PCAOB Board Votes To Adopt Final Rules on Annual and Special Reporting By Audit Firms; Next Step Is SEC Approval

Earlier today, the PCAOB board approved final rules to require certain information be provided in annual and special reports to be filed by audit firms that are registered with the PCAOB (referred to generically below as 'audit firms.') The rule approved today follows from a rule proposal released for comment in 2006, and will require:

Annual reporting by audit firms (PCAOB Form 2): Each audit firm must annually provide basic information about the firm and the firm's issuer-related practice over the most recent 12-month period. Information to be reported annually includes, among other things, information about audit reports issued by the firm during the year, certain disciplinary history information about persons who have joined the firm, and information about fees billed to issuer audit clients, in various categories of services, as a percentage of the firm’s total fees billed. (Note: As previously reported, the U.S. Treasury Advisory Committee on the Auditing Profession (ACAP) is considering recommendations on audit firm 'transparency,' including potentially requiring additional disclosures about an audit firms' financial position and audit quality indicators. Those considerations go beyond the information included in the final rule approved by the PCAOB today.)

Special reporting by audit firms (PCAOB Form 3): The rules and forms adopted by the Board identify certain events that, if they occur with respect to a registered firm, must be reported by the firm within 30 days. These reportable events range from such things as a change in the firm’s name or contact information to the institution of certain types of legal, administrative, or disciplinary proceedings against a firm or certain categories of individuals.

ISSUERS NOTE: Among the list of ‘reportable events’ in the final rule which trigger special reporting by audit firms to the PCAOB, carrying forward from the proposed rule, is if the audit firm has withdrawn an audit report on financial statements, and the issuer failed to comply with related SEC reporting requirements (Item 4.02 of Commission Form 8-K) concerning the matter.

Publicly available: The audit firms’ annual and special reports will be available to the public on the PCAOB’s website, subject to exceptions for information that satisfies specified criteria for confidential treatment.

SEC approval required: As is the case for all PCAOB rules, the PCAOB will submit the rules to the SEC for approval.

Effective date: The rules will take effect 60 days after SEC approval. Beginning then, audit firms
will be subject to the special reporting obligations, with the earliest potential special reporting deadline for any firm being 90 days after Commission approval. For all audit firms, the first annual report will be due by June 30, 2009, for the 12-month period ending March 31, 2009.

Further guidance: The PCAOB plans to publish guidance for audit firms relating to compliance with the reporting equirements and interaction with the PCAOB's new Web-based system for reporting. Steven B. Harris, PCAOB's new board member: Participating in his first public board meeting today was the PCAOB's newest board member, Steven B. Harris. Harris was appointed to the PCAOB on June 4, as noted in this SEC press release, and in these statements welcoming Harris issued by PCAOB board chairman Mark Olson and PCAOB board members Dan Goelzer, Bill Gradison, and Charles Niemeier. Harris fills the board position formerly held by Kayla Gillan, who is now with RiskMetrics. Formerly serving as Staff Director and Chief Counsel of the Senate Banking Committee, Harris was there when the Sarbanes-Oxley Act was drafted which created the PCAOB. For an interesting discussion of regulatory appointments of former Hill staff, see the subsection entitled "The PCAOB's Newest Board Member: A History Lesson" in this post by Broc Romanek in TheCorporateCounsel.net blog.

Links: Additional details on the final rules approved by the PCAOB today are in the PCAOB’s press release. Update: The final rule has been posted on the PCAOB website: Rules on Periodic Reporting by Registered Public Accounting Firms. As noted above, the final rule is still subject to SEC approval.

Print this post