Public Company Accounting Oversight Board; Order Approving Proposed Ethics and Independence Rule 3526, Communication With Audit Committees Concerning Independence, 50843-50845 [E8-19989]
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Federal Register / Vol. 73, No. 168 / Thursday, August 28, 2008 / Notices
Parole Commission
Record of Vote of Meeting Closure
(Pub. L. 94–409) (5 U.S.C. 552b)
I, Cranston J. Mitchell of the United
States Parole Commission, was present
at a meeting of said Commission, which
started at approximately 11:30 a.m., on
Thursday, August 14, 2008, at the U.S.
Parole Commission, 5550 Friendship
Boulevard, 4th Floor, Chevy Chase,
Maryland 20815. The purpose of the
meeting was to decide one petition for
reconsideration pursuant to 28 CFR
2.27. Four Commissioners were present,
constituting a quorum when the vote to
close the meeting was submitted.
Public announcement further
describing the subject matter of the
meeting and certifications of General
Counsel that this meeting may be closed
by vote of the Commissioners present
were submitted to the Commissioners
prior to the conduct of any other
business. Upon motion duly made,
seconded, and carried, the following
Commissioners voted that the meeting
be closed: Edward F. Reilly, Jr.,
Cranston J. Mitchell, Isaac Fulwood, Jr.
and Patricia K. Cushwa.
In witness whereof, I make this official
record of the vote taken to close this
meeting and authorize this record to be
made available to the public.
Dated: August 18, 2008.
Cranston J. Mitchell,
Vice Chairman, U.S. Parole Commission.
[FR Doc. E8–19847 Filed 8–27–08; 8:45 am]
BILLING CODE 4410–01–M
DEPARTMENT OF LABOR
Mine Safety and Health Administration
Notice of Affirmative Decisions on
Petitions for Modification Granted in
Whole or in Part
Mine Safety and Health
Administration (MSHA), Labor.
ACTION: Notice of Affirmative Decisions
on Petitions for Modification Granted in
Whole or in Part.
jlentini on PROD1PC65 with NOTICES
AGENCY:
SUMMARY: The Mine Safety and Health
Administration (MSHA) enforces mine
operator compliance with mandatory
safety and health standards that protect
miners and improve safety and health
conditions in U.S. Mines. This Federal
Register Notice (FR Notice) notifies the
public that it has investigated and
issued a final decision on certain mine
operator petitions to modify a safety
standard.
VerDate Aug<31>2005
17:36 Aug 27, 2008
Copies of the final decisions
are posted on MSHA’s Web site at
https://www.msha.gov/indexes/
petition.htm. The public may inspect
the petitions and final decisions during
normal business hours in MSHA’s
Office of Standards, Regulations, and
Variances, 1100 Wilson Boulevard,
Room 2349, Arlington, Virginia 22209.
All visitors must first stop at the
receptionist desk on the 21st Floor to
sign-in.
FOR FURTHER INFORMATION CONTACT:
Lawrence D. Reynolds, Acting Deputy
Director, Office of Standards,
Regulations, and Variances at 202–693–
9449 (Voice),
reynolds.lawrence@dol.gov (E-mail), or
202–693–9441 (Telefax), or Barbara
Barron at 202–693–9447 (Voice),
barron.barbara@dol.gov (E-mail), or
202–693–9441 (Telefax). [These are not
toll-free numbers.]
SUPPLEMENTARY INFORMATION:
ADDRESSES:
DEPARTMENT OF JUSTICE
Jkt 214001
I. Introduction
Under section 101 of the Federal Mine
Safety and Health Act of 1977, a mine
operator may petition and the Secretary
of Labor (Secretary) may modify the
application of a mandatory safety
standard to that mine if the Secretary
determines that: (1) an alternative
method exists that will guarantee no
less protection for the miners affected
than that provided by the standard; or
(2) that the application of the standard
will result in a diminution of safety to
the affected miners.
MSHA bases the final decision on the
petitioner’s statements, any comments
and information submitted by interested
persons, and a field investigation of the
conditions at the mine. In some
instances, MSHA may approve a
petition for modification on the
condition that the mine operator
complies with other requirements noted
in the decision.
