Mario Christodoulou, Accountancy Age, Thursday 7 October 2010 at 19:17:00

US audit regulator may stop European auditors registering in America

European accounting firms could be barred from auditing US companies in a move which has the potential to reshape the international audit market.

Under new regulations, announced today, the US audit regulator can refuse access to auditors based in jurisdictions where American inspectors are not allowed to carry out inspections.

US legislation, set up in the wake of the 2002 Enron crisis, requires that audit firms submit to regular inspections by the US audit regulator, the Public Company Accounting Oversight Board (PCAOB).

However, the PCAOB has been blocked from conducting inspections in a number of jurisdictions across the world, including the UK. It?s understood the UK?s reporting regulator, the Financial Reporting Council, is pushing ahead with reforms which would allow PCAOB inspections to take place, but, at present, no formal agreement exists.

More than thirty European nations will also be affected including France, Germany, Greece, Italy, Netherlands and Spain. The move would particularly affect European companies hoping to expand to the US, and may force them to abandon their European-based auditor.

New or pending applications by non-US audit firms will be caught by the new regulations, while the 78 UK accounting firms currently registered in the US will be unaffected unless they are deregistered and forced to resubmit an application.
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understands there are currently nine applications awaiting approval, five of which originate from Europe.

The decision points to the increasing frustration of US regulators which are not being allowed to carry out inspections in Europe. In a statement, PCAOB Acting Chairman Daniel Goelzer said in the past firms have been allowed registered in the US while negotiations continued with foreign regulators to resolve the issue.

"Although we are still pursuing those efforts, the continuing obstacles to inspections in some jurisdictions have forced us to re-evaluate that approach to registration," he said.

Under the new system European accounting firms will be able to plea their case at a hearing, however if they can not satisfy US legislative requirements, their application will be refused.

Further reading:

Lehman investigation blocked by US-EU regulator stand-off

Transatlantic audit row between regulators rages

Europe greenlights US audit inspections