The board charged with cleaning up the accounting industry in the US recommended yesterday that foreign auditors of companies whose shares are traded in the United States be required to register with U.S. regulators.
By proposing to extend its reach overseas, the Public Company Accounting Oversight Board, created by Congress last year, adds to a fierce international debate.
Representatives of the European Union and the governments of Switzerland and other countries have told board members in the past week that foreign auditors must not be made to face conflicting laws and rules.
“We . . . would be extremely concerned if the U.S. subjected firms to two sets of regulatory frameworks,” said Stephen Atkins, a spokesman for the British Embassy in Washington. Atkins said the embassy will seek exemptions for British audit firms “on the basis that there is an equivalent system of regulation.”
Board member Kayla J. Gillan said, “I have not heard anything that would convince me that wholesale exemption of foreign auditors . . . would in any way serve the mission charged to us.”
The board plans to discuss the issue again March 21 and hopes to recommend a final policy to the Securities and Exchange Commission by mid-April. SEC approval is necessary for such a rule.
Yesterday, Sens. Christopher J. Dodd (D-Conn.) and Jon S. Corzine (D-N.J.) wrote to SEC Chairman William H. Donaldson, urging him to hold foreign auditors accountable. “Any move to exempt foreign accountants . . . would vastly increase incentives for accountants, and even public companies, to move substantial portions of their operations offshore,” they wrote.
Registration with the board will subject auditors to oversight that includes annual inspections and possible disciplinary proceedings. U.S. accounting firms that register with the board must disclose lawsuits against themselves or their staff members, their annual revenue, and the amount of money they receive for audit services and other work for clients. They also must disclose disagreements they have had with clients.
Foreign accounting firms may be exempt from some of the oversight. The accounting board still must decide whether its inspections of auditors should extend outside the United States and whether overseas units of Big Four accounting firms will be treated differently from firms without a substantial American presence.
Charles D. Niemeier, the board's acting chairman, said there are 50 to 100 foreign firms unaffiliated with the Big Four that sign reports their clients file with the SEC, plus an unknown number of overseas auditors that provide advice but do not sign the filings.
Niemeier said he expects auditors to begin registering as soon as July. The board plans to begin inspecting the Big Four auditing firms this summer.
Also yesterday, the SEC reopened nominations for chairman of the accounting board, soliciting applications until March 14. The commission said candidates must understand the role of accountants and financial disclosures and “have no known impediments or controversies that might impair his or her ability to lead” the board.