Audit chief welcomes debate on international regulator

EU commissioner for internal markets

Michel Barnier

The head of the UK’s largest accounting firm has called for a “new attitude”
to audit regulation amid growing support for an international regulator.

Ian Powell, senior partner at PwC UK, said the establishment of an
international regulator is “worthy of debate” but believes global consensus
among nations may prove difficult.

“Most countries think their regulation is good and it is their system which
should be applied – that is going to make it difficult to convince them to give
up their system,” he said.

“If you talk to virtually any regulator in any country they do want to see
more globalisation of regulation, but the big problem is there are certain
political issues that are diff­erent in different countries.”

Audit reform has climbed up the agenda since the release of the Valukas
report which brought into question Big Four firm Ernst & Young’s (E&Y)
audit of collapsed US bank Lehman Brothers. E&Y has refuted any allegation
of negligence.

But the debate intensified last week when Michel Barnier, commissioner for
internal markets at the EU, said a green paper on audit reform would be released
by autumn and believes “the role of the auditors has not really been questioned”
following the crisis.

“I am convinced that it is the right time to launch a real debate at European
level on the subject of audit,” he said, in a statement released by his office.

“Governments have so far focused their attention on the urgent measures
necessary to stabilise the markets. Now we are entering a less reactive phase.”

Audit firms have ploughed millions of restructuring pounds into remaking
themselves as global enterprises. KPMG and E&Y have entrenched international
structures, both in their internal and formal set up, while other global firms
simply share resources and staff. However these hub and spoke structures have
caused headaches for national ­regulators.

Recently the UK’s financial reporting regulator, the Financial Reporting
Council (FRC) had to co-ordinate interview times with a Big Four CEO and other
European regulators.

“With Barnier putting this on the agenda there are opportunities to formalise
and develop further such arrangements…These are topics that need to be analysed
and discussed,” said Paul George, director of the Professional Oversight Board
with the FRC.

The FRC’s US counterpart is also eyeing the issue. Joseph Carcello, a member
of the Investor Advisory Group at the Public Company Accounting Oversight Board
(PCAOB), wants a thorough investigation, fearing that US investors are being
exposed to risk.

“I believe that the top priority of the PCAOB should be to complete
inspections of all registered foreign firms that audit one or more foreign
issuers or that play a substantial role in the audit of a US multinational
company,” he said in a statement. “The board faces a difficult challenge in this
area because inspections of certain foreign accounting firms are being blocked
by foreign governments.”

Powell said he would welcome debate on the issue.

“You have lots and lots of regulators operating in different countries and
yet the companies you are auditing goes right the way across those borders,” he
said. “Anything that moves towards consistency has got to be worthy of debate.”


The logistical challenges to creating an effective global audit watchdog
seem, at this stage, insurmountable. How do you regulate the industry across
nations with such radically different audit cultures? But Barnier is right to
look into this issue. In a world with global audit firms and global companies,
it makes sense to have a global regulator.

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