The PCAOB votes to rely on the European Union's system 2720



  • Very Interesting…
    Mutual recognition:
    The Public Company Accounting Oversight Board PCAOB votes to rely on the European Union’s system of public oversight for statutory auditors and audit firms within each Member State, the Canadian Public Accountability Board, the Australian Securities and Investments Commission, the Japanese Certified Public Accountants and Auditing Oversight Board, South Korea’s Financial Supervisory Service, and Singapore’s Accounting and Corporate Regulatory Authority.
    There are difficulties and potential conflicts of law.

    In some jurisdictions, the PCAOB’s ability to conduct inspections, either by itself or jointly with a local regulator, is complicated by the concerns of local authorities about potential legal obstacles and sovereignty issues.
    The Board seeks to work with the home-country authorities to try to resolve these and any other concerns.

    The effort involved in attempting to resolve potential conflicts of law, or to evaluate a non-U.S. system in response to a Rule 4011 request, can be substantial.
    A list of the non-U.S. jurisdictions in which there are firms that the Board intends to inspect in 2009 is available at:
    www.pcaobus.org/Inspections/Other/2009/List_of_Jurisdictions_2009.pdf
    The Board also maintains on its web site a list of those jurisdictions in which there are registered firms that the Board has inspected:
    www.pcaobus.org/Inspections/Other/2009/Inspections_Non_US.pdf
    PCAOB Release No. 2009-003, June 25, 2009
    FINAL RULE CONCERNING THE TIMING OF CERTAIN INSPECTIONS OF NON-U.S. FIRMS, AND OTHER ISSUES RELATING TO INSPECTIONS OF NON-U.S. FIRMS
    After public comment, the Public Company Accounting Oversight Board PCAOB has adopted an amendment to the inspection frequency requirements of Rule 4003 that will give the Board the ability to postpone, for up to three years, the first inspection of any foreign registered public accounting firms that the Board is otherwise required to conduct before the end of 2009 and that is in a jurisdiction where the Board has not conducted an inspection before 2009.
    The Board also has announced that it will implement certain transparency measures related to the PCAOB’s international inspections program.
    The amendment to Rule 4003 will take effect upon approval by the Securities and Exchange Commission Commission.
    Introduction
    On December 4, 2008, the Board proposed, and sought public comment on, an amendment to Rule 4003 that would give the Board the ability to postpone, for up to three years, certain inspections of foreign registered public accounting firms that the Board is otherwise required to conduct before the end of 2009.
    The Board is now adopting proposed Rule 4003g as final without changes.
    Background
    Under the Sarbanes-Oxley Act of 2002 the Act and PCAOB Rules, it is unlawful for any public accounting firm to prepare or issue an audit report with respect to any issuer or play a substantial role in the preparation or furnishing of any such audit report without being registered with the PCAOB.
    For non-U.S. firms, this registration requirement took effect on July 19, 2004.
    The Act directs the Board to conduct a continuing program of inspections to assess registered public accounting firms’ compliance with certain requirements.
    With respect to each registered firm that regularly provides audit reports for 100 or fewer issuers, the Act requires the Board to conduct an inspection at least once every three years.
    The Act authorizes the Board to adjust that inspection frequency requirement by rule if the Board finds that a different inspection schedule is consistent with the purposes of the Act, the public interest, and the protection of investors.
    Inspection frequency requirements adopted by the Board are set out in PCAOB Rule 4003, 'Frequency of Inspections.
    Under Rule 4003, when a firm issues an audit report while registered,the Board must conduct an inspection of that firm within a certain number of calendar years following the year of the audit report.
    The Board began a regular cycle of inspections of U.S. firms in 2004 and has conducted 982 such inspections, including annual inspections of the largest firms and two or more inspections of many other firms.
    Inspections of non-U.S. firms began in 2005, and the Board has inspected 140 non-U.S. firms located in 26 jurisdictions.

    Under Rule 4003’s current inspection frequency requirements, there are 129 additional non-U.S. firms in 42 jurisdictions that, by virtue of their having issued audit reports, the Board is currently required to inspect but has not yet inspected.
    Those 129 pending ‘first inspections’ of non-U.S. firms with deadlines ranging from 2009 to 2012 under the existing rule are in addition to other pending inspections of non-U.S. firms that the Board has already inspected at least once.
    The rule amendment that the Board is adopting will affect a portion of those pending first inspections.
    Specifically, the amendment to Rule 4003 will give the Board the ability to postpone, for up to three years, first inspections that the Board is currently required to conduct before the end of 2009 in jurisdictions where the Board has conducted no inspections before 2009.
    The amendment does not affect inspection frequency requirements concerning any other first inspections or concerning any second, or later, inspections of a firm.
    II. Inspections of Non-U.S. Firms
    The PCAOB has recognized since the outset of its inspection program that inspections of non-U.S. firms pose special issues.
    In its oversight of non-U.S. firms, the Board seeks, to the extent reasonably possible, to coordinate and cooperate with local authorities.
    Since 2003, when the PCAOB began operations, a number of jurisdictions have developed their own auditor oversight authorities with inspection responsibilities or enhanced existing oversight systems.

