Washington (Dec. 10, 2003) -- The Public Company Accounting Oversight Board moved to soothe ruffled regulatory feathers throughout the international accounting community by proposing new rules that grant foreign regulatory bodies a role in inspecting and investigating non-U.S. accounting firms subject to the board’s registration requirements.

The proposal, advanced unanimously at Wednesday’s meeting, is aimed at developing a “cooperative arrangement” under which the PCAOB would rely on foreign regulatory organizations to inspect, investigate, and sanction their home country accountants “to the maximum extent possible.”

But the plan would not offer all foreign oversight bodies the same authority to supplant the PCAOB’s oversight obligations. Instead, the PCAOB’s proposal would permit “varying degrees of reliance on a firm’s home country system of inspections, based on a sliding scale: the more independent and robust a home country system, the higher the reliance on that system.”

Using this approach, the countries of the European Commission and Japan -- the nations that squawked the loudest at the PCAOB’s decision earlier this year to require registration of non-U.S. auditors -- would likely be granted the greatest flexibility to regulate accountants in their countries who audit U.S. corporations.

PCAOB Chairman William J. McDonough said the framework for the “cooperative approach” was hammered out after extensive discussions with foreign accounting firms and non-U.S. regulatory agencies. The board received a “very high degree of cooperation” from representatives of the European Commission in fashioning the proposal, he said.

One key to the success of the PCAOB’s plan for sharing enforcement duties will be determining which countries rank at the top of the board’s “sliding scale” and which are rated as less trustworthy in terms of the “independence and robustness” of their system of oversight. To make these determinations, the PCAOB plans to employ a “principles-based approach” under which a country would be graded according to such factors as “the independence of the system’s operation from the auditing profession,” “the nature of the system’s source of funding,” and the system’s “integrity,” “transparency” and “track record.”

The board also voted to propose extending the registration for non-U.S. firms by 90 days to July 19, 2004.

-- Ken Rankin

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