20 different countries. It would be chaos!'

Wall Street Journal

critic both of the AICPA and the performance of the Big Four on audits.

' Therefore, it' s safe to say that the audit reviews the board is going to undertake will be a lot more stringent than in the past. For the firms, life just got a lot tougher.'

This outspoken PCAOB chief is William McDonough, described by the American press as ' a tough negotiator' and by the SEC as having ' unquestioned integrity' - an important quality after the embarrassing resignation of his predecessor,William Webster, over revelations of dubious accounting at a company where he had led the audit committee.

According to the , McDonough has promised to be ' tough as needed' in his mission to repair the profession' s reputation, adding: ' If we think they' re not getting the message, we will have to take tough action' .

The oversight board has not yet revealed how it plans to undertake the anticipated inspections, but Carlino has his money on it picking out several large audit clients of the Big Four firms and examining the audit reports.

' And if the Big Four in the UK have contact with companies in the US - which they do - then the reviews will filter through to them too,' he warns.

The Brits fight back

For the UK profession, the prospect of hoards of American inspectors flying over to investigate UK firms is not very appealing. ICAEW president Peter Wyman has been spending a considerable amount of time in discussions with the PCAOB in Washington DC, arguing against it.

He says PCAOB inspections would be very expensive for the UK firms concerned, as not only would they have to pay for the cost of the visits but potential client time would also be tied up in cooperating with the inspections - and these costs, he says, would ultimately be borne by the consumer.

Wyman is also concerned that other regulatory bodies around the world would feel compelled to adopt the US' s reviewing policy.

' You can envisage UK firms being inspected by 20 different jurisdictions because they do work for subsidiaries of 20 different countries. It would be chaos!' he says.

' And another problem would be greater concentration in the markets because firms that audit maybe one or two SEC registrants could decide that all their profit from these audits is taken away by the inspections and therefore it' s not worth bothering.

' So rather than encourage more people to participate, which is what everyone wants to see happen, it will instead bring about further concentration, and the old law of unintended consequences will kick in again.'

The institute president is instead pushing very strongly for ' mutual recognition' , where the PCAOB would recognise that the UK' s own reviews by the JMU and the Financial Reporting Council were sufficient to meet the needs of the US board, thus making further inspections unnecessary.

Mutual recognition

' It' s pointless for the PCAOB to send teams of people from the States to the UK to carry out a review which frankly cannot be any better - and it' s likely, just because of lack of familiarity of the way things are done in the UK, to be less good - than the reviews already being done here,' he says. ' At best it' s just highly duplicative and expensive, and at worst, it will be less good.'

Wyman is adamant that the PCAOB' s reviews will not be any more stringent than the UK' s existing inspection process, and that in effect, the US is merely catching up with the UK.

' Until now the US has had peer reviews, but not independent inspections in the way that we have had through the JMU for years and years. And we' ve even moved our reviews on one stage further by moving, in future, the JMU reviews out from the institute' s independent voluntary unit to the Financial Reporting Council,' he adds.

The UK is just one of a number of countries, including Canada, Australia and Italy, that are busy negotiating with the PCAOB. The oversight board has not yet committed itself in any way, but Wyman says he is cautiously optimistic that it will decide that mutual recognition is the sensible way forward.

' If you read between the lines of the PCAOB' s last public statement, there are hints that it is recognising the possibility of some kind of mutual recognition, without it arriving at a formal position,' he says. ' It' s still early days and there' s a long way to go.'

Arguments against PCAOB inspections of UK firms:

•    Expensive for firms, with costs ultimately being borne by the consumer.

•    Existing UK reviews by JMU are sufficient to meet the PCAOB' s requirements, making further US inspections duplicative and unnecessary. US inspections are unlikely to be better or more stringent than UK ones.

•    The expense and effort of being subjected to US reviews will discourage firms from bothering to audit SEC-registrant companies, thus bringing about greater concentration in the markets.

•    Other regulatory authorities around the world may feel compelled to adopt the US' s policy, making firms subject to multiple inspections.

Wyman: there' s still a long way to go

The May issue of Accountancy includes an article by lawyers on summarising the impact of Sarbanes-Oxley on non-US accountants on p127. You can obtain a copy by subscribing to the magazine on 020 8247 1350.

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