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Financial Reporting and the Law

The SEC recently requested public comment on the PCAOB’s amendments to (a) conform the board’s rules and forms to the Dodd-Frank Act provisions that authorize the board to oversee the audits and auditors of brokers and dealers that are registered with the SEC and (b) make certain updates and clarifications to the PCAOB’s rules and forms. The December 2013 amendments include revisions to the PCAOB’s professional standards, Ethics Code, and registration, withdrawal, and reporting forms.

The PCAOB did not revise certain rules, leaving them inapplicable to audits of brokers and dealers that are not issuers. Among the unrevised rules are:

  • Those applicable to inspections, which leaves in place the interim inspection program for auditors of brokers and dealers
  • The prohibition on the provision of tax services by the auditor for persons in a financial reporting oversight role
  • The requirement that audit committees preapprove nonaudit services related to tax services and internal control over financial reporting
  • The requirement that a Form 3 be filed to report an auditor’s withdrawal of its audit report when the issuer does not file the required Form 8-K
  • The requirement that an auditor report the cessation of a client-auditor relationship to the Office of the Chief Accountant of the SEC and the former issuer client

The PCAOB noted that it might revisit some of the unrevised rules in the future to determine whether they should apply to audits of brokers and dealers.

Largely technical, the updating and clarifying amendments include permitting the PCAOB to share certain information with foreign auditor oversight authorities. The revised rules also clarify the definition of a “person associated with a public accounting firm” as well as the sanctioning authority of the PCAOB, which is not limited to supervisory personnel at the time a failure-to-supervise sanction is imposed.

Other amendments require a registered public accounting firm to notify the Office of the Chief Accountant of the SEC and the former issuer client of the cessation of the client-auditor relationship and file a Form 3 to report such a cessation only if the issuer has not reported the end of the relationship on a timely filed Form 8-K.

Most of the amendments, if approved by the SEC, would be effective for fiscal years ending on or after June 1, 2014. The amendments to the registration and withdrawal forms would be effective on July 1, 2014, and the amendment to the annual reporting form, Form 2, would be effective on April 1, 2015.