PCAOB resists European opposition

Carry on regardless. That may well be the line Washington’s relatively new accounting watchdog takes, despite the vociferous opposition to its plans for regulating audit firms from outside the US.

Following the close of PCAOB’s consultation on the oversight of non-US firms, it released the responses received. The objections have been vociferous, some even hostile to the US accountancy guardian.

Replies – from the likes of the Big Four, the ICAEW, Europe and accounting boards further afield – pointed out what they consider serious flaws in the plans, with many bodies reaching similar conclusions.

Discussions have also been ongoing with the European Commission over its potential to represent all the EU member states in the co-operative process proposed by the board. However, the EC has asked the PCAOB how it will help European authorities regulate US audit firms. This has got the board’s back up and may have killed the small, but significant chance of cooperation between the US and Europe.

‘We would welcome a clear and unequivocal statement in the rules of (the PCAOB’s) willingness to assist non-US oversight bodies in the oversight of US audit firms in the same way, as it demands foreign counterparts be willing to provide assistance to the PCAOB for audit firms established in their territory,’ says Alexander Schaub, the EC’s internal market director general in his response.

Frits Bolkestein, EC internal markets commissioner, has also previously threatened to introduce a similar regime across Europe that would see US firms undergoing the same process that the PCAOB requires for non-US firms, but for every nation it works in.

‘It appears the EC has surrendered the idea of going down this quasi-global route,’ says ICAEW chief executive Eric Anstee. ‘The PCAOB is retaliating and this puts the onus on individual nations and individual firms.’

It has also been suggested that firms should not have to provide information on their national regulator to the PCAOB, with direct provision of information by the regulator itself the preferred option.

‘The requirement for each individual foreign registered public accounting firm to submit detailed descriptions of the non-US system’s laws, rules and so on is neither practical nor fully cost effective,’ says David Devlin, president of the European Federation of Accountants (FEE). ‘We believe that the PCAOB would itself be faced with the risk of duplicated and even somewhat inconsistent information if several individual firms were to submit their own private descriptions and translations in respect of one and the same system.’

This now looks unlikely – not only because of the PCAOB’s position, but because of the restrictions placed on it by legislation in the Sarbanes-Oxley Act.

Another concern has been the issues surrounding local laws, particularly in relation to the provision of data, which could affect how the board views firms and the nation’s oversight system.

In its response the ICAEW says: ‘We understand that there is a legal view that UK firms cannot complete item 8.1 of the registration form (agreeing to provide information at any time in the future) because the UK information commissioner has indicated that consent from employees to disclosure of “any information at any time in the future” would not be valid, as it is too unspecific.’

In addition, PricewaterhouseCoopers adds: ‘The local regulator may not have sufficient grounds for agreeing to the onward transfer of the information to the US, and, therefore, if it did so, it would be in breach of the Data Protection Act 1998.’

There is some movement here, however. Anstee says that it looks like the PCAOB will accept a letter explaining local laws in relation to the provision of data and that whatever restrictions were in place would not affect the registration process for the firm.

Many of the issues are more intractable, due to the tight conditions placed on the PCAOB. Many complained about the transparency of the process which decides the level of oversight.

Although the board has now decided that there will be four tiers of reliance, with the top being complete reliance on the oversight of the home nation, it is by no means clear to those outside the board how this will be determined.

It is also understood that the board will still have to issue its own inspection reports, even if these are almost a carbon copy of the foreign regulator’s reports.

It is hoped the UK will fit into the top tier that the PCAOB has defined, but even if it fails to meet this Anstee said: ‘It is important to work with the PCAOB, so that whatever regime is put in place, it is as smooth and as cost effective as possible.’

– All the consultation responses can be viewed at www.pcaobus.org.