US warned over audit probes

The UK’s audit watchdog has warned its US counterpart not to intervene in
audit probes overseas.

The Public Oversight Board has told the US Public Company Accounting
Oversight Board to rely on foreign regulators.

In his letter, POB chairman Paul George said that he was concerned that new
PCAOB proposals indicated more significant involvement in inspections by its
staff than implied by the term ‘full reliance’.

‘In particular, it would not be appropriate for PCAOB staff to either visit
the firm to interview key personnel or request access to audit working papers
since this clearly falls short of a full reliance approach.

‘We would expect the PCAOB’s ‘observation’ role, to instead consist of
consultation with the non-US regulator about the inspection plan and inspection
findings relevant to US issuers,’ said George.

The PCAOB is drawing up new criteria for assessing overseas audit firms,
involving the adequacy and integrity of an oversight system, its independence of
operation from the auditing profession, independence of the system’s funding and
transparency of the system.

The POB, which is itself largely funded by contributions from the firms,
indicated concern about the ‘prescriptive nature’ of the criteria.

‘We believe’ the five principles are likely to have the effect of undermining
a principles-based approach in practice and therefore need to be reconsidered.
We support the underlying principles set out within the guidance and appreciate
that it is often necessary to provide further guidance as to how the principles
might be achieved in practice. ‘However, the criteria identified should in our
view be seen as indicators of what is necessary rather than as a series of
detailed requirements, each of which has to be met,’ the POB said.

The ICAEW called for the PCAOB to consider clarifying that it would only seek
to accompany non-US inspection teams to an audit firm or inspect audit working
papers in exceptional circumstances.

The PCAOB is to host a roundtable discussion in four weeks to discuss
responses to its proposals.

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