The Public Company Accounting Oversight Board has struck a cooperative agreement with Swiss regulators that will allow the U.S. and Switzerland to establish a cooperative framework for supervisory oversight of auditors that practice in each country.
The agreement with the Swiss Federal Audit Oversight Authority and Financial Market Supervisory Authority allows the PCAOB to commence joint inspections of accounting firms in Switzerland that audit, or participate in audits, of companies whose securities trade on U.S. markets.
The first inspections will probably involve the Swiss affiliates of the Big Four auditing firms.
“I am pleased to report that we have concluded an agreement to conduct joint inspections with Swiss authorities,” said PCAOB chairman James R. Doty during a speech Monday before the Council of Institutional Investors in Washington, D.C. “We will commence joint inspections in Switzerland in May, with the goal of inspecting three Big Four affiliate firms by the end of the year.”
In addition, the agreement includes provisions governing the sharing of confidential information, consistent with a recent amendment to the Sarbanes-Oxley Act that permits the PCAOB to share such information with its non-U.S. counterparts in certain circumstances.
"Switzerland is home to a number of companies that have a significant impact upon U.S. and global capital markets," said Doty in a statement Wednesday. "We look forward to working cooperatively with our Swiss colleagues to meet our shared objective to protect investors."
"We are pleased that the PCAOB and Swiss FAOA and FINMA have established this framework for working together, and we appreciate the cooperative spirit and professionalism consistently demonstrated by our Swiss colleagues," said PCAOB director of international affairs Rhonda Schnare. "We are continuing to work with our counterparts in other countries to establish similar cooperative arrangements.”
The PCAOB has been working to establish inspections of Chinese auditing firms in particular. The board has been keeping a close watch on a growing trend of Chinese companies entering the U.S. capital markets through reverse mergers with U.S. companies, while using the work of Chinese auditing firms (see PCAOB Warns on Chinese Audits).
“The PCAOB continues to meet resistance to inspections in China, based primarily on national sovereignty grounds,” said Doty during his speech. “This is especially troubling given the growth in the number of Chinese companies seeking access to capital in U.S. securities markets. There are also significant risks associated with audits of operations of U.S. companies in China. For example, we are finding through our oversight of U.S. firms that even simple audit maxims, such as maintaining the auditor’s control over bank confirmations, may not hold given the business culture in China. If Chinese companies want to attract U.S. capital for the long term, and if Chinese auditors want to garner the respect of investors, they need the credibility that comes from being part of a joint inspection process that includes the U.S. and other similarly constituted regulatory regimes. In light of these risks, the PCAOB’s inability to inspect the work of registered firms from China is a gaping hole in investor protection.”
The Sarbanes-Oxley Act directs the PCAOB to oversee and periodically inspect all accounting firms that regularly audit companies whose securities trade on U.S. markets. More than 900 audit firms currently registered with the PCAOB are located outside of the United States, spanning 84 countries. Eight of these firms are located in Switzerland.
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