Accountability in the age of global markets

31 March 2004

William J McDonough, Chairman of the Public Company Accounting Oversight Board (PCAOB), addressed an EPC Business Breakfast on “Accountability in the Age of Global Markets.” Frits Bolkestein, European Commissioner for the Internal Market, Taxation and Customs Union issues, and David Devlin, President of the Federation of European Accountants (FEE) offered their comments. A question and answer session followed. EPC Chief Executive Hans Martens chaired the meeting. This is not an official record of the proceedings, and specific remarks are not necessarily attributable.

Executive Summary of the proceedings:

William J McDonough gave a detailed description of the Board’s role since it was set up nearly 15 months ago. Its mandate was to restore public investor confidence in the wake of a series of major financial scandals. But in a global environment, it could not achieve that aim alone. That was why regulatory cooperation between the US and the EU was vital: “What’s at stake for all of us is people’s trust in markets and in the companies driving economies. The opportunity exists to reclaim that trust” he said. The Board chairman was convinced that EU’s newly-proposed Eighth Company Law Directive – Europe’s first effort at external and independent auditing oversight - would “mesh quite well” with the PCAOB. Both sides shared the goodwill and flexible attitudes necessary for true cooperation: “Cooperation is not a word I use lightly to describe my goal for the oversight of public accountants in our global financial market. The role of auditors is simply too important to let nationalistic interests interfere with strong and independent oversight.”

The EU perspective

Commissioner Bolkestein said cooperation was already well under way to regulate firms which audit listed companies in both the EU and US. The aim was to define procedures and rationalise work across different jurisdictions. The need was to tackle a problem which was the epitome of globalism – damage to one financial market damages another. When the US Congress adopted the Sarbanes-Oxley Act, the EU had to choose whether to oppose it tooth and nail or find a constructive way forward. It decided on the latter approach, matching US action with the Eighth Directive to regulate the EU audit profession. The US and EU approaches were now convergent, built on the need for independent public oversight, audit quality assurance, more frequent auditor rotation and ruling out auditing conflicts of interest. There was scope for clashes on the issue, warned Commissioner Bolkestein, but the incentive for effective cooperation was the avoidance of the “corrosive drip” of more major financial scandals of the kind which had already undermined global financial markets, damaging economies and jobs. “There has never been a better reason to work together,” he said. David Devlin welcomed the PCAOB’s role, describing auditing as the “first line of defence” in maintaining public confidence in business markets. Mr Devlin said the FEE was playing its role in ensuring “robust” oversight of the auditing profession, but he disagreed with Commissioner Bolkestein over the need for auditor rotation. He said the FEE was not keen on rotating auditing firms, because the evidence was that “it doesn’t work too well.”