The PCAOB Is Finally Invited to Europe's Financial Statement Party

In 2004, the PCAOB attempted to nose its way into foreign financial statements and graciously asked for comment on this sneaky little piece of legislation that would grant them access (under Sarbanes-Oxley). Keeping in mind that PCAOB accountants and foreign company accountants speak a different language and I'm not talking about French and English.

When that trick didn't work, former SEC Chair Chris Cox fast-tracked the transition to IFRS so we could then say our accountants spoke the same language as European accountants and then Dodd-Frank came along to try it all again. I say "fast-tracked" as if we actually came out with a usable roadmap on the transition to international accounting standards, had accountants here in the U.S that knew how to use them and have a plan to avoid the estimated $35 million per year per company it will take U.S. companies to convert their financial statements. Who will get those jobs? Our CPAs that have absolutely no fucking clue what the shit is? Good luck with that.

Sorry, let's stick to the task at hand, PCAOB Release 2003-024 dated December 10, 2003:

The Sarbanes-Oxley Act of 2002 (the "Act") directs the Board to, among other things, establish a registration system and inspection and enforcement programs for accounting firms that audit or play a substantial role in the audit of U.S. public companies.1/ Specifically, Section 102 of the Act prohibits accounting firms that are not registered with the Board from preparing or issuing audit reports on U.S. public companies or from participating in these activities. Moreover, Section 104(a) of the Act directs the Board to conduct a continuing program of inspections to assess the degree of compliance of each public accounting firm registered with the Board, and that firm's associated persons, with the Act, the rules of the Board, the rules of the Commission, and professional standards in connection with the performance of audits, the issuance of audit reports, and related matters involving U.S. public companies. In addition, Section 105 of the Act grants the Board broad investigative and disciplinary authority over registered public accounting firms and persons associated with such firms. To implement these directives, the Board has adopted rules on registration, inspections, and investigations and adjudications.

One of the best things about this whole clusterfuck, of course, is that we get to see interagency, cross-border bitchfighting on a grand scale over some fucking numbers on a spreadsheet that are pretty much meaningless whichever way you speak them. The European Commission trashed the PCAOB as unwelcome on their turf in the following comment letter, telling the PCAOB in no uncertain terms that unless the SEC would finally get around to adopting IFRS in the U.S., they were not welcome to come sniffing around foreign financials. Four years later, we're still coloring out the transition on a big ass SEC whiteboard ($$ + auditors + foreign accountants - U.S. CPA jobs = FAIL). The AICPA is testing it on the CPA exam as of a week ago even though very few accountants in the U.S. have seen it in the wild.

Under a true EU-US cooperative approach on auditor oversight based on effective equivalence of regulation and oversight, we do not consider the direct participation of PCAOB inspection personnel in EU quality assurance reviews to be necessary in every case. Although we believe that systematic participation might be of interest as a measure of mutual confidence building at the beginning, we doubt whether this needs to be done on a permanent basis. We also question whether both sides need to allocate resources to such foreign participation, in particular, once initial experiences have been positive. We understand that the PCAOB is mandated to carry out inspections, especially the application of USGAAP and PCAOB auditing standards. However, direct participation by PCAOB inspectors is problematic for a number of legal reasons and could even cause constitutional difficulties in some Member States. Therefore, such participation must be in accordance and agreement of the authority of the Member State where the audit firm is located. As in the PCAOB’s briefing paper, we would also like more emphasis in the Rule placed on the importance of the PCAOB and foreign oversight bodies drawing up joint work plans as the basis for joint cooperation.

Furthermore, for those of the oversight systems considered to be in the top scale, participation of PCAOB personnel should be limited to cases where knowledge of US standards cannot be secured by any other means. In this context it would be helpful if the PCAOB clarified in its rules whether the designated expert could also be a home country expert in US accounting and auditing standards. In any case, once the SEC will recognise IAS/IFRS for US listing purposes the need for such expertise would seem unnecessary for EU issuers in the US.

SNAP. That's pretty fucking clear to me, how about you?

The PCAOB wasn't able to use legislation to sneak its way in at that time but don't worry, Dodd-Frank has made another stab at it and might actually be making some headway. Way to go, you tricky assholes!

Does anyone else have a comment?

Jr Deputy Accountant

Some say he’s half man half fish, others say he’s more of a seventy/thirty split. Either way he’s a fishy bastard.


CB said...

As always, nice post JDA.....

By the way, this might be the best equation I have EVER seen.... ($$ + auditors + foreign accountants - U.S. CPA jobs = FAIL)