    The Board believes that it is in the interests of the public and investors for the Board to develop efficient and effective cooperative arrangements with its non-U.S. counterparts.
    In jurisdictions that have their own inspection programs, this may include conducting joint inspections of firms that are subject to both regulators’ authority.
    Indeed, the Board has a specific framework for working cooperatively with its non-U.S. counterparts to conduct joint inspections and, to the extent deemed appropriate by the Board in any particular case, relying on inspection work performed by that counterpart.
    PCAOB Rule 4011 permits non-U.S. firms that are subject to Board inspection to formally request that the Board, in conducting its inspection, rely on a non-U.S. inspection to the extent deemed appropriate by the Board.
    If a Rule 4011 request is made, Rule 4012 provides that the Board will, at an appropriate time before each inspection of the firm, determine the degree, if any, to which the Board may rely on the non-U.S. inspection.
    Rule 4012 describes aspects of the non-U.S. system that the Board will evaluate in making that determination.
    Even where the Board does not work with a local regulator to conduct joint inspections, the Board communicates with its counterpart or other local authorities such as securities regulators or other government agencies and ministries regarding its inspections to be conducted in the jurisdiction.
    In some jurisdictions, the PCAOB’s ability to conduct inspections, either by itself or jointly with a local regulator, is complicated by the concerns of local authorities about potential legal obstacles and sovereignty issues.
    The Board seeks to work with the home-country authorities to try to resolve these and any other concerns.
    The effort involved in attempting to resolve potential conflicts of law, or to evaluate a non-U.S. system in response to a Rule 4011 request, can be substantial.
    The effort typically involves negotiating the principles of an arrangement for cooperation consistent with the inspection obligations that the Act imposes on the Board.
    It also involves the Board gaining a detailed understanding of the other jurisdiction’s auditor oversight system in order for the Board to determine the degree of reliance it is willing to place on inspection work performed under that system in a particular inspection year.
    Additional effort is involved in coordinating the scheduling of specific inspections.
    Where possible, the Board seeks to conduct inspections jointly with local authorities both to take advantage of potential efficiencies and to avoid imposing unnecessary regulatory burdens on firms.
    Like the PCAOB, several of these other authorities proceed according to inspection frequency requirements.
    While some of the Board’s counterparts are established and have inspection programs, many have only recently begun inspections or are still building up their inspections resources.
    As a result, synchronizing the inspections schedules of these authorities and the PCAOB’s requirements is sometimes difficult.
    Notwithstanding these challenges, the Board has so far conducted 140 non-U.S. inspections.
    Moreover, 61 of those inspections, in six jurisdictions, have been conducted jointly with other auditor oversight authorities, while inspections in 20 jurisdictions have been conducted solely by the PCAOB.



  • I have not found any press release or rule on the PCAOB website that said whether a vote by the PCAOB to recognize the system of public audit oversight of the EU, Canda, Austrial, Japan and Singapor took place. To my knowledge no such vote has taken place.
    I do not see a conclusion or a so what concerning the vote to postpone certain inspections of non-US audit firms in your post. A link to the rule would have done without copying extensive parts of the text of the rule.
    Why the big hype? Switzerland will have inspections by the PCAOB this year. I am looking forward to the results and the implications for the Swiss audit oversight authority.



  • The mutual recognition (system of public oversight for statutory auditors and audit firms) between the USA, the EU and other ‘third countries’ and offshore financial centers is one of the most important developments for multinational firms that have to comply with Sarbanes Oxley.
    pcaob.com/Rules/Docket_027/2009-06-25_Release_No_2009-003.pdf



  • I disagree.
    Whether the PCAOB or a national audit oversight authority inspects an issuer’s auditor and audit records of past audits is generally not much of a concern for the issuer, but rather for the issuer’s auditor and the local government. One exception may be banks in banking secrecy jurisdictions in cases where the auditor’s work papers contain names of the bank’s customers (I think this is rather rare).
    Issuers are only indirectly affected by the auditing standards that their auditor is required to use through the audit fee that the issuer needs to pay. However, PCAOB auditing standards need to be applied for audits of issuers that are subject to SOX regardless of which audit oversight authority inspects the auditor.


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