The Public Company Accounting Oversight Board has reached an agreement with Japanese regulators that will allow the two countries to carry out joint inspections of auditing firms in Japan and the U.S.

The exchange of letters announced Wednesday by the PCAOB was struck with the Japan Financial Services Agency and the Certified Public Accountants and Auditing Oversight Board of Japan.

The PCAOB has been expanding its oversight internationally in an effort to conduct inspections of firms abroad that audit public companies whose shares trade on U.S. exchanges. In addition to carrying out joint inspections with regulators in Australia, Korea and Singapore, the PCAOB has been regularly conducting inspections of PCAOB-registered firms in other Asian countries, including Indonesia, Malaysia, New Zealand, Philippines, Taiwan and Thailand.

However, the goal of inspecting firms in mainland China, where a number of accounting irregularities have been uncovered, especially with Chinese companies that did reverse mergers with U.S.-based shell companies in order to be listed on U.S. exchanges, has proven elusive. The PCAOB recently needed to postpone a planned meeting with Chinese regulators. The Japanese deal could put further pressure on Chinese officials to allow access to the PCAOB.

“This exchange of letters with our Japanese counterparts confirms our mutual commitment to cooperation on cross-border audit oversight which I believe is critical to the improvement of audit quality given the globalized nature of the capital markets,” said PCAOB Chairman James R. Doty in a statement. “We are pleased to add this agreement to those that we have reached with other important partners in the region, including Australia, Korea and Singapore.”

While the PCAOB has conducted inspections on its own of PCAOB-registered firms from Japan since 2007, the exchange of letters provides a basis to conduct on-site visits of the firms in Japan in close cooperation with the Japanese regulators.

“The PCAOB highly values the constructive relationship it has enjoyed with the JFSA and CPAAOB over the years," said PCAOB director of international affairs Rhonda Schnare. "We are currently working on concluding similar cooperative arrangements with other regulators around the world.”

The agreement with Japanese regulators also includes provisions governing the exchange of confidential information between the oversight authorities, consistent with the 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. counterparts under certain circumstances. Sarbanes-Oxley gave the PCAOB the authority 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 U.S., in 84 countries. There are 16 PCAOB-registered firms in Japan.

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