The PCAOB or Public Company Accounting Oversight Board is a body established in the aftermath of Enron and the enactment of Sarbanes-Oxley and reviews the intensity and the integrity of audits by auditors on a regular basis. Until recently, the requirements of review pertaining to foreign companies (such as Satyam) that are registered with the SEC were somewhat lenient compared to domestic U.S. companies. However, TheCorporateCounsel.net Blog points to some recent developments that may result in tighter control over audits of non-U.S. companies that are registered with SEC. The Blog notes:
“Last month, the PCAOB adopted an amendment to Rule 4003 (as well as proposed a separate amendment to that rule) relating to the timing of certain inspections of registered non-US companies. Given the breath-taking revelation by Satyam’s CEO of prevalent fraud perpetuated by the CEO, it’s unfortunate that the PCAOB has not been inspecting the foreign affiliates of the US audit firms, such as the Indian firm auditing Satyam, because the budget that the PCAOB submits to the SEC has not provided sufficient funds for such inspections.”
Although the PCAOB release is dated December 4, 2008 (before the Satyam misstatements came to light), it is likely to result in greater scrutiny of Indian companies that are listed on U.S. stock exchanges. The release states:
“The Board has proposed for public comment Rule 4003(g), which would extend the current 2009 deadline for the first inspection of 50 non-U.S. firms located in 24 jurisdictions where the Board has not previously conducted inspections.
Under the proposal, the Board would conduct those inspections over the period from 2009 to 2012 according to a schedule based on criteria described in the release. The proposed rule would not extend the deadline for other non-U.S. inspections currently required by 2009.
The Board’s release also discusses the possibility that in some cases non-U.S. firms might decline to provide information requested in a PCAOB inspection because of a concern that doing so could violate local law.
The release discusses possible Board courses of action related to that issue including the possibility of imposing disciplinary sanctions on the firm for failing to cooperate with the inspection, and the possibility of a rule that would require a principal auditor to make certain public disclosures in connection with an audit report if the auditor is, or has used the work of a firm that is, in the position of declining to cooperate with a PCAOB inspection.”