(The news featured below is a selection from the news covered in the Federal Securities Report Letter, which is distributed to subscribers of the Federal Securities Law Reports.)

European Union Concerned Over PCAOB Audit Registration

Reacting to the decision by the Public Company Accounting Oversight Board to require European Union-based audit firms with U.S.-listed clients to register with the board, European Commissioner for Internal Market Frits Bolkestein called for a moratorium of the registration of EU audit firms so that effective international solutions can be found to restore market confidence without imposing disproportionate burdens on EU businesses and audit firms. The PCAOB decision still needs to be considered and approved by the SEC.

Commissioner Bolkestein said that registration of EU audit firms is unnecessary because the union has equivalent and adequate systems in place to deal with registration, oversight and external quality assurance of auditors. While the European Commission shares the goal of having effective audit systems in place in order to prevent accounting irregularities and restore investor confidence, the commissioner emphasized this should be done on the basis of mutual recognition of equivalent oversight systems. The EC believes that the PCAOB's approach may lead to mounting pressure to require U.S. audit firms to register in the EU.

The PCAOB rules require the registration of U.S. audit firms by October 2003 and foreign audit firms by May 2004. Failing this, it would be unlawful for audit firms to perform audit work in relation to issuers in the United States, including some 280 EU companies with a dual listing in the United States as well as the union. According to the EC, the draft rules imply that all major EU audit firms will have to register with the PCAOB, that the personal data of thousands of audit firm employees should be transferred to the United States and that the audit firms have to give access to audit working papers and any audit client document.

While recognizing that the PCAOB has adopted an elaborate procedure to avoid a situation where foreign audit firms would have to break laws in their jurisdiction, the EC emphasized that, given the number of serious legal issues, the information which could be provided by EU audit firms is very limited. This situation serves to reinforce the EC's view that rigorous home country control over audit firms is a far more effective way to protect investors. The EC pledged to soon come forward with a communication on priorities for audit in the EU to continue and reinforce its initiatives on statutory audit over the last years.