UPDATE 2-US PCAOB delays 1st review of 49 foreign auditors

* Delay hinges on law, reciprocity with other countries

* Some foreign inspections delayed for up to 3 years

* Board wants Congress to amend Sarbanes Oxley law (Adds countries in cooperative arrangements, paragraph 10)

WASHINGTON, June 25 (Reuters) - The U.S. audit watchdog voted on Thursday to defer its first inspection on 49 foreign auditors in areas such as the European Union, China and Switzerland for up to three years.

Under the Sarbanes Oxley corporate reform law, the Public Company Accounting Oversight Board (PCAOB) is required to inspect the bulk of the registered public accounting firms once every three years.

But cross border confidentiality issues and lack of agreements between the United States and other countries have hampered the PCAOB's ability to review the foreign firms.

That could potentially jeopardize a foreign firm's standing in the United States if the board is not able to conduct the audit.

"While I support the adoption of this rule, the decision is painful," said Daniel Goelzer, one of the five Board members.

"Delaying the first inspections of any firm on whose work investors are relying is not something that I take lightly."

One problem for the Board is a provision under Sarbanes Oxley that does not allow it to share confidential information with a foreign regulator. That has rankled the PCAOB's foreign counterparts, who are reluctant to part with information unless it is reciprocated.

The PCAOB has been asking Congress to amend the law but lawmakers are preoccupied with the Obama administration's ambitious plan to overhaul the country's financial regulatory system, among other issues.

The PCAOB expects to review at least four foreign auditors this year and will disclose the names of the auditors that have not undergone an inspection.

The board is hoping that the three-year deferral will allow enough time to reach 'cooperative arrangements' with 27 countries. The PCAOB already has such arrangements with Australia, the United Kingdom, South Korea, Canada, Norway and Singapore.

"The need to delay certain first time inspections results from the substantial time and effort required to establish the necessary cooperative arrangements to undertake inspections outside the United States," PCAOB Chairman Mark Olson said.

The largest accounting firms, PricewaterhouseCoopers LLP [PWC.UL], Deloitte &Touche LLP [DLTE.UL], Ernst & Young LLP [ERNY.UL] and KPMG [KPMG.UL], are audited annually. (Reporting by Rachelle Younglai; Editing by Tim Dobbyn)