US regulator threatens ban on Euro-firms
PCAOB considers deregistering non-US firms
The UK auditors of companies including BSkyB, Cadbury Schweppes, BP and
Barclays could be barred from working in the US.
The US audit watchdog, the Public Company Accounting Oversight Board (PCAOB),
is considering de-registering non-US audit firms based in countries where it has
no power to conduct inspections, including Europe.
Rhonda Schnare, international affairs director at the PCAOB, said
de-registering firms was one option on the table if nations did not co-operate
with US audit inspectors.
“Bringing enforcement proceedings against non-US audit firms is one option
and the board is evaluating all of its options… The issue is one of the
[PCAOB’s] highest priorities,” she said.
“The board cannot de-register firms without going through a process that
would involve bringing individual disciplinary hearings against the firms, and
that is certainly one of the options the board has.”
US legislation, set up in the wake of the 2002 Enron crisis, requires audit
firms which register listed US companies to submit to regular inspections by the
PCAOB.
However, the PCAOB has been blocked from conducting inspections in a number
of jurisdictions, including the UK. It’s understood the UK’s reporting
regulator, the Financial Reporting Council, is pushing ahead with reforms which
would allow PCAOB inspections to take place, but, at present, no formal
agreement exists.
Last week, the PCAOB said new and pending applications by non-US accounting
firms would be rejected if the firms could not be inspected. However, the PCAOB
is considering extending this to firms already registered in the US, including
the European arms of the Big Four, which audit some of the world’s largest
companies listed both in the UK and US.
The European Commission attempted to resolve the issue in September, by
allowing each of its member states to set their own terms of engagement with US
inspectors.
However, the decision, known as the “adequacy decision”, still allows
substantial wriggle room for European countries to effectively frustrate US
inspections.
US regulators, including the Securities and Exchange Commission, are growing
frustrated with non-US advisory firms based in countries which prohibit US
inspections.
In September, the SEC successfully blocked Dagong Global Credit Rating,
China’s largest credit rating agency, from practicing because it would not be
subject to inspections, a requirement of US law.