PCAOB's Primary Mission: Improving Confidence in Financial Reporting, The

CPA Journal, The, Jan 2008 by Kranacher, Mary-Jo

The PCAOB is evaluating these foreign entities on a bilateral basis-one country at a time-for the degree of reliance that can be placed upon the inspections done by our foreign counterparts. We already have conducted joint inspections with a number of countries. Curiously, although we have not hired inspectors with language skills in mind (that was never a criterion), we've found sufficient members of the PCAOB staff who are fluent in other languages to meet our current needs. There are about 40 countries where we will have to figure out how to do joint inspections.

With regard to the other aspects of international auditing, the PCAOB is an official observer of the International Auditing and Assurance Standards Board, and our staff members participate in its meetings. Frankly, I'm not sure it's sustainable in the long run to have three different auditing standards-one for international auditing, the second (PCAOB standards) for audits of public issuers in the United States, and a third set of standards by the Auditing Standards Board of the AICPA for other entities.

So, while the focus and the use of the term "convergence" has largely been on accounting, I wouldn't be surprised if at some point more attention is given to some degree of convergence in auditing standards as well. Accounting standards are an SEC issue. The SEC will be making some decisions before long about whether foreign private issuers in U.S. markets should be permitted to use IFRS without reconciling them to GAAP. My sense is that it's likely to happen but I don't have a crystal ball; no one does.

As far as whether U.S. companies should have an option to file their financial statements in the U.S. under GAAP or IFRS, I'm less sure what might happen, but it wouldn't surprise me if some U.S. companies might choose to file under IFRS if their principal competitors are non-U.S. companies that would be filing under IFRS in the U.S, simply so their financial statements are more comparable. I do have a sense from talking to issuer representatives that the cost of converting from GAAP to IFRS is fairly substantial and often much more expensive than the first year, or years, of SOX section 404. So, that may be a while in coming.

There are implications for the United States, where auditors in general are not trained in IFRS. Most, if not all, large firms have people who are trained and qualified in IFRS. Those firms could train more people, if needed. I've also heard from at least one accounting professor, the department head at a large school of accounting, that he is getting requests to turn out some graduates with a background in this field. Generally, students are not being trained in the field, at least in part because the CPA exam doesn't cover international accounting standards. Several things would have to happen in the profession's infrastructure before that change could take place. But it wouldn't surprise me to see movement in the direction of a single set of worldwide accounting standards. Based on anecdotal input I've heard, I'd estimate that it will take 10 to 15 years.