The agency charged with overseeing U.S. public accounting firms unanimously approved new rules that would allow it to oversee and inspect auditors based outside the United States.
The Public Company Accounting Oversight Board’s (PCAOB) controversial rules now must be approved by the Securities and Exchange Commission. “Financial fraud doesn’t stop at national borders,” said PCAOB member Daniel Goelzer at Wednesday’s open meeting, according to Reuters. Along with Enron, he cited the European scandal-plagued companies Ahold NV in the Netherlands and Parmalat in Italy.
Foreign firms that want to audit U.S.-listed companies’ financials must register with the PCAOB by July 19. The board reportedly said that 103 non-U.S. audit firms have registered with it despite criticism in Japan and Europe of PCAOB’s reach, and the applications of hundreds of non-U.S. firms are pending.
Under the new rules, the process for examining foreign firms would vary from country to country. The PCAOB would use a “sliding scale” approach that would weigh the rigor and sophistication of national auditor regulatory regimes, according to the wire service.
That means that countries with developed regulatory regimes, such as Britain, will have considerable autonomy in overseeing auditors that fall under PCAOB jurisdiction, Reuters reported. Nations with less-developed regimes will be under closer scrutiny by the U.S. accounting board.
In other matters, the board adopted rules requiring all auditors registered with it to back up their audit work with supporting documents and to keep them for at least seven years, said the report.
Referring to the destruction of audit records in the Enron-Arthur Andersen scandal, PCAOB member Charles Niemeier reportedly said, “Probably no single issue has been more identified with the profession’s fall from grace than audit documentation.”
He added the rules represent “a large step toward the reestablishment of the credibility of the audit profession.”