SEC Rule Aims to Place Foreign Company Auditing on Equal Footing

Trading in foreign companies listed in US stock exchanges can be suspended if a foreign country prevents US regulators from inspecting the company’s auditor for three consecutive years, under new rules approved this week.

The US Securities and Exchange Commission’s (SEC) approval of the new rule is aimed at ensuring that the auditors of foreign companies abide by the same rules as auditors in the US. The rule was developed by the Public Company Accounting Oversight Board (PCAOB), which was implemented pursuant to the Holding Foreign Companies Accountable Act (HFCAA).

The PCAOB is required, under the Sarbanes-Oxley Act of 2002, to inspect registered public accounting firms in both the US and in foreign jurisdictions and investigate potential statutory, rule, and professional standards violations committed by registered public accounting firms and associated persons. The PCAOB has to determine whether it is unable to inspect or investigate completely registered public accounting firms located in a foreign jurisdiction because of a position taken by an authority in that jurisdiction.

“With this rule, we can continue the process of ensuring that all publicly traded issuers in our capital markets are complying with the same requirements and that investors can draw the same level of confidence from the quality of the audits of all issuers no matter where their registered public accounting firm is located,” said SEC Acting Chief Accountant Paul Munter.