Corporate & Securities Law

By James Hamilton

The PCAOB is committed to cooperation with European Union and other non-US audit regulators and expects to conduct joint inspections in fifteen countries by 2009, according to Rhonda Schnare, Director of the Board?s Office of International Affairs. At a recent EU seminar, she presented the practical experience and history of PCAOB cooperation plans. A number of successful joint inspections have already been performed, she noted, and the Board?s objective is to perform inspections jointly with the home country regulators. Twelve joint inspections are currently planned for 2008, she related.

Beyond joint inspections, continued the PCAOB official, the independence of the inspection staff is a significant factor in the Board?s recognition of the system of a foreign oversight body. In response to panelists? concerns, the PCAOB director confirmed that it is a Board objective to issue public reports on audit firms on a shorter timescale. But she also noted that audit firms do have early indication of the matters which need to be addressed.

Myles Thompson, an audit partner with KPMG UK, shared the experience of his firm with joint UK-US regulatory interventions. In practice, he said, the UK audit inspection unit led the inspection, reviewed the audit firm policies and procedures and performed in-depth reviews of audit files of major clients. For its part, the PCAOB reviewed audit files of key importance to them.

The joint process worked well, the audit partner emphasized, adding that cooperation and dialogue between regulators are the key. The full reliance model outlined by the PCAOB is the desired approach, he said. The PCAOB explained that the involvement of practitioners in inspections would prevent full reliance on the oversight system of a third country; but that joint inspections would not be excluded.

On December 5, 2007, the PCAOB proposed a full reliance regime under which the Board would rely upon a non-U.S. oversight entity to plan the inspection, carry out the inspection field work, and make findings based on its fieldwork. In addition, the Board would rely on the non-U.S. oversight entity to assess the firm?s efforts, after receipt of an inspection report, to address any criticisms of or potential defects in its quality control system. Thus, in a situation where full reliance is appropriate, the PCAOB generally expects to rely on the non-U.S. oversight entity's remediation determination.

The Swiss audit oversight system is seeking recognition in bilateral negotiations with the EU and the US, noted Thomas Rufer, Vice President of the Swiss Oversight Body. He emphasized that the new Swiss Oversight Body is an independent body. Under the new Swiss regime, audit firms will be subject to inspections every three years but the
larger firms will be subject to an inspection every year. Foreign audit firms that wish to
register in Switzerland will be expected to operate under a foreign oversight authority judged equivalent by the Swiss oversight authority. The Swiss audit overseer has a strong interest in developing one set of rules for all third countries.

Full post as published by Jim Hamilton's World of Securities Regulation on January 15, 2008 (boomark / email).