AMERICAN financial regulators have flown to Britain to scour the books compiled by Britain’s top accounting firms, in their latest move to exploit wide-ranging powers introduced by Sarbanes-Oxley legislation, The Times has learnt.

Inspectors from the Public Company Accounting Oversight Board (PCAOB), the American accountancy regulator, last month examined some financial statements audited by BDO Stoy Hayward, the mid-tier accounting firm. The inspectors were checking up on the firm to see whether its practices are in line with US standards.

It is understood that the US inspectors will now seek to subject other British accounting firms that have clients with US listings to the same level of inquiry.

It is also understood that the PCAOB has a three-year timetable to inspect the UK auditors of foreign companies registered in the US.

Under Sarbanes-Oxley, made law in the wake of accounting scandals including Enron and WorldCom, the PCAOB has the power to conduct reviews, both in the US and outside, of any accounting firms registered to operate in the US.

Together with staff from the audit inspection unit of its UK counterpart, the Financial Reporting Council, the US inspectors conducted a review of BDO’s procedures and quality control system.

Their visit to the firm was the first test of a joint approach designed to avoid regulatory overlap and ensure compliance with US and UK laws.

Accounting firms must consent to these visits from the PCAOB if they wish to register with the body, a requirement for any firm hoping to conduct highly lucrative audit work for companies listed in the US.

Jeremy Newman, managing partner at BDO, said that his firm was visited twice this year by inspectors from the PCAOB.

“This is something that just has to be done if you want to be involved in the US market,” he said.

These inspections are already common in the US, where exasperated American accountants say that the PCAOB has set up satellite offices at their firms. But the visits are problematic abroad, clashing with local data protection laws.

UK accountants say the US requirements present difficulties because the law here prevents disclosure of any confidential client information to non-UK bodies.

The PCAOB intends to conduct similar reviews at the Big Four accounting firms in Britain, but has spent a year discussing ways to avoid breaking local laws during its visits.

Richard Godden, a lawyer with Linklaters who represents Ernst & Young, Deloitte, PricewaterhouseCoopers and KPMG, said he has submitted to the PCAOB more than 100 legal opinions from different countries explaining problems in compliance with local laws.

Mr Godden said the PCAOB had adopted the “pragmatic” approach of allowing firms to register first before tackling the problems related to its powers of inspection.

The PCAOB, Ernst & Young, KPMG, Deloitte and PwC all declined to comment.

The PCAOB has issued stinging criticism of the Big Four in its inspection reports on their US units. It has criticised Deloitte & Touche for “audit deficiencies” spotted during the inspection last year of the firm’s work on financial statements issued by public companies.

It has also rounded on KPMG for “audit deficiencies” in its work on public companies’ financial statements in 2003.

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