Under the new rules, a firm auditing a ‘major subsidiary’ of a US-listed company must register with the new audit watchdog the Public Company Accounting Oversight Board even if it operates solely in the UK.
Tony Bromell, head of ethics standards policy at the ICAEW, said the institute had already had correspondence with a number of firms who had expressed concern on the issue.
According to Bromell, small firms currently have very little red tape to comply with in the UK. But, if Sarbanes-Oxley were introduced those affected ‘might not bother to register’.
‘They may decide to drop these audit clients after considering that it is not worth the effort,’ Bromell said.
In the US, just 88 small firms have registered with the PCAOB because of the costs of compliance, with many choosing to focus on private work.
Peter Mitchell, chairman of the Society of Professional Accountants, agreed with Bromell, saying that it was very likely that small UK firms would drop their listed US clients. But he said instances of small firms in the UK auditing subsidiaries of US-listed firms were ‘not very frequent’, because such firms are subject to peer reviews by the lead auditor. ‘Because of the regulations under Sarbanes-Oxley, I envisage smaller firms will decline such work,’ Mitchell said.
Mitchell warned this matter was seen as only a ‘small problem, something that is expected to be easily absorbed’.
At present UK firms of all sizes have been granted a year’s reprieve from registering with the PCAOB, while the European Commission attempts to negotiate a permanent concession.
However, Mitchell and Bromell believe there is little chance of the UK being granted some kind of immunity.
Their comments were made as the Sarbanes-Oxley Act began to bite in the US. PCAOB chairman William McDonough warned of dire consequences for firms that do not follow the new regime both in spirit and to the letter of the law.
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