I had dinner in Denver yesterday with Gaylen Hansen, vice-chair of the National Association of State Boards of Accountancy (NASBA). Gaylen will become the chair of NASBA in 2012, and also sits on a number of other important committees with the AICPA, IFAC, and the PCAOB. Yes, I do have to travel vast distances to find people who share my interest in the transnational regulation of accounting. After I pointed out the problems in China with U.S. CPA firms operating illegally in China that I have discussed in an earlier post, Gaylen told me about some similar cases of Chinese accounting firms operating illegally in the U.S.
The Texas State Board of Accountancy has identified 19 foreign CPA firms that were illegally providing audit services in Texas. The 19 firms include three from Hong Kong and one from Beijing. The three Hong Kong firms are now subject to cease and desist orders. The Beijing firm has signed a letter acknowledging that they do not provide audit services in Texas after the Texas Board was unable to determine whether their audits of reverse merger companies violated Texas law. The Texas Board has complained to the SEC and the PCAOB about these firms and the problem of foreign firms practicing in Texas.
These cases appear to be mostly the result of audits of reverse merger companies that were formerly located in Texas and showed Texas addresses on their SEC filings. It is not clear from the record whether the foreign firms actually conducted audit work on location in Texas. The cases have much in common with the situation in China where U.S. firms are coming to China to audit Chinese companies without first obtaining Temporary Audit Practice Certificates. They are further evidence that the increasing globalization of securities markets is creating significant regulatory problems for nation/state based audit regulators.
The NASBA has been working to find a solution to transnational regulation of accountants. The NASBA has entered into mutual recognition agreements with professional associations in Australia, Canada, Ireland, Mexico, and New Zealand that allow licensed CPAs in one country to practice in the other without full re-credentialing. Foreign accountants from these jurisdictions do need to pass a test on U.S. professional standards, tax, and legal rules in order to be licensed to practice in the U.S. The Temporary Audit Practice Certificate offered by China appears easier to obtain than obtaining practice rights through mutual recognition agreements.