Public Company Accounting Oversight Board; Order Approving Proposed Code of Ethics
SECURITIES AND EXCHANGE COMMISSION
(Release No. 34-48755; File No. PCAOB-2003-04)
November 7, 2003
On July 11, 2003, the Public Company Accounting Oversight Board (the "Board" or the "PCAOB") filed with the Securities and Exchange Commission (the "Commission") proposed rule PCAOB-2003-04 pursuant to Section 101 of the Sarbanes-Oxley Act of 2002 (the "Act"), relating to the establishment of an ethics code. Notice of the proposed rule was published in the Federal Register on September 26, 2003. The Commission received no comment letters. For the reasons discussed below, the Commission is granting approval of the proposed rule.
Section 101(g)(3) of the Act directs the PCAOB to establish ethics rules and standards of conduct for Board members and staff. The Act required that this code include a one-year bar on practice before the Board (and the Commission, with respect to Board-related matters) for former members of the Board, and a bar for former staff that was not to exceed one year.
In furtherance of this provision, the PCAOB issued a proposed ethics code for public comment on April 18, 2003. In response to comments received, the PCAOB adopted a proposed ethics code on June 30, 2003 and filed it with the Commission's Office of the Secretary on July 11, 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 ethics code for public comment on September 26, 2003.
The PCAOB's proposed ethics code consists of 14 sections (EC 1 through EC 14) that establish rules governing the conduct of PCOAB members, employees and certain contractors and consultants. The code, among other things, adopts a set of basic principles, clarifies who is covered by which provisions, establishes permitted and prohibited financial and employment interests, requires certain financial disclosures, restricts certain outside activities, limits the gifts that may be received by members and employees, employs a reasonable person standard for analyzing disqualification issues, maintains a permanent ban on the release of non-public information, establishes the position of an Ethics Officer to counsel and provide interpretations of the code, addresses the conflict-of-interest issues relating to seeking other employment, imposes a post-employment restriction on former members and staff with respect to practicing before the Board (or the Commission with respect to Board-related matters) with respect to particular matters involving specific parties that the former member or staff person had worked on at the Board, provides that waivers of the ethics code will be made public (subject to the protection of certain information on privacy grounds), and requires an annual certification of compliance with the Code's provisions.
The Commission received no public comments regarding the PCAOB's proposed ethics code. Section 101 of the Act directs the PCAOB to establish ethics rules and standards of conduct for Board members and staff. The proposed ethics code addresses all of the essential elements of an effective ethics code, including standards on financial and personal conflicts, protection of non-public information, acceptance of gifts, outside activities, waivers of the code, and restrictions on seeking other employment, and post- Board employment activities.
On the basis of the foregoing, the Commission finds that the proposed ethics code is consistent with the requirements of the Act and the securities laws and is 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 ethics code (File No. PCAOB-2003-04) be and hereby is approved.
By the Commission.
J. Lynn Taylor