The Public Company Accounting Oversight Board (PCAOB) has confirmed that more than a dozen inspections of foreign audit firms have been carried out under the U.S. Sarbanes-Oxley Act of 2002 (SOX). The London offices of Ernst & Young are among those identified by the media as subject to recent inspections. Deloitte & Touche and KPMG anticipate inspectors will arrive in their London offices soon.
The inspections of the London offices are a joint effort of the PCAOB and the Reporting Council, the audit watchdog in the United Kingdom (UK), according to India Daily. The Financial Times, however, is reporting the inspections are an example of “regulatory creep”, in which international audit firms and companies are required to comply with SOX provisions even when they are not located in the U.S.
Reuters reports annual inspections of audit firms having more than 100 clients with U.S. listings are required under a contentious SOX provision. Firms having fewer than 100 clients with U.S. listings are required to be inspected every three years.
Although not addressing the inspections directly, Ernst & Young earlier this month announced a three-year sponsorship program with Transparency International (TI), a global civil society organization leading the fight against corruption.
“Corporations have a vital part to play in the economic and social health of our communities,” James S. Turley, Chairman and chief executive officer (CEO) of Ernst & Young, said in a statement announcing the sponsorship program. “We can lead by example and help our clients deal with their own incidences of fraud and corruptions when operating under challenging conditions.”
The last PCAOB inspection report on Ernst & Young was issued November 17, 2005, and relates to the U.S. operations.
Some in the UK seem to find the inspections challenging, with the Financial Times reporting the accountants in the UK were unhappy with them because they duplicated the work of the UK regulators. An editorial in the Financial Express states “There is a real danger, if too many interventionist proposals are implemented, that audit quality in this country [UK] could suffer.” A similar article in the Herald concurs, adding “It would be a pity if the effectiveness of these efforts to improve corporate governance and the integrity of financial reporting was undermined by a spaghetti junction of overlapping regimes for monitoring the work of auditors. But that is what we are in danger of seeing when it comes to oversight of auditors working for the myriad companies that are listed in more than one jurisdiction.”