Order Approving Proposed Rules Relating to Compliance with Auditing and Related Professional Practice Standards and Advisory Groups
SECURITIES AND EXCHANGE COMMISSION
(Release No. 34-48730; File No. PCAOB-2003-05)
October 31, 2003
Public Company Accounting Oversight Board; Order Approving Proposed Rules Relating to Compliance with Auditing and Related Professional Practice Standards and Advisory Groups
On July 14, 2003, the Public Company Accounting Oversight Board (the "Board" or the "PCAOB") filed with the Securities and Exchange Commission (the "Commission") proposed rules PCAOB-2003-05 pursuant to Sections 101, 103 and 107 of the Sarbanes-Oxley Act of 2002 (the "Act")1, relating to compliance with auditing and related professional practice standards and to advisory groups. Notice of the proposed rules was published in the Federal Register on September 26, 2003.2 The Commission received two comment letters. For the reasons discussed below, the Commission is granting approval of the proposed rules.
Section 103 of the Act directs the PCAOB to establish auditing and related attestation standards, quality control standards, and ethics standards to be used by registered public accounting firms in the preparation and issuance of audit reports as required by the Act or the rules of the Commission. Section 103 also gives the PCAOB authority to convene advisory groups to assist the Board in its establishment of auditing and related professional practice standards.
In furtherance of these provisions, the PCAOB proposed rules to define the term "auditing and related professional practice standards" ("Standards") to mean the standards established or adopted by the Board under Section 103(a) of the Act. Also, while implicit in the Act, the Board's proposed rules codify the requirement that all registered public accounting firms must comply with the Board's Standards. Pursuant to its authority to convene advisory groups and in order to obtain the advice of a broad range of experts, the Board's proposed rules also provide general guidelines for the creation of advisory groups.
The PCAOB adopted the proposed rules on June 30, 2003 and filed them with the Commission's Office of the Secretary on July 14, 2003. Pursuant to the requirements of Section 107(b) of the Act and Section 19(b) of the Securities Exchange Act of 1934 (the "Exchange Act"), the Commission published the proposed rules for public comment on September 26, 2003.
The PCAOB's proposed rules include two rules (PCAOB Rules 3100 and 3700) and a definition that would appear in Rule 1001. Proposed PCAOB Rule 1001(a)(viii) defines "auditing and related professional practice standards" as the auditing standards, related attestation standards, quality control standards, ethical standards, and independence standards (including any rules implementing Title II of the Act), and any other professional standards, that are established or adopted by the Board under Section 103 of the Act. Proposed Rule 3100 codifies the obligation of registered public accounting firms to comply with the Standards. While this obligation is implicit in Section 103(a)(1) of the Act, adoption of Rule 3100 would mean that any registered public accounting firm or person associated with such a firm that fails to adhere to applicable Standards could be the subject of a Board disciplinary proceeding. Proposed Rule 3700 establishes guidelines for the formation, composition, and other basic matters concerning advisory groups that will participate in the standards-setting process. Rule 3700 also provides that the Board may establish ad hoc task forces, the members of which do not necessarily have to be members of an established advisory group.
In a comment letter dated October 17, 2003, the National Association of State Boards of Accountancy ("NASBA") urged that the PCAOB, in its future rulemaking and oversight of public accounting firms, emphasize the importance of compliance with state regulatory requirements. As noted in the Commission's July 16, 2003 order3 approving the PCAOB's rules for registration of public accounting firms, we appreciate NASBA's efforts to work with the PCAOB on auditor regulation and oversight, and we believe that both the PCAOB and state regulatory bodies will benefit from continued close cooperation. The second comment letter, from the accounting firm of Deloitte & Touche (October 17, 2003), contained suggestions for greater openness in the activities of the PCAOB's standing advisory group, and requested more notice of Board meetings, advisory group meetings and public roundtables. The comments in this letter also did not appear to warrant changes in the proposed rules.
Section 103 of the Act directs the PCAOB to establish auditing and related professional practice standards and empowers the PCAOB to convene advisory groups to assist it in fulfilling its standards-setting responsibilities. The proposed rules will facilitate the Board's exercise of its standards-setting authority and establish guidelines for the Board's use of advisory groups in connection with its standards-setting activities.
On the basis of the foregoing, the Commission finds that the proposed rules are consistent with the requirements of the Act and the securities laws and are necessary and appropriate in the public interest and for the protection of investors.
IT IS THEFORE ORDERED, pursuant to Section 107 of the Act and Section 19(b)(2) of the Exchange Act, that the proposed rules (File No. PCAOB-2003-05) be and hereby are approved.
By the Commission.
Margaret H. McFarland
|| 15 U.S.C. 7201, et seq.|
||Release No. 34-48511 (September 22, 2003); 68 FR 55667 (September 26, 2003).|
||Release No. 34-48180 (July 10, 2003); 68 FR 43244 (July 21, 2003). Technical corrections in Release No. 34-48180A (July 22, 2003); 68 FR 44370 (July 28, 2003).|