[A-List] Germany: against US extraterritoriality

["Michael Keaney" <michael.keaney@xxxxxx>]

Germany plans pan-European audit regulator
By Adrian Michaels in New York
Financial Times: March 12 2003

The German audit profession has proposed a powerful new pan-European
accountancy regulator with the authority to sue deficient national
regulatory regimes within the European Union.
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The proposal is Germany's answer to the new US accountancy oversight board,
which was formed in the wake of Enron and other scandals and replaces the
embattled audit profession's failed system of self-regulation.

German officials hope a pan-European body would force the US to back off
plans to extend its jurisdiction to oversight of non-US audit firms in
efforts to shore up the financial integrity of shares listed on US markets.

However there are large differences between European countries on how best
to respond to the wave of corporate scandal. With the recent financial
controversy at Dutch retailer Ahold, Europeans are finding it harder to make
a case for exemptions from US oversight.

The US regulator said last week it planned to force all non-US auditors
working on companies that are listed in the US, or which work on subsidaries
of US companies, to register with it. European officials have threatened
retaliation. They say auditors could face double jeopardy - the chance of
being sued twice in different countries - and the costs of compliance with
different regulatory regimes will be high.

The German Institut der Wirtschaftsprüfer, which represents 85 per cent of
the country's public auditors, has held meetings in the US with officials
from the Securities and Exchange Commission, the chief US financial
regulator, and the new Public Company Accounting Oversight Board.

The German plan envisages a European PCAOB, with five members approved by
the European Commission, to register all European audit firms, review the
quality of oversight in EU member states and file suit if necessary against
national oversight bodies deemed to be deficient.

"To exercise its functions," a German paper says, "the EPCAOB should be
granted the right to obtain the information and evidence necessary from the
national bodies responsible for quality control and professional oversight."

Experts say there are great difficulties in forming such a board in the
short term. The ideas have also not swayed US officials from their
conviction that non-US auditors should be forced to register with the US
oversight board.

In addition, the German plan goes much further than most countries in Europe
would like. The European Federation of Accountants wants a pan-European body
to have only a central co-ordinating role. The UK, which is hoping its
regulation system puts its auditors in a good position to avoid registration
in the US, wants individual European countries to satisfy certain
"benchmark" regulatory criteria and therefore qualify for recognition from
each other and the US.

The EU plans in the next few months to issue a benchmarking document that
will help co-ordinate best practice. Meanwhile the US is holding a hearing
on the issues at the end of the month. US regulators say that even if non-US
audit firms have to register, that may not give the US board as many powers
over them as it has over US firms.