EU urges US to reconsider rules

Link: In depth: Sarbanes-Oxley

A formal declaration agreed at the EU council last week said that ministers of the 15 countries ‘firmly opposed the obligatory registration of EU audit firms with the US Public Company Accounting Oversight Board’.

The ministers said the PCAOB’s registration process was ‘burdensome, costly and unnecessary’. All the EU member states had, or were putting in place, arrangements for auditor regulation and enhanced corporate governance, which offered an equivalent level of protection for investors to that provided under the new legislation.

The Sarbanes-Oxley Act imposes new conditions and responsibilities on auditors. The EU ministers said they shared some US concerns, but added that the application of PCAOB rules to EU firms could set off ‘major conflicts of law’.

The ministers urged the US authorities to ‘urgently’ reconsider the draft policy and accept a moratorium to negotiate with the EU. They called for a mutual recognition agreement based on home country control as ‘the only way to achieve an effective system of public oversight to protect investors’.

The comments represent a direct challenge to William Donaldson, chairman of the Securities and Exchange Commission, and in charge of implementing the new rules through the PCAOB.

There has not yet been a response from the US, which has so far taken a hard line on Sarbanes-Oxley when demanding compliance.

The decision from EU finance ministers came as it emerged last week that Peter Wyman – former ICAEW president – has been invited by the UK government to work in an ambassadorial role for accountants.

One main task will be to establish a dialogue with the US on how the effect of the measures in Sarbanes-Oxley can be softened for Europe.

However, Wyman has said that if the EU is unable to negotiate an agreement, the UK could look for a bilateral arrangement, probably on a mutual recognition basis. He believes an exemption from the act will have to be negotiated by Christmas or UK accountants will face complying with the panoply of measures.

‘Six months from now, if we aren’t well on our way with developing a policy, we’ll be in trouble,’ he said.

There has been much concern in the UK that European commissioners criticised US legislation, while failing to move quickly enough to negotiate exemptions..