Subject : File No. S7-46-02
We thank you for the opportunity to comment on the proposed rules on retention of records relevant to audits and reviews under Section 802 of the Sarbanes-Oxley Act (SOA). We make the following comments as part of a constructive regulatory dialogue between the United States and the European Union because the Act has also important effects on US-listed EU companies and EU auditors.
The adoption of the Sarbanes-Oxley Act is a US reaction to US financial reporting scandals. The Act aims at restoring investors' confidence in US capital markets. The European Commission and our 15 Member States share these concerns and could in principle support the objectives and many measures of the Act. However, with regard to the retention of records relevant to audits and reviews we have the following comments that we would like to bring to your attention and for you to take fully into account before you determine the final rule:
Duplicative requirements of the Sarbanes-Oxley Act
We understand that the SEC is faced with a great challenge in having to implement fundamental changes to US securities laws in a very short timeframe according to procedures which we do not feel are respecting proper due process. This seems even more difficult with regard to the retention of audit working papers as the SEC is confronted with the consequences of a legislative measure which results in differing requirements under Section 802 compared to Section 103.
Both sections differ in the retention periods (five vs. seven years) and in the scope of documents to be retained. From a regulatory point of view, this is confusing.
The SEC should be aware that EU auditors are already subject to equivalent Member State's retention requirements tailored to their specific legal environments. If the retention requirements of the SOA were applied to EU auditors, this would put an additional second and third layer of differing retention requirements on them. We fail to see why EU auditors should be overburdened with unnecessary duplicative requirements compared to their US counterparts.
Access to working papers of EU auditors
Regulating the retention of audit and review records encompassing foreign audit firms, de facto, will draw in EU auditors to enforcement actions by the SEC and inspections by the PCAOB. In this context, we would like to underline that EU Member States reject the idea that either foreign government officials or staff of a foreign non-governmental body directly conduct investigations/inspections in their jurisdiction. Furthermore, the SEC's desire for access to foreign auditor's working papers is strongly opposed by the EU audit profession and EU companies for evident confidentiality reasons.
In this respect, we would like to ask how the SEC would perceive a reciprocal situation whereby EU or Member State authorities would have direct regulatory access to working papers of US audit firms auditing subsidiaries of EU groups located in the United States. Would this be acceptable?
As a solution, we propose mutual regulatory access to audit working papers on the basis of a formal US - EU Memorandum of Understanding. This would mean that only home EU competent authorities could provide the SEC and PCAOB with audit working papers following agreed procedures, and vice versa.
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We trust that our comments will help the definition of further SEC rules to be in the best interest of US and also EU companies and auditors with transatlantic business links.