Question

Acme, Inc., a multinational company based in the United States, has a large subsidiary located in Beijing, China. Acme is audited by an international accounting firm headquartered in the United States; its subsidiary is audited by the Chinese affiliate of that firm. Under U.S. auditing standards, what responsibilities, if any, does Acme's U.S. audit firm have to supervise or oversee the audit of the Chinese subsidiary? Would these responsibilities be different under International Standards of Auditing?

Answer 1

Major international accounting firms have responsibilities to ensure that their individual national practice units provide independent audit services that are uniform worldwide. These standards do not override a country's regulations, but provide generally accepted guidance for international audits.

As we are nearing the end of the fiscal year for many reporting companies, it is important to remember that complete, accurate financial statements and credible audits are things we—investors, issuers, and regulators worldwide—all care about.

The world’s capital markets are global, as are the world’s largest companies. Over the past decades, capital investment has increasingly flowed internationally, including to and from the United States. Moreover, both U.S.-based and non-U.S.-based companies rely on the U.S. markets to raise capital and establish a reliable and consistent trading presence for their securities. While often taken for granted, it is difficult to overstate the value of this daily, multi-industry price transparency and liquidity to the economy—regionally, nationally, and globally.

A multinational company must comply with financial reporting obligations in many of the countries in which it has operations and activities, and it must prepare consolidated financial statements that include its financial transactions and events worldwide. Critical to a company’s compliance with these financial reporting obligations is the work of the company’s external auditor. Accordingly, an external audit firm must be able to conduct or coordinate the delivery of its audit services on a worldwide basis.

The largest of these audits are conducted or coordinated through global networks and other affiliations of individual firms. The individual firms are subject to jurisdiction-based ownership, licensing, registration, and other regulatory requirements, even as they draw on, for example, globally common technologies, tools, methodologies, training, and quality assurance monitoring.

The auditor’s report for a company’s consolidated financial statements is typically signed by only one firm in the audit firm’s global network. For U.S.-listed companies, publicly available disclosure forms filed with the PCAOB enable investors and others to identify whether other firms, including firms affiliated through a global network, participated in the audit and, when certain thresholds are met, the extent of their participation.