PCAOB access to audit working papers in the UK
UK audit firms can grant access to their audit working papers if requested by the US authorities, under certain conditions
As a result of amendments to section 106 of the US Sarbanes-Oxley Act, where a US audit firm relies on material work by a non-US audit firm, it must now be able to produce the audit working papers of the non-US firm if the PCAOB or SEC require it.
US firms may therefore be requesting consent from their non-US affiliates to produce these working papers on request. However, there are issues with UK law about access to UK information: UK firms registering with the PCAOB will have submitted a legal opinion confirming that they cannot agree to unrestricted requests for information, under UK law. This opinion remains valid.
The question arises therefore as to whether UK audit firms can sign such consents and produce the audit working papers on demand.
Access to papers
Developments in early 2011 have clarified the position as regards UK audit firms and allow access to be granted under certain conditions.
The key documents are:
- SI 2010/2537 (Transfer of Audit Working Papers to Third Countries) Regulations 2010
- ICAEW Audit Regulation 3.14, which effectively mirrors the law, and
- The Statement of Protocol between the Public Company Accounting Oversight Board of the United States and the Financial Reporting Council (FRC) of the United Kingdom, dated 10 January 2011
In essence, these allow UK audit working papers requested by the PCAOB to be transferred to them under certain conditions. That is, that audit working papers and other documents requested by the PCAOB can only be transferred to the PCAOB
- by the FRC;
- by the firm with the clear agreement of the FRC; or
- in exceptional cases, directly to the PCAOB by the firm, provided that (amongst other things) PCAOB informs the FRC in advance the other Party of each direct request for information, indicating the reasons thereof.
From a practical aspect, the FRC has agreed with the PCAOB that routine requests for information - for example for registration with the PCAOB - can go directly to the firms, copied to Audit Quality Review (AQR), but that other requests that might involve audit working paper transfer should come to the FRC. To put it another way, PCAOB should not be asking the US audit firms to get them for them.
The SEC acknowledges potential conflicts with non-US legislation and has approved a form of consent that allows consent to be signed with the caveat that it is "to the extent permitted by local law".
Given that all this derives from local law, we are of the view that there would be no harm signing the undertaking asked for provided it does have the important caveat: "to the extent permitted by applicable law". However, it might be sensible to add "and in accordance with the Statement of Protocol between the Public Company Accounting Oversight Board of the United States and the Financial Reporting Council of the United Kingdom, dated 10 January 2011".