A government minister has criticised new American legislation that could hit British audit firms doing work in the US.

Speaking in the Lords, Trade minister Lord Sainsbury indicated the new rules risked piling new regulatory burdens on companies outside the US.

The row centres on a bill passed by the US Congress on July 25 and expected to be signed by president Bush this week.

In the wake of a series of corporate scandals, the American legislators moved to clamp down on dodgy audit practices, with a range of new measures including bans on nine kinds of non-audit services, a 20-year maximum sentence for the shredding of documents and a powerful independent private-sector oversight board to regulate accounting firms.

But British and European officials have been concerned that the bill also extends the powers of the oversight board to non-American accounting firms that audit companies listed in America.

The European Commission is concerned that by passing the legislation, the US is restricting the EU's right to decide the audit rules that apply to firms based in its territory.

And in the Lords on Monday, Liberal Democrat peer Lord Sharman argued that "the proven system of regulation in operation in the banking industry...is much preferable to the extraterritorial application of any states' legislation."

Lord Sainsbury said the UK had made representations to the US government.

"We believe that our lobbying has had some success, but concerns about the legislation remain and we are therefore continuing to pursue these matters at national and European level with the US administration," he said.

Lord Sainsbury also said that the government did not "want to see regulatory burdens piled on regulatory burdens on British companies".

"And particularly we do not want an additional layer of regulatory burden on UK audit firms which are already subject to an extensive audit regime in the UK."

One of the key sponsors of the US legislation, Democrat senator Paul Sarbanes, has indicated that one of the reasons behind his bill was to prevent the EU taking the lead role in setting international standards.

In a speech earlier this month in the Senate, he noted that the European Union had indicated that the rules adopted by the International Accounting Standards Board will become mandatory for all companies throughout the European Union in 2005.

"Traditionally, the US has been pre-eminent in the accounting field. We have by far the largest economy. We have a reputation for high standards for transparency. So generally the American argument on behalf of its standards carried great influence.

"Now we have the European Union, comparable in economic size to the United States, moving to adopt a uniform set of accounting standards, to be promulgated by the International Accounting Standards Board, for all of the European Union countries. So there is a potential for real challenge to American pre-eminence in this area, given what is happening over here," he said.

"Regrettably, in my view, unless we come to grips with this current crisis in accounting and corporate governance, we run the risk of seriously undermining our long-term world economic leadership."