State Board Report

July 2011

The Texas Board of Public Accountancy has continued its investigation into non-U.S. accountancy firms working in Texas in violation of the Texas Public Accountancy Act and has informed SEC Chairman Mary L. Schapiro and PCAOB Chairman James R. Doty of its findings. As of July 7, the Texas Board had identified as many as 19 unlicensed foreign firms illegally providing attest services in Texas by signing Reports of Independent Registered Public Accounting Firms for Texas-based companies’; SEC 10-K filings. Fourteen of those firms have now entered into cease and desist orders with the Board, but they had completed attest services in the past five years for at least 25 publicly-traded U.S. companies headquartered in Texas.

William Treacy, executive director of the Texas Board, posed two questions to SEC Chair Schapiro in his July 7 letter:

“SEC regulations limit the provision of attest services to publicly traded companies to ‘certified public accountants’; [SEC Regulation S-X, Rule 2-01(a)]. Why is the SEC accepting filings containing reports of independent audit firms which are staffed entirely by non-U.S. accountants?

“SEC regulations permit the SEC to recognize as certified public accountants only those persons who are in good standing with their home jurisdictions [SEC Regulation S-X, Rule 2-01(a)]. Why is the SEC permitting filings that contain the reports of audit firms violating the laws and rules of their home jurisdictions by engaging in illegal activities in Texas?”

Mr. Treacy advised Ms. Schapiro that the Board will inform the SEC of the outcomes of the remaining investigations and any similar investigations that the Board may undertake. He wrote to PCAOB Chairman Doty: “I believe that any effort the PCAOB could make to advise foreign accountancy firms of the need to inquire into the licensing requirements of Texas, as well as the other states, would go a long way in eliminating future violations.” He noted Texas investigations have found over 100 foreign firm offices may have performed attest services in at least 30 states.

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