II. Granted Petitions for Modification
On the basis of the findings of
MSHA’s investigation, and as designee
of the Secretary, MSHA has granted or
partially granted the following petitions
for modification:
• Docket Number: M–2007–066–C.
FR Notice: 72 FR 70351 (December 11,
2007).
Petitioner: Knight Hawk Coal, LLC,
501 Barwick Road, Elkville, Illinois
62932.
Mine: Royal Falcon Mine, MSHA I.D.
No. 11–03162, located in Jackson
County, Illinois.
Regulation Affected: 30 CFR 75.503
(Permissible electric face equipment)
and 30 CFR 18.35 (Portable (trailing)
cables and cords) .
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50843
• Docket Number: M–2007–071–C.
FR Notice: 73 FR 4638 (January 25,
2008).
Petitioner: Independence Coal
Company, HC 78, Box 1800, Madison,
West Virginia 25130.
Mine: Allegiance Mine, MSHA I.D.
No. 46–08735, located in Boone County,
West Virginia.
Regulation Affected: 30 CFR 75.1002
(Installation of electric equipment and
conductors; permissibility).
Lawrence D. Reynolds,
Acting Deputy Director, Office of Standards,
Regulations, and Variances.
[FR Doc. E8–19919 Filed 8–27–08; 8:45 am]
BILLING CODE 4510–43–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–58415; File No. PCAOB–
2008–03]
Public Company Accounting Oversight
Board; Order Approving Proposed
Ethics and Independence Rule 3526,
Communication With Audit
Committees Concerning
Independence, Amendment to Interim
Independence Standards, and
Amendment to Rule 3523, Tax Services
for Persons in Financial Reporting
Oversight Roles
August 22, 2008.
I. Introduction
On April 24, 2008, the Public
Company Accounting Oversight Board
(the ‘‘Board’’ or the ‘‘PCAOB’’) filed
with the Securities and Exchange
Commission (the ‘‘SEC’’ or
‘‘Commission’’) proposed rule changes
(PCAOB–2008–03) pursuant to Section
107(b) of the Sarbanes-Oxley Act of
2002 (the ‘‘Act’’), relating to the Board’s
Ethics and Independence Rules. Notice
of the proposed rule changes was
published in the Federal Register on
July 14, 2008.1 The Commission
received three comment letters relating
to the proposed rule changes. For the
reasons discussed below, the
Commission is granting approval of the
proposed rule changes.
II. Description of Proposed Rule
Changes
Section 103(a) 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
1 See SEC Release No. 34–58121 (Jul. 9, 2008); 73
FR 40418 (Jul. 14, 2008).
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Federal Register / Vol. 73, No. 168 / Thursday, August 28, 2008 / Notices
audit reports as required by the Act or
the rules of the Commission.
In connection with its standardssetting function, the Board adopted in
2003 on an initial, transitional basis five
temporary rules that incorporate the
pre-existing professional standards of
auditing, attestation, quality control and
ethics and independence (the ‘‘interim
standards’’).2 The interim standards
include Independence Standards Board
Standard No. 1, Independence
Discussions with Audit Committees
(‘‘ISB No. 1’’), ISB Interpretation 00–1,
The Applicability of ISB Standard No. 1
When ‘‘Secondary Auditors’’ Are
Involved in the Audit of a Registrant,
and ISB Interpretation 00–2, The
Applicability of ISB Standard No. 1
When ‘‘Secondary Auditors’’ Are
Involved in the Audit of a Registrant, An
Amendment of Interpretation 00–1.
On April 22, 2008, the PCAOB
adopted proposed Ethics and
Independence Rule 3526,
Communication with Audit Committees
Concerning Independence, which
supersedes ISB No. 1, ISB Interpretation
00–1 and ISB Interpretation 00–2, and a
proposed amendment to Rule 3523, Tax
Services for Persons in Financial
Reporting Oversight Roles, so that it will
no longer apply to the provision of tax
services to persons in financial
reporting oversight roles during the
portion of the audit period that precedes
the professional engagement period.
