2. (20 pts) In order for their securities to be traded in U.S. capital markets,

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2. (20 pts) In order for their securities to be traded in U.S. capital markets, public companies, whether located in the United States or abroad, must comply with certain U.S. legal requirements, including the requirement to periodically file audited financial statements with the U.S. Securities and Exchange Commission (SEC). As required by the Sarbanes-Oxley Act of 2002, the auditor of those financial statements - whether a U.S. auditor or a non-U.S. auditor- must be registered with, and therefore subject to the jurisdiction of, the PCAOB. This includes undergoing regular PCAOB inspections to assess the auditor's compliance with U.S. law and professional standards in connection with its audits of "issuers," as defined in the Sarbanes Oxley Act. Non-U.S. registered firms are subject to PCAOB inspections and enforcement in the same manner as U.S. firms. For inspections, the PCAOB adopted a cooperative framework that allows the PCAOB to rely, to a degree deemed appropriate, on work performed by home-country regulators. Reliance by the PCAOB is based on a sliding scale: the more independent and rigorous a home-country system of oversight, the more the PCAOB may rely upon it. A list of the PCAOB cooperative agreements with non-U.S. regulators is found on the link below. https://pcaobus.org/International/Pages/RegulatoryCooperation.aspx s' international audit Explain the importance of PCAOB inspections of registered firm work. a.

Explanation / Answer

a.

PCAOB’s inspection of registered firm’s international audit work is important as this enables a proper assessment of the auditor’s compliance not only with U.S law but also with professional standards that are applicable. Such inspections are needed to determine compliance with Sarbanes-Oxley Act, the rules of the Board, the rules of the Securities and Exchange Commission.

International audit work can be inspected either by PCAOB only or can also be conducted jointly with the home country regulator (i.e. the country in which the international audit work is being done). The objective behind inspection of registered firm’s international audit work is to protect investors through audit oversight. It does not matter whether the audit work is being done within USA or is international in its scope.

The eventual result that PCAOB wants to achieve through such inspections is to discipline registered U.S. and non-U.S. public accounting firms and persons associated with those firms for noncompliance with the Sarbanes-Oxley Act.

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