Login | Store | Training | Contact Us  
 Latest News 
 Securities- Federal and State 
 Exchanges 
 Software/Tools 

   Home
    

(The article featured below is a selection from PCAOB Reporter, which is available to subscribers of that publication.)

PCAOB Chair Calls for International Cooperation on Audit Inspections

In remarks at the Federation of European Accountants June 30 conference, PCAOB Chair James Doty talked about the importance of international cooperation. He thanked Commissioner Michel Barnier and his staff for helping to break the impasse on conducting inspections of firms registered with the PCAOB but located in Europe. The PCAOB began joint inspections with the U.K. authorities earlier this year.

Doty noted that at many large, multinational companies a significant portion of the audit is conducted abroad. He reported his surprise to discover that many business people are not aware that an audit report which is signed by a large U.S. firm may be based in part on the work of affiliated firms that may be completely separate, foreign legal entities. Doty believes that enhanced transparency about how cross-border audits are conducted will help investors and audit committees better understand how the audit was conducted.

The PCAOB has seen the benefits of evaluating the various pieces of an audit when it is performed by different registered firms in multiple jurisdictions. Doty pointed out that PCAOB inspectors often see more than the principal auditor or the signing firm sees. Principal auditors often rely on high-level reports from subsidiary auditors and do not always review the work papers of other auditors. PCAOB inspectors have found problems that could have been discovered by the principal auditor if the communications were more robust.

Doty said the PCAOB’s findings should be of concern to audit regulators in Europe and other countries as well. He cited examples of problems where the principal auditor was outside the U.S., but the subsidiary auditor was in the U.S.

When the PCAOB conducts joint inspections, the staff works with its counterparts and uses both regulators’ staff resources to examine large engagements. Under the agreements entered with the Board’s U.K. and Swiss counterparts, Doty said the staff can share confidential information related to the firms that are being jointly inspected. He believes the Board is close to reaching similar arrangements with other European authorities, but there are delays due to reviews by the data protection authorities.

Doty said the U.S. understands the importance of Europe’s data protection regime, but believes it is possible to conduct joint inspections and still comply with the data protection requirements. He urged the European regulators to hasten their consideration of the data protection issues to avoid further delaying their ability to work together. The PCAOB was granted information-sharing authority under the Dodd-Frank Act.

Doty said that some jurisdictions continue to resist joint inspections. Some claim to prefer a policy of mutual or full reliance. In Doty’s view, those approaches put investor protection at risk. Audits do not stop at borders, he said, and neither can effective cross-border regulation. The reliance on high-level summaries of work performed by another regulator presents an unmitigated hand-off risk, in his view. He said that leaving the oversight of components of cross-border audits to the inconsistencies of separate regulatory processes should not be a goal.

Doty concurred with Barnier’s call in the Green Paper on Audit Policy that group auditors should have access to the reports and other documentation of all auditors that are reviewing sub-entities of the group. He also agreed that group auditors should be involved and should have a clear overview of the complete audit process in order to support and defend the group audit opinion.