Updated Information on PCAOB International Inspections

As of June 30, 2011

In order to provide transparency about its international inspection program, the Public Company Accounting Oversight Board provided its semi-annual update about the status of the inspections of registered non-U.S. firms. Specifically, in order to provide investors and the public with information about the PCAOB’s international inspection efforts, the Board –

  • posted on its Web site any updates to the lists that provide information about the status of inspections in certain jurisdictions and of certain firms and issuers; and
  • reported on its progress in meeting target thresholds announced by the PCAOB in adopting PCAOB Rule 4003(g) for inspections of certain non-U.S. firms.

Lists of Jurisdictions

The PCAOB is updating two lists of jurisdictions in which there are registered non-U.S. firms that are currently required to be inspected. The first list includes all of the jurisdictions in which there are one or more registered non-U.S. firms that the PCAOB has already inspected. As indicated by that list, as of June 30, 2011, the PCAOB has conducted inspections of non-U.S. firms in 35 jurisdictions on a cumulative basis, the same as reported in Dec. 31, 2010.

The second list identifies the jurisdictions in which there are registered non-U.S. firms that the PCAOB intends to inspect in the current calendar year, 2011. The intention to publish this information was announced by the Board in PCAOB Release No. 2009-003, Final Rule Concerning the Timing of Certain Inspections of Non-U.S. Firms, and Other Issues Relating to Inspections of Non-U.S. Firms (June 25, 2009) and in PCAOB Release No. 2008-007, Rule Amendments Concerning the Timing of Certain Inspections of Non-U.S. Firms, and Other Issues Relating to Inspections of Non-U.S. Firms (Dec. 4, 2008).

The PCAOB publishes this list in order to provide transparency about its international inspections plans for each calendar year. The inspection schedule for non-U.S. firms is based on primarily the inspection deadline for a particular firm, but also may be affected by the inspection schedule of the firm’s home-country regulator, and/or the risk that a firm or its audit clients presents to investors and the public. In addition, one or more firms from jurisdictions not currently included on the list may be added to the inspection schedule for a variety of reasons, including the availability of PCAOB resources, the inspection schedule of a firm’s home-country regulator, and new information about the potential risk posed by a firm or its audit clients to investors and the public. China has been removed from this 2011 list in light of the Board’s hope, already communicated publicly, that a joint inspection program with China would be

implemented in 2012.

Updated List of Firms

The third list includes the names of registered firms for which, as of June 30, 2011, the inspection fieldwork had not yet been completed by the PCAOB, even though more than four years have passed since the end of the calendar year in which the firm first issued an audit report while registered with the PCAOB. The Board announced its intention to publicly identify firms meeting that criteria in the release issued in connection with the PCAOB’s adoption of PCAOB Rule 4003(g);[1] and the release issued in connection with the PCAOB’s adoption of PCAOB Rule 4003(f).[2] This list is updated, at a minimum, on a semiannual basis to add firms that qualify for the list and also to remove firms from the list when the inspection fieldwork has been completed or the firm has voluntarily deregistered from the PCAOB.

The reasons that the inspection fieldwork for a firm has not been completed within four years of the firm having issued an audit report while registered with the PCAOB may vary. For example, some firms are included on the list because their inspections were postponed pursuant to Rule 4003(f) or Rule 4003(g), which permit the PCAOB to postpone, for a limited time, the first inspections of certain non-U.S. firms.[3] Certain other firms are included on this list because access to information necessary to inspect the firm has so far been denied on the basis of asserted restrictions under non-U.S. law or objections based on national sovereignty.

Today, the Board updated this list to show that one firm was removed from the list because it voluntarily withdrew from PCAOB registration. Because inclusion on the list is based on the passage of four years from the end of a calendar year, any additions to the list will occur only at year-end updates.

Updated List of Issuer Audit Clients of Firms in Jurisdictions where the PCAOB has been Denied Access to Conduct Inspections

The fourth list is a list of issuers that have filed with the U.S. Securities and Exchange Commission (“SEC”) financial statements audited by a PCAOB-registered firm located in jurisdictions where obstacles to PCAOB inspections exist.

Because of the position taken by certain non-U.S. authorities, the PCAOB currently is prevented from inspecting the U.S. related audit work and practices of PCAOB-registered firms in certain European countries, China and — to the extent their audit clients have operations in mainland China — Hong Kong. [4] As a result of these obstacles, investors in U.S. markets who rely on those firms’ audit reports are deprived of the potential benefits of PCAOB inspections of these auditors. The PCAOB publishes this list in order to inform investors that the PCAOB currently is prevented from inspecting the PCAOB-registered auditors of the listed issuers.

The list is set out in two formats – one sortable by issuer, auditor, or jurisdiction, and one organized by jurisdiction and auditor. The current list is derived from annual reports on Form 2 filed with the PCAOB by registered public accounting firms in 2010 and 2011 which, in combination, encompass audit reports issued by the firms in the period from April 1, 2009 to March 31, 2011. The list is limited to issuers for which auditors in the relevant jurisdictions reported having issued audit reports. Auditors in those jurisdictions, however, including the auditors identified in the list, may play a substantial role in the audits of numerous multi-national issuers not listed here. Even though these auditors do not issue audit reports for those issuers, the audit work they perform is relied upon by the issuer’s principal auditor, in the U.S. or elsewhere. That work is often significant to the audit of the financial statements the multi-national issuer files with the SEC and would also be within the scope of PCAOB inspections.

Progress in Meeting Thresholds

The PCAOB today also reported its progress in meeting the target thresholds that it announced in adopting Rule 4003(g), which permits the Board to defer, for up to three years, the first inspection of 49 non-U.S. firms that were otherwise required to be inspected in 2009. In adopting that rule, the Board stated that it intended to inspect at least four of those firms in 2009 and that the four firms would have combined issuer audit-client U.S. market capitalization equal to at least 35 percent of the aggregate U.S. market capitalization of the audit clients of all firms meeting the Rule 4003(g) criteria for deferral.

For 2010, the Board stated that it intended to inspect at least 11 more firms, and that the firms inspected in 2009 and 2010 would have combined issuer audit-client U.S. market capitalization equal to at least 90 percent of the aggregate U.S. market capitalization of the audit clients of all firms meeting the Rule 4003(g) criteria for deferral.

For 2011, the Board stated that it intended to inspect at least 14 additional firms and that the firms inspected in 2009 through 2011 would have combined issuer audit-client U.S. market capitalization equal to at least 99.9 percent of the aggregate U.S. market capitalization of the audit clients of all firms meeting the Rule 4003(g) criteria for deferral.

Between Jan. 1 and June 30, 2011, the PCAOB did not complete inspections at any firm that met the Rule 4003(g) criteria for deferral. While the inspection of a firm in Switzerland meeting the Rule 4003(g) criteria for deferral was underway but not yet complete as of June 30, the PCAOB has so far been denied access to information necessary to conduct inspections at the other firms meeting the rule criteria from other jurisdictions on the basis of asserted restrictions under non-U.S. law. As a result, aside from the one firm where the PCAOB has commenced fieldwork, the PCAOB otherwise made no progress between Jan. 1 and June 30, 2011 in meeting the target thresholds discussed above for U.S. market capitalization or number of firms to be inspected.

As previously reported, between Jan. 1 and December 31, 2010, the PCAOB inspected no firms that met the Rule 4003(g) criteria for deferral and therefore made no progress that calendar year in meeting the target thresholds for market capitalization or number of firms to be inspected in 2010. Likewise, as previously reported, in 2009, the PCAOB inspected five firms eligible for deferral pursuant to Rule 4003(g), including only two of the four firms that the PCAOB had scheduled for inspection in 2009 based on their clients’ U.S. market capitalization. The combined market capitalization of the clients of those five inspected firms equaled 2 percent of the aggregate market capitalization of the audit clients of all firms meeting the Rule 4003(g) criteria for deferral.

Future updates to the lists and inspection progress information in this fact sheet will be made public on the PCAOB’s Web site and through the PCAOB listserv.



[1] PCAOB Release No. 2009-003, Final Rule Concerning the Timing of Certain Inspections of Non-U.S. Firms, and Other Issues Relating to Inspections of Non-U.S. Firms (June 25, 2009).

[2] PCAOB Release No. 2008-007, Rule Amendments Concerning the Timing of Certain Inspections of Non-U.S. Firms, and Other Issues Relating to Inspections of Non-U.S. Firms (Dec. 4, 2008).

[3] For more detail about these rules and the PCAOB’s reasons for adopting them, please see PCAOB Release No. 2009-003, Final Rule Concerning the Timing of Certain Inspections of Non-U.S. Firms, and Other Issues Relating to Inspections of Non-U.S. Firms (June 25, 2009), issued in connection with the PCAOB’s adoption of PCAOB Rule 4003(g); and PCAOB Release No. 2008-007, Rule Amendments Concerning the Timing of Certain Inspections of Non-U.S. Firms, and Other Issues Relating to Inspections of Non-U.S. Firms (Dec. 4, 2008), issued in connection with the PCAOB’s adoption of PCAOB Rule 4003(f).

[4] In early 2011, the PCAOB executed separate Statements of Protocol with the audit regulators in the United Kingdom and Switzerland. These agreements provide a basis for the resumption of PCAOB inspections in the UK and Switzerland in 2011. Accordingly, the issuer audit clients of UK and Swiss audit firms have been removed from the list.