There are many pieces that must be brought under a common regulatory and practice framework for global IFRS convergence to be actualized. A recent UK ruling and fine against PWC presents a good example of the significant practice differences among sovereign authorities oversight of domestic offices of international audit firms.

The FT piece highlights the UK PWC matter came under the jurisdiction of a “soft” regulator who has oversight obligations for more than one professional discipline. Further, it was necessary to convene a tribunal comprised of parties who are not actively engaged in the oversight and discipline of the audit function on a daily basis.

The AADB (Accountancy and Actuarial Discipline Board ) cannot decide on its own penalties, however; instead, it has to convene a tribunal of three to five people that decides whether or not to uphold its case.

The FT piece also indicates the tribunal had significant concerns there was dialog and bargaining between PWC and the AADB, resulting in a compromised action:

The tribunal also criticised the AADB for not pursuing any individual PwC auditors.
It alluded to the possibility of a deal between the AADB and PwC in which the auditor co-operated in return for keeping partner names out of the public eye.

Another instance highlighting the canyon that exists in current global practices on the subject of sovereign auditor oversight involves the Shanghai office of D&T and its friction with the SEC, as illustrated by the CorporateCounsel.net’s blog:

The hearing will also highlight tensions between the SEC and Chinese issuer and auditor regulators who have failed to reach a written agreement on mutual assistance in securities investigations and supervision of audit firms despite talks during the summer of 2011. This sets the stage for either resolution of those tensions through negotiation or increased conflict between the two regulatory systems with unknown consequences for issuers and auditors in both capital markets.

The need for the audit is fundamental and common to all jurisdictions…assurance. The investor must be able to confidently rely on the financial statements and be assured of their accuracy and fairness in order to make an informed decision. Without the audit, there would be no tangible basis to rely on the financials or management’s representations re: the financials.

October 1929 gave birth to the mandatory audit in the US through enactment of the Securities & Exchange Acts. A definitive auditor oversight function was empowered through the PCAOB out of the larger Sarbanes-Oxley legislative process. The result is a single point of rulemaking, oversight and disciplinary action, focused on auditors of public companies.

Assurance is a generic need, common to all investors. It’s uniformly applicable across all jurisdictions. Yet the authority of the auditor and the oversight of their practices is not. If there are to be a single set of reporting principles and they are to be applied and interpreted consistently across all jurisdictions (i.e. “convergence”), it’s reasonable to conclude the authority and oversight of the auditor will need to be just as consistent. Otherwise, the consistency that is established at the standards level is lost at the assurance level.