Mario Christodoulou, Accountancy Age, Friday 3 September 2010 at 10:37:00

US audit regulator will have access to confidential inspection reports


US audit regulators will be able to inspect European firms after the EuropeanCommission cleared the way for access to confidential papers, in a move whichcould allow Lehman Brothers investigators to follow up leads in London.

The European Commission said it will now share internal working documentswith audit watchdogs in the US and Australia. The move breaks an impasse whichhad emerged between US and EU authorities over the sharing of confidentialinternal audit inspection papers, retained by regulators when they inspect auditfirms.

In the past, the European Commission barred access to US inspectors becauseit felt the US was blocking access to its internal inspection documents.

The passage of the US financial reform bill through the senate freed accessto the inspection documents, which in turn led European authorities to greenlight US inspections of European based audit firms.

In a statement, the European Commission said auditing has moved beyondnational borders and international co-operation was ?necessary to ensure thathigh quality audits are carried out worldwide?.

Michel Barnier, EC internal market and services commissioner, said thedecision will allow co-operation of European auditor oversight bodies and theirUS and Australian counterparts.

?The exchange of audit working papers is an important step in moving towardsour ultimate objective of equivalent rules and mutual reliance on each other'saudit oversight systems,? he said.

The US audit regulator, the Public Companies Accounting Oversight Board(PCAOB), will now be able to inspect the audits of US registrants includingVodafone, BHP Billiton, HSBC, Barclays and BT.

The move will also free up the investigators examining the audit of collapsedBank Lehman Brothers, to inspect the UK component of the bank?s audit.

Controversy surrounding the Lehman audit centres on use of repurchasetransactions, known within the bank by the slang ?Repo 105s?, which attractedcriticism in March when a report claimed they were used to distorted the bank?sreported financial position.

Repo 105s were channeled through Lehman?s UK arm, Lehman BrothersInternational Europe (LBIE), and were likely audited, in part, by the Ernst& Young?s UK arm.

E&Y has defended its audit throughout and said it stands by the work itdid for the bank, and would co-operate with any investigation.

The US audit regulator, the PCAOB, has neither confirmed nor denied whetherit is investigating Ernst & Young?s audit of Lehmans in line with theirpolicy not to comment on investigations.

Further reading:

Lehmaninvestigation blocked by US-EU regulator stand-off

Transatlanticaudit row between regulators rages

Barnier:we?re not blocking US watchdog