As Ms. Schnare just outlined, the recommendation before the Board is to adopt an amendment to Rule 4003 that would give the Board the ability to postpone, for up to three years, certain first inspections of foreign registered public accounting firms that the Board is otherwise required to conduct before the end of 2009.
Before moving forward, I would like to thank Rhonda Schnare, Michael Stevenson, and Carl Calender and their colleagues in the Office of International Affairs, Office of the General Counsel, and the Division of Registration and Inspections, for their hard work on what is a particularly complex and challenging project.
I support the amendment to Rule 4003 and believe that the rule adopted today reflects a pragmatic approach. While it will result in a limited delay in the inspection of certain firms, I believe that, where possible, conducting inspections cooperatively with the Board’s non-U.S. counterparts is the most appropriate approach to meeting our inspections mandate for firms located outside of the United States. The approach promotes strong and consistent oversight of auditors across global markets and also helps to conserve PCAOB resources.
While the PCAOB is committed to engaging with its fellow audit regulators, at the same time the Board is required by the Sarbanes-Oxley Act of 2002 to conduct inspections of registered firms, including non-U.S. firms. Firms that have registered with the PCAOB must be mindful of the Board’s statutory obligation and authority to conduct those inspections, and of the firm's obligation, under the Sarbanes-Oxley Act and PCAOB rules, to cooperate in the inspection. The Board believes that most, if not all, legal conflicts related to inspections can be resolved through cooperative arrangements, consents or redactions of certain information not relevant to an inspection. Ultimately, a refusal to provide information based on non-U.S. legal restrictions involves unique circumstances, and the Board will weigh the facts and circumstances of each particular case in determining the need to impose sanctions.
That said, forging productive relationships with home country audit regulators and coordinating non-US inspections continue to be guiding principles for our inspection program. Although significant progress has been made in the international inspections program to date, the need to delay certain first-time inspections results from the substantial time and effort required to establish the necessary cooperative arrangements to undertake inspections outside the United States.
I believe the rule amendment today will allow the PCAOB to continue its efforts to successfully work with its foreign counterparts while continuing to meet its statutory mandate and serve the public interest. The Board’s approach to sequence these first-time inspections over three years, based on issuer market cap, is designed to address risk and direct the staff’s efforts to those firms with the most market impact.
In my view, it is appropriate to continue the Board’s practical approach to conducting inspections of foreign registered accounting firms. When coupled with the transparency measures recommended by the staff, it appropriately emphasizes the need to coordinate and cooperate with local authorities to the extent possible, while simultaneously underscoring the importance of firms’ compliance with U.S. law and informing the investing public of our continued progress. I support this approach and continue to believe that it is in the long-term best interest of investors. Accordingly, I view the rules before us today as representing an important step forward, and I support the staff’s recommendation.