17 October 2003 The European Union and US look set to reach a compromise over US plans to force European auditing firms to register with US regulators.
The Sarbanes-Oxley Act, which aims to prevent a repeat of the accounting scandals at Enron and WorldCom, requires all auditors of US-listed companies to register with the US-based Public Company Accounting Oversight Board (PCAOB).
The Act has caused a frenzy of activity in the US, as both users and suppliers of financial systems have attempted to make their systems compliant. Compliance activity has not been restricted to the US with many UK and European-based companies also falling under the Act’s scope.
The EU has complained about the extra-territorial nature of the Act and is concerned over how much detail audit firms will have to provide when registering. Officials have also suggested that it would not be practical for the US to take the lead role in auditing investigations in Europe.
Proposals for compromise include a “joint registration” of auditors in both jurisdictions. The EU is expected to relax its outright opposition to registration for non-US auditors and the US will adopt a more collaborative approach to registration, inspections and investigations.
In order to achieve the proposed compromise, the EU will have to modify existing legislation – the 8th company law directive – to allow registration within the EU with Sarbanes-Oxley. That could pave the way for EU-led inspections.
Although the negotiations were believed to be positive, a final deal could take weeks to decide, a factor that could add to the pressure on companies looking to meet the April 2004 deadline for registration of European auditors.