Proposed Rule 3526, Communication
with Audit Committees Concerning
Independence, is intended to build on
the communication requirements in
interim standard ISB No. 1 and provide
audit committees with information that
may be important to its determination
about whether to hire a registered public
accounting firm as the company’s
auditor. ISB No. 1 currently provides
that, at least annually, an auditor shall:
(a) Disclose to the audit committee of
the company (or the board of directors
if there is no audit committee), in
writing, all relationships between the
auditor and its related entities and the
company and its related entities that in
the auditor’s professional judgment may
reasonably be thought to bear on
independence; (b) confirm in the letter
that, in its professional judgment, it is
independent of the company within the
meaning of the ‘‘Securities Acts
administered by the’’ SEC; and (c)
discuss the auditor’s independence with
the audit committee.
2 The
Commission approved the PCAOB’s
adoption of the interim standards in Release No.
34–47745 (April 25, 2003); 68 FR 23335 (May 1,
2003).
VerDate Aug<31>2005
17:36 Aug 27, 2008
Jkt 214001
Similar to ISB No. 1, the new rule
requires a registered firm on at least an
annual basis after becoming the issuer’s
auditor to make a similar written
communication and also affirm to the
audit committee of the issuer, in
writing, that the firm is independent.
The PCAOB adopted this new rule in
part because it believed that the
accounting firm should discuss with the
audit committee before accepting an
initial engagement pursuant to the
standards of the PCAOB any
relationships the accounting firm has
with the issuer that may reasonably be
thought to bear on its independence.
The new rule also includes a new
requirement for the firm to document
the substance of its discussion with the
audit committee.
The PCAOB adopted Ethics and
Independence Rules Concerning
Independence, Tax Services and
Contingent Fees 3 on July 26, 2005.4
These rules included, among others,
Rule 3523, which added to the list of
services an audit firm is prohibited from
providing its audit clients in order to
maintain its independence by
prohibiting audit firms from providing
any tax service to any person who fills
a financial reporting oversight role at an
audit client, or an immediate family
member of such individual, unless such
person is in that role solely because he
or she is a member of the board of
directors or similar management
governing body. The Board adopted
certain technical amendments to the
rules on November 22, 2005 and
adopted an additional amendment,
delaying the implementation schedule
for Rule 3523,5 on March 28, 2006.6
Rule 3523, as originally adopted,
applies to all tax services performed for
persons in a financial reporting
oversight role during the ‘‘audit and
professional engagement period.’’ The
PCAOB’s definition of the term ‘‘audit
and professional engagement period’’ is
consistent with the Commission’s
independence rules. The ‘‘audit period’’
is the period covered by any financial
statements being audited or reviewed.7
The ‘‘professional engagement period’’
is the period beginning when the
accounting firm either signs the initial
engagement letter or begins audit
procedures, whichever is earlier, and
ends when the audit client or the
accounting firm notifies the
3 PCAOB
Release No. 2005–014.
August 2, 2005, the PCAOB submitted its
proposed rules to the Commission for approval.
5 PCAOB Release No. 2006–001.
6 The March 28, 2006 amendment was adopted
after the Commission published the proposed rules
for comment.
7 PCAOB Rule 3501(a)(iii)(1).
4 On
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Commission that the client is no longer
that firm’s audit client.8
Rule 3523 relates to services provided
to individuals and not the audit clients.
The Board adopted Rule 3523 because
‘‘the provision of tax services by the
auditor to the senior management
responsible for the audit client’s
financial reporting creates an
unacceptable appearance of the auditor
and such senior management having a
mutual interest.’’ 9 In discussing this
concern, however, the Board’s release
did not explore whether the provision of
these tax services during the audit
period but before becoming the auditor
of record presents the same appearance
issues as the auditor’s provision of such
services while serving as the auditor of
record. In addition, while the Board
received comment on this rule,
commenters did not explicitly address
this matter. Since the PCAOB did not
solicit comments relating to this matter,
it adopted an amendment to the rule
delaying the implementation of this part
of the rule and issued a concept release
to solicit comments to determine
whether restrictions during this period
unreasonably limit issuers’ ability to
change audit firms. On December 14,
2006, the Commission issued a notice of
the PCAOB’s rule amendment for Rule
3523, as it applies to tax services
provided during the period subject to
the audit but before the professional
engagement period, so that the Board
could revisit this aspect of the rule.10
On April 3, 2007, the Board issued
that concