Order Approving Proposed Rules Relating to Bylaws
SECURITIES AND EXCHANGE COMMISSION
(Release No. 34-48212; File No. PCAOB-2003-01)
July 23, 2003
Public Company Accounting Oversight Board; Order Approving Proposed Rules Relating to Bylaws
On March 3, 2003, the Public Company Accounting Oversight Board ("Board" or "PCAOB") filed with the Securities and Exchange Commission ("Commission") proposed rules PCAOB-2003-01 pursuant to Sections 101 and 107 of the Sarbanes-Oxley Act of 2002 ("Act"). On April 30, 2003, the PCAOB filed amendment No. 1 to those proposed rules. Notice of the bylaws, as amended, was published in the Federal Register on June 18, 2003.1 The Commission received no comment letters. For the reasons discussed below, the Commission is granting approval of the proposed rules.
Section 101(d) of the Act directs the PCAOB to organize and achieve the capacity necessary to carry out the purposes of the Act, and Section 101(g)(1) of the Act directs the PCAOB to adopt rules to provide for the operation and administration of the Board, the exercise of its authority, and the performance of its responsibilities under the Act. In furtherance of these provisions and its general obligations under the Act, the PCAOB has adopted a set of bylaws to establish rules, standards and procedures for the conduct of the PCAOB's business affairs. The PCAOB approved the bylaws on January 9, 2003 and authorized filing them with the Commission.2 The bylaws were filed with the Commission's Office of the Secretary in March 2003 for publication and comment pursuant to the requirements of Section 107(b) of the Act and Section 19(b) of the Securities Exchange Act of 1934 ("Exchange Act"). On April 25, 2003, the PCAOB adopted an amendment to Article VI of the bylaws to specify the powers of the PCAOB's Chair. On April 30, 2003, the PCAOB filed its Amendment No. 1 to the proposed bylaws.
The bylaws consist of nine Articles and contain, among other things:
- Rules to determine the presence of a quorum of the PCAOB.
- Establishment of a requirement to hold at least one public meeting per month.
- Appointment of officers of the PCAOB.
- Terms of indemnification of officers, employees and members of the PCAOB against claims arising from conduct in connection with the performance of their duties to the PCAOB.
- Grant of authority to the PCAOB to purchase insurance against claims that may be asserted against officers, employees and members of the PCAOB in connection with the business relationship between such persons and the PCAOB.
- Grant of authority to the PCAOB to adopt rules to govern the PCAOB as deemed necessary or appropriate to enable the PCAOB to discharge its responsibilities under the Act.
- Rules under which capital expenditures and investments may be made by the PCAOB.
- Establishment of a requirement that the PCAOB retain an accounting firm to annually audit the financial records of the PCAOB.
- Delineation of the authority of the Chairman.
The Act requires the Board, among other things, to oversee the audits of the financial statements of public companies that are subject to the securities laws in order to protect the interests of investors and further the public interest in having auditors prepare informative, accurate, and independent audit reports.3
Title I of the Act established the Board as a nonprofit corporation, subject to and with all the powers conferred upon a nonprofit corporation by the District of Columbia Nonprofit Corporation Act.4 The Board's bylaws implement Title I of the Act by establishing a principal office in Washington, DC, and by establishing the composition of a Governing Board and the powers and duties of the Governing Board and officers. The bylaws are an important part of the Board's governing documents and establish procedures for the business operation and administration of the Board. The bylaws are intended to facilitate fulfillment of the Board's obligations under the Act.
On the basis of the foregoing, the Commission finds that the proposed rules are consistent with the requirements of the Act and are necessary and appropriate in the public interest and for the protection of investors.
IT IS THEREFORE ORDERED, pursuant to Section 19(b)(2) of the Exchange Act, that the proposed rules (File No. PCAOB-2003-01) be and hereby are approved.
By the Commission.
Jill M. Peterson
|1|| Securities Exchange Act Release No. 48027 (June 13, 2003); 68 FR 36614 (June 18, 2003).
|2|| Under the Act, the Board's bylaws are rules that must be approved by the Commission. See Section 2(a)(13) of the Act.
|3|| Section 101(a) of the Act.
|4|| Section 101(b) of the Act.