In recent months, tension has been rising between the U.S. and foreign governments over jurisdiction over accounting firm oversight, and perceived unfair corporate tax breaks. Now, U.S. officials are publicly expressing a willingness to show some flexibility in their policies to avoid an all-out confrontation.
PCAOB Oversight of Foreign Firms
At a news conference in London, Ethiopis Tafara, acting international director at the Securities and Exchange Commission, indicated that it may not be possible for the Public Company Accounting Oversight Board itself to inspect all firms providing audit services to U.S. companies. His statement alluded to the possibility that the PCAOB could work cooperatively with other foreign regulators to ensure a high standard for investor protection. He added that the PCAOB would still need direct access to work papers in the event of a fraud investigation.
Accounting regulators around the world have been at odds with the PCAOB for months because of the U.S. regulator's insistence that it have oversight authority over all foreign public accounting firms that provide audit services for U.S. corporations.
Senate Urged to Reform Unfair Corporate Tax Breaks
In May 2003, the European Union issued an ultimatum to the United States - end illegal export subsidies or face retaliation. At the heart of the dispute is a system of tax breaks for major companies known as the foreign sales corporations (FSC) program. The EU has targeted a number of products receiving these special breaks including nuclear reactors, iron and steel, aluminum, electrical machinery, textiles and clothing, fruit, and grains.
This week, John Veroneau, general counsel in the Office of the U.S. Trade Representative told the Senate Finance Committee that time is running out, and urged Congress to reform the law.
"I suspect that if by the end of the [congressional] session we have not shown serious progress in passing legislation to replace [the tax laws that violate international trade rules], I think next January we face a very high likelihood of retaliation," he said.
Senate Finance Committee chairman Charles Grassley has indicated his intentions to introduce legislation in the next few weeks to reform the law, and bi-partisan support for the change in law has been shown in both the Senate and the House of Representatives.