Clifford Chance

PCAOB registered non-US audit firms and individuals continue to be a focus for the PCAOB. Enforcement statistics for 2015-19 show significant non-US activity, which we expect to continue.

The watchdog for auditors of US public companies has been focused for some time on audits of foreign issuers on US exchanges—especially foreign issuers whose principal auditors are outside the United States. The US Public Company Accounting Oversight Board ("PCAOB" or "Board"), under oversight by the SEC, was established by the Sarbanes-Oxley Act of 2002 to "oversee the audits of public companies in order to protect investors and the public interest by promoting informative, accurate, and independent audit reports." This mandate includes issuing rules and guidance, conducting inspections, and enforcement.

The PCAOB's strategic plan emphasizes a focus on non-US audit firms, and the PCAOB's public pronouncements—available here, here, here, and here—highlight its activity with respect to emerging and other non-US markets. The PCAOB specifically reports on the number of inspections conducted outside the United States—at last report, in over 51 countries since 2004. The PCAOB's Enforcement Division has reported numerous resolutions of enforcement matters with non-US firms and individuals, with such proceedings representing approximately 33% of enforcement activity between 2015 and 2019 by number of reported disciplinary orders.

In short, PCAOB inspections and enforcement activity involving non-US audit firms and individuals working for those firms have been extensive and will continue, and non-US firms should be aware of and act to mitigate the compliance and enforcement risk of this scrutiny. The pandemic-related business and travel interruptions do not reduce this risk—indeed, they enhance it. The PCAOB has continued to publish disciplinary orders during the crisis, and both the SEC and PCOAB have emphasized that they view audit firms and audit quality as protectors of investors during the disruption.

On April 21, 2020, in the midst of the disruption, the SEC and PCAOB issued a joint statement warning of the risks that emerging markets pose to investors and the challenges to PCAOB oversight in those markets.

For a more in-depth analysis, please refer to our article which is available through the link on the right side of this post.