UK Accounting Leader Calls for Audit Oversight Cooperation, Praises Levitt

Given multinational corporations and the global audit firms that audit their financial statements, it is imperative that the PCAOB and other audit oversight bodies work together to meet the challenges of convergence and the consequences of a global regulatory agenda. The standard setters must be ready also to meet the challenges that will arise when the PCAOB inspects the auditors of foreign private issuers and their subsidiaries, noted Richard Dyson, President of the Institute of Chartered Accountants in England and Wales, at a recent seminar.

Mr. Dyson also took the opportunity to praise former SEC Chairman Arthur Levitt for being prescient in a 1998 speech in which the chairman warned of impending dangers if the financial community did not change its practices. I think that Mr. Dyson must be referring to the now famous NYU speech of Sept. 28, 1998. Noting that Chairman Levitt must have had a crystal ball, Mr. Dyson said that the SEC chair correctly stated that the public faith in the integrity of the audit profession was becoming increasingly tarnished and that integrity of information must take priority over a desire for competitive advantage in the audit process. These 1998 remarks do indeed sound prophetic today.

Returning to the familiar theme of unfavorably contrasting US prescriptive rules with the lighter touch regulation of the UK and EU, My. Dyson foresaw possible problems even when the PCAOB works with home country regulators. In his view, this is because the US market is not the same as the UK or EU. The US market is based on securities law, he said, while the UK and EU markets are based on company law. There is a world of difference in approach and intent, he added, in financial reporting, in corporate governance, and in response to financial scandals. Moreover, the UK and EU have gone down a shareholder-based approach to corporate governance, supported by codes and the comply or explain principle.

In contrast, the US has adopted a regulatory approach, with Sarbanes-Oxley, that prescriptive and rules-based. For example, Dyson pointed to what he described as ``incredibly detailed’’ rules on auditor independence. This means that larger network audit firms must now operate global conflict databases to cover US independence requirements which reach across every border since the financial and reputation risks involved if a breach were to occur are too great not to do so.