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September 29, 2009

Japan publishes oversight plan

The Japanese Certified Public Accountants and Auditing Oversight Board (CPAAOB) and Financial Services Agency (FSA) have published a framework for information gathering and inspections at foreign audit firms.

Under the framework, the Japanese regulators will rely on oversight by regulators in the firms’ home jurisdictions, assuming they meet certain criteria.

The criteria for reliance includes the audit and public oversight systems in the firms’ home jurisdictions being judged equivalent to those of Japan. Reciprocity is also necessary.

Another prerequisite is that foreign regulators’ staff are subject to professional confidentiality obligations.

If these conditions cannot be met, the CPAAOB and FSA will seek to conduct inspections and gather information themselves. In these instances, the Japanese regulators will notify the local regulators of intended inspections and attempt to co-ordinate with them so inspections are conducted simultaneously.

Inspections and information gathering at foreign audit firms operating in Japan was mandated by the nation’s revised Certified Public Accountants Act, which took effect in April 2008.

Information required by Japan’s regulators includes overviews of the firms and the results of inspections and audit quality reviews conducted by their national regulators.

Firms that audit listed companies in Japan must also provide information about their operation control systems and quality control system.

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