The newly formed Public Company Accounting Oversight Board (PCAOB) met yesterday and issued its first order. With a unanimous (4-0) decision, the Board voted to go forward with proposed rules that require U.S. and foreign audit firms to register with the Board if they perform audits of U.S.-listed corporations.

The PCAOB will accept public comments through March 31 on the proposed rules. After the public comment period ends, there will be another vote. The rules must be accepted by both the PCAOB and the Securities and Exchange Commission.

Last year, European Union Commissioner of Internal Markets Frits Bolkestein objected to the suggestion that EU firms need to register with the PCAOB, indicating that their own controls are sufficient and a required U.S. registration would subject EU audit firms to "a double regulatory regime which would be excessive, inefficient and disproportionate."

PCAOB member Kayla Gillan endorsed the proposed registration for EU firms as a means of leveling the playing field, suggesting that the exclusion of foreign firms from the registration process could result in U.S. firms moving CPAs outside the country to avoid the required registration.

U.S. accounting firms that perform audits of public companies will be required to register and pay a non-refundable fee to cover registration costs. The amount of the fee will be determined in a PCAOB meeting next week. The registration process, which will be available online, will include a 10-part form in which firms must identify all the public companies for which they perform audits and how much has been charged for audit, accounting, and non-audit services.

In addition, the registration process will include disclosure of any disagreements with corporate audit clients as well as information about the types of quality controls in place at the audit firm. Pending lawsuits must be disclosed.

Registering audit firms must also provide a list of the names and license or certification numbers of all accountants employed by the firm who participate in or contribute to the preparation of audit reports. Foreign firms applying for registration must provide a list of all accountants participating in audits of U.S. companies.

It is expected that the registration process will be in place by late summer, 2003.