The Public Company Accounting Oversight Board is taking a new approach to getting its inspectors in the door of auditing firms outside the U.S. that claim they can’t be inspected because of legal restrictions from foreign officials.

The PCAOB issued a release on Thursday to provide notice of the new approach to registration applications from firms in non-U.S. jurisdictions. In some cases, PCAOB-registered firms outside the U.S. have claimed legal restrictions or pointed to the objections of local authorities in denying the PCAOB access to information that the PCAOB considers necessary for its inspections.

Effective for all pending and future applications from accounting firms in such jurisdictions, the PCAOB will ask firms that apply for registration to state their understanding of whether a PCAOB inspection of the firm would currently be allowed by local law or local authorities. The applicant may choose to keep its application pending until it can respond, with confirmation from the appropriate authority in the jurisdiction, that a PCAOB inspection is permitted. 

If the applicant, in order to obtain earlier action on its application, responds that PCAOB inspections would not currently be allowed, the board will issue a Notice of Hearing to consider whether, in light of the obstacle to inspections, approval of the application would be consistent with the board's responsibility under the Sarbanes-Oxley Act of 2002.

"Since 2004, the board has approved registration applications of non-U.S. firms with the expectation that any potential obstacles to inspections would be resolved through cooperative efforts with foreign regulators," said PCAOB acting chairman Daniel L. Goelzer in a statement.  "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."

The PCAOB and regulatory authorities in several non-U.S. jurisdictions have worked together to overcome potential obstacles to PCAOB inspections, the PCAOB noted. Since 2005, the PCAOB has inspected registered firms in 34 non-U.S. jurisdictions, including in seven jurisdictions where PCAOB inspections have been conducted in coordination with inspections by the local authority. However, the PCAOB has also been thwarted from inspecting firms in many countries, including firms that are affiliates of some of the largest U.S.-based auditing firms (see PCAOB Blocked from Foreign Inspections).

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