As revealed on AccountancyAge.com last week, the US Senate has passed a bill that will give a new accountancy regulator authority to demand papers held by foreign accounting firms that have carried out audits for subsidiaries of US companies overseas.

But according to one legal expert, such demands 'could give rise to a number of difficulties'.

Peter Smith, a corporate lawyer at City law firm CMS Cameron McKenna, said: 'Instructions from a foreign regulator are not directly enforceable.'

He added: 'The US tends to forget that sometimes and goes for a much wider territorial scope in its legislation.' The Senate bill on public accounting reform, sponsored by senator Paul Sarbanes, chairman of the powerful banking committee, was passed earlier this week by 97 votes to nil, confirming the legislators' desire to get tough on corporate fraud.

Section 106 of the bill will give an independent regulator power over foreign firms, subjecting them to the jurisdiction of the US courts.

Smith called for national regulators to agree a system of supervision similar to the banking sector.

'Where you have different regulators in different countries it is normal for them to work out procedures among themselves to avoid conflict,' he said.

The Sarbanes bill, which could leave chief executives and financial directors who certify false accounts facing up to ten years in jail and $1m fines, will be merged into an earlier bill, and will go before President Bush for approval as early as August.

A number of the global accounting firms have hit out at the proposed powers of the new regulator.