alumni Teaching Award. He is the first and only university professor to earn a Six Sigma Master Black Belt certification from ASQ.

PERSONAL: Married, one daughter, Swapnali, and one son, Megh.

OTHER ACTIVITIES: Reading, and watching movies and TV comedy.

QUALITY QUOTE: Lean and Six Sigma are two wheels of the quality bike. Both must operate in tandem to traverse the value path.

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