The Public Company Accounting Oversight Board is starting to get its first view of audit activity in China and expects soon to have serious dialogue about gaining access to audit documentation. Meanwhile the board is getting weary of resistance to its inspection mandate overseas and is preparing to take a tougher stand.

PCAOB Chairman James Doty told members of the media U.S. authorities have completed their first observations of official audit inspections in China following a long wait for Chinese authorities to agree to cooperate in the regulation of auditors. Doty said he expects to meet soon with officials in China to establish a major breakthrough in gaining access to audit documentation. “The fact that this is a serious discussion with decision-makers who are aware of the complexities of the issues on both sides is new,” he told the media.

At a legal conference hosted by the Practising Law Institute, Doty said he's disappointed with continued resistance in some countries where firms are registered to do U.S. audit work and therefore are subject to PCAOB inspections. “We are coming to a cross-roads where we will have to make some important decisions and may have more to report in the coming months,” he said.

The PCAOB's battle to gain inspection access to overseas firms has been most acute in China and in parts of the European Union, where firms and national regulators cite concerns about sovereignty and conflicts with their home country law. China, for example, forbids audit work papers from being released to outside regulators for fear of revealing state secrets. So far the board has reached cooperative agreements with a dozen countries, including Spain, Germany, Norway, Switzerland, the Netherlands, and the United Kingdom in Europe, plus Dubai, Taiwan, Israel, Japan, Singapore and Australia. In addition to China, the board still faces resistance in France, Ireland, Greece, Belgium, Hong Kong, Sweden, the Czech Republic, and Poland, among others.

PCAOB member Lewis Ferguson suggested in an earlier speech that the board's patience with continued resistance in China in particular may be wearing thin as the standoff has stalled a number of regulatory activities. “While the Board has made no decision about how to proceed in any of these pending registration, inspections, or enforcement matters, I believe it is fair to say that how we proceed will depend in substantial part on whether we can make real progress toward a cooperative oversight agreement with regulators during the balance of this year,” he said.