Audit firms based outside the US could be
prevented from auditing US companies following an amendment to
registration rules. The reform could have wide-reaching effects on
how US companies and their foreign subsidiaries are audited.
The rule change will make it much harder for
non-Public Company Accounting Oversight Board (PCAOB) registered
audit firms to gain access to US companies if they are based in
countries that do not allow US inspections to take place. The rules
only affect firms applying for registration, not those already
registered with the PCAOB.
The rule change could affect the global audit
market because US companies will be deterred from hiring
unregistered auditors in jurisdictions where PCAOB inspections are
blocked. For global audit firms, this could prove a headache when
pitching for cross-border.
Network leaders have previously complained
about regulation barriers in the past and the extra cost it is
adding to the whole audit process. In some cases, firms have been
asked to break the law in one country to comply with another
It is also impractical for auditors to be
inspected by two different authorities who could hand down
completely different outcomes.
A question of access
Regulators in certain countries, including
most of Europe and China, have so far denied the PCAOB access to
inspect non-US applicants, which meant that in 2009 only 15 out of
27 planned non-US inspections were carried out.
Foreign regulators argue that these firms
should be inspected by local authorities and information shared
under an equivalence arrangement rather than non-US firms coming
under the auspices of the PCAOB.
US legislation set up post-Enron in 2002
requires all audit firms to undergo inspections by the PCAOB at
least once every three years.
In the past, the PCAOB approved registration applications of non-US
firms as it expected any potential obstacles to inspections would
be resolved through co-operative efforts with foreign
PCAOB acting chairman Daniel Goelzer said the
audit watchdog is seeking to strike deals with non-US audit
regulators but ‘problems’ with some jurisdictions had forced it to
re-evaluate its registration approach.
The PCAOB said it will continue to allow
applications to remain as ‘pending’ while the go-ahead for an
inspection is ascertained. If a US inspection is not allowed, the
PCAOB will issue a notice of hearing and then consider whether
approval of the application would be consistent with its
responsibility under the Sarbanes-Oxley Act.
PCAOB updates cross-border inspection process