Statement on Consideration of Proposing Release of Full Reliance Policy Statement

Over five years ago, Congress enacted the Sarbanes-Oxley Act of 2002. Concern arose in other jurisdictions when the Act was passed, as it includes provisions requiring non-U.S. audit firms that audit U.S. public companies (including foreign private issuers) to register with the PCAOB and undergo regular inspections. When the PCAOB opened its doors, it swiftly began a dialogue with governments and regulators in other countries. These were interesting times, as many counterpart auditor oversight bodies were beginning to emerge in jurisdictions around the world. The dialogues were informative, and the PCAOB determined early on that cooperation with counterparts would be essential to the effectiveness of its inspection program. This determination has only strengthened as the PCAOB has grown in experience.

Over the last few years, the PCAOB has continued to foster working relationships with our counterparts in other countries in connection with the inspection of non-U.S. firms registered with the PCAOB. This has worked well, and, to date, the PCAOB has successfully conducted inspections in approximately 20 jurisdictions. I remain fully committed to establishing and maintaining close working relationships with counterparts in order to effectively fulfill our common mandates.

Three years ago the PCAOB set forth a framework for it to work with auditor oversight bodies in other countries in the conduct of inspections when it adopted Rule 4012 (“Inspections of Foreign Registered Public Accounting Firms”). The rule provided a sliding scale, so that our level of cooperation could range based on the level of integrity and robustness of a given counterpart’s oversight program. Based on experience gained in implementing Rule 4012 and the advancements made by several counterparts, we have reached a stage where we can now consider whether the PCAOB should, within Rule 4012, set up a framework for circumstances when the PCAOB could move beyond joint inspections toward full reliance on a counterpart in the context of inspections.

To this end, I asked staff last spring to develop a proposal that would do just that. While this was triggered by close discussions with the European Commission, we also have established close relationships with peers in other parts of the world, including, for example, Canada, Japan, Australia, and Korea. Based on information gleaned from dialogue with PCAOB counterparts and experience gained from inspections of non-U.S. firms, staff has developed a Policy Statement that the Board will consider today.

The PCAOB understands the importance of working closely with our counterparts – not only to enhance audit quality through our common interest in audit firms that we both supervise, but also to better leverage our respective resources.

While over 800 non-U.S. firms are registered with the PCAOB, currently 230 of these firms are subject to PCAOB inspection on a triennial basis. Due to the growing number of audit firms outside of the United States that are subject to PCAOB oversight, this is a tremendously important initiative for my fellow Board members and me and will likely to continue to be so for some time.

To present the staff’s recommendation, I will now turn to Rhonda Schnare, Director of the Office of International Affairs.