April 1, 2003

Yesterday, the PCAOB held its

Yesterday, the PCAOB held its roundtable on foreign auditors and made its case for the outstanding proposal to require foreign firms auditing U.S.-traded companies to register with it (all of the SEC Commissioners attend to show their support). This has created quite a bit of controversy overseas.

As reported by the Washington Post, this meeting follows the SEC’s recent warning to British accountants that disclaimers of liability that they were slapping on audit opinions better not show up on U.S. financial statements. Here are other tidbits from the roundtable:

– David Wright, director of financial markets for the European Commission, argued that the PCAOB should wait one year before making foreign auditors register to give European countries time to work out conflicts between their laws and US laws. The PCAOB disagreed.

– The PCAOB plans to initially focus on about 6 key areas – with more than 1,200 pages of audit standards.

– The AICPA has tried to hold on to a role in the writing of audit standards. The PCAOB responded by informing the AICPA that Congress had given them control over audit standards and that the oversight board would not be required to follow the AICPA’s recommendations.

– The PCAOB is also replacing a widely criticized oversight system, in which accounting firms reviewed each other’s work. The board is hiring accountants — the number may grow to 100 by next year and is developing a code of conduct to prevent potential conflicts of interest by inspectors hired from Big Four firms. The new team is to start inspecting the Big Four this summer and smaller firms next year.

– Inspectors will operate differently as the new inspection team will examine audits under litigation – cases now exempt from the peer-review process. The board will also examine quality-control issues, such as how lead audit partners are paid, whether accounting firms have the right “tone at the top,” and whether audit work is sufficiently independent from tax and other services the firms offer.

The Washington Post article is at