The Public Company Accounting Oversight Board has signed a deal with German authorities that will allow officials to conduct joint inspections of auditing firms in both the U.S. and Germany.

The PCAOB said Friday that it has entered into a cooperative arrangement with the German Auditor Oversight Commission. The deal takes effect immediately.

“This agreement with the German audit regulator is a very significant step forward in our pursuit to improve audit quality and protect investors,” said PCAOB Chairman James R. Doty in a statement. “We are pleased with our continuing progress in overcoming obstacles to conducting inspections in European Union member states.”

The PCAOB has been working to expand the number of countries that will allow it to inspect auditing firms and has been making more headway in Europe of late. While the PCAOB has yet to strike a deal with Chinese officials, Doty recently told Accounting Today that the board is making progress there as well (see PCAOB Chairman James Doty Sees Progress on Foreign Inspections).

So far, the PCAOB has reached agreements with regulators in two other European Union member states, the United Kingdom and the Netherlands, along with Switzerland and Norway. The board said it is continuing to negotiate with regulators in numerous other European countries.

Cooperative arrangements have also been reached with regulators in Canada, some Middle Eastern countries such as Dubai and Israel, and in several Asian countries such as Japan, Taiwan and Singapore.

In addition to providing a framework for conducting joint inspections, the arrangement with German authorities includes provisions governing the exchange of confidential information between the German Auditor Oversight Commission and the PCAOB, consistent with certain provisions of the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act.

Those provisions amended the Sarbanes-Oxley Act of 2002 to permit the PCAOB to share confidential information with its non-U.S. counterpart regulators under certain circumstances. The arrangement with the German AOC also includes an agreement on data protection.

"The German AOC has been a strong advocate for bilateral and international cross-border audit cooperation," said PCAOB director of international affairs Bruce Wilson. "We are pleased that we have found a way to move forward with a framework for joint inspections that satisfies Germany’s data protection laws."

The Sarbanes-Oxley Act directed the PCAOB to oversee and periodically inspect all accounting firms that regularly audit companies whose securities trade in U.S. markets. More than 900 audit firms currently registered with the PCAOB are located outside the United States, spanning 88 jurisdictions. There are 36 registered firms located in Germany, including affiliates of Ernst & Young, KPMG, PricewaterhouseCoopers, Grant Thornton, PKF and Baker Tilly.

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