In late August, the Securities and Exchange Commission approved the Public Company Accounting Oversight Board's rule proposal governing the oversight of foreign accounting firms.
Under Sarbanes-Oxley, non-U.S. accounting firms are required to register with the PCAOB just like domestic firms, and they are subject to the similar types of inspections and investigations. The registration provision caused considerable frustration overseas, as foreign firms resented both the threat of U.S. oversight and the prospect of duplicative registration requirements.
In working with European securities commissions and EU accounting industry overseers, the PCAOB ultimately proposed a rule that would enable it to rely on the work of "non-U.S. oversight systems" to conduct inspections and investigations. The degree of reliance would be based, in part, on the PCAOB's analysis of the "independence and rigor" of that home country oversight system.
Goelzer
This "sliding scale" system was described in a speech by PCAOB member Daniel Goelzer in April, in which he noted the degree of reliance the Board places on a firm’s home country oversight system “takes into account the similarities and differences between the foreign regulator and the Board” (see box above, right, for complete speech).
In approving the rule, the SEC noted that the PCAOB would determine how much it can rely on an accounting firm's home country oversight system by evaluating:
The adequacy and integrity of the oversight system;
The independence of the system's operation from the auditing profession;
The nature of the system's source of funding;
The transparency of the system; and
The system's historical performance.
The PCAOB may also rely on a foreign oversight authority's investigation or sanction of an accounting firm, depending again on the "independence and rigor" of that system, as well as its willingness to share relevant evidence with the PCAOB.
The PCAOB may also provide assistance to non-U.S. oversight authorities that are conducting inspections or investigations of U.S. registered public accounting firms.
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