Financial Regulatory Forum

EU makes overture to U.S. on audit inspections

By Reuters Staff
September 11, 2009

BRUSSELS, Sept 11 (Reuters) – The European Union made an overture to the United States on Friday in a bid to avert transatlantic tit-for-tat inspections of auditors that would cause unease and red tape for the sector.

The EU’s executive European Commission said it tabled a proposal to introduce mutual recognition of auditing inspections with Canada, Japan and Switzerland, and added it would like to include the U.S. in the plan.

All auditors have to be inspected regularly to prevent abuses, a need highlighted by financial scandals such as Enron which ended with the demise of auditor Arthur Andersen.

“As auditing has long moved beyond national borders, international cooperation is necessary to ensure that high quality audits are carried out worldwide,” the Commission said in a statement.

The EU wants mutual recognition so that authorities in other countries rely on local inspections of auditors who check the books of listed companies from outside the bloc.

In return, the EU would recognise inspections conducted locally outside the bloc on auditors checking the books of any of Europe’s 8,000 listed companies.

The U.S. ruffled EU feathers when it began sending inspectors to member states in 2007 but so far it has not agreed to mutual recognition of inspectors.

The Commission said the U.S. seemed open to cooperating but lacked the necessary legal powers.

“The Commission will also include the competent authorities from the United States in the current proposal, should the United States put in place the necessary framework allowing for mutual exchange of audit working papers with the EU public oversight bodies before the vote on this measure,” it added.

EU states have yet to send inspectors to the U.S, hoping a deal on mutual recognition can be reached.

“I am delighted that things appear to be moving because ultimately this dual oversight regime is inefficient and it creates problems for firms,” said Jeremy Jennings, chairman of the European Contact Group, which represents the world’s six biggest auditors.

Under a new EU law, member states can no longer give any third country access to sensitive findings from local inspections until that country agrees to mutual recognition of auditing.

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