An announcement last week by the UK’s audit overseer – to inspect audits of
companies locally, on behalf of an overseas regulator – revealed a tacit
understanding that this practice is already underway.
In a release outlining the scope of its
Audit Inspection Unit’s work, the
Board said that it would allow the AIU ‘to respond to requests from overseas
regulators should it be considered appropriate to do so’. This would facilitate
‘cost effective regulation’.
This is surprising, considering that the practice is still under discussion,
following the European Commission’s proposals in the form of the Eighth
Directive, on statutory audit.
According to the proposed rule, audit reports of third-country auditors may
be inspected by the regulator of the country in which a company trades or
carries out its business.
But while this process is still pending, the POB has gone ahead, stating it
would carry out such an audit if it were requested to do so.
Although the POB said that such requests were ‘likely to be rare’ and ‘would
be considered individually’, the move takes regulation a step closer to the
mutual reliance of regulators.
Yet there remain questions which need to be answered, through the EC’s
consultation process on this issue.
Questions such as who would constitute an equivalent regulator? Would Japan’s
Financial Services Agency – given their myriad of recent accounting-related
scandals – be considered an equivalent? What about China, which dominates global
production and whose companies are fast becoming among the most prolific
listings on alternative markets?
Questions also arise as to whether this is in the best interests of ensuring
competitiveness of the market.
This point was made all too clearly recently by the British Bankers’
Association, who expect the practice, in the EC-proposed form, to have an
adverse impact on third country companies trading in the UK, since it would have
the implication of requiring them to be audited by an auditor registered in the
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