State Board Report
While the Public Company Accounting Oversight Board has cooperative agreements with 14 foreign regulators to either conduct joint audit firm inspections or share inspection findings, such an agreement does not yet exist with China, the country with the largest number of foreign registered audit firms, 100. However, that could change, Lewis H. Ferguson, PCAOB member, stated at an SEC Financial Reporting Conference on September 21, 2012 in Irvine, CA.
“As a first step toward further cooperation, we are working toward and have tentatively agreed on observational visits where PCAOB inspectors would observe the Chinese authorities conducting their own audit oversight activities and the Chinese could observe the PCAOB at work,” Mr. Ferguson explained. “This would not be a substitute for a PCAOB inspection, but would be a trust building exercise between regulators.”
Complicating the Chinese-US relationship is that both China and Hong Kong have not agreed to regulatory cooperation when documents are requested in connection with an inspection or investigation. Under Chinese law it is illegal to remove audit work papers from China. Mr. Freguson said, “A refusal to cooperate, either in an inspection or an investigation, could subject the firm to PCAOB sanctions even if motivated by compliance with local laws that restrict such cooperation. One possible sanction could be revocation of a firm’s PCAOB registration.”
Mr. Ferguson also mentioned that in October 2011 the PCAOB had proposed amendments to its auditing standards, which have not yet been approved by the SEC, that would require audit reports to disclose the name of the audit engagement partner as well as the other independent audit firms that provided three percent or more of the total hours in the most recent audit. Besides giving investors more information about the firms actually performing the work, these amendments “would make publicly available the names of firms that have provided more than three percent of the total audit hours but are located in jurisdictions where the PCAOB cannot yet conduct inspections,” Mr. Ferguson pointed out.
PCAOB Member Ferguson will be addressing NASBA’s Annual Meeting on October 29 in Orlando, FL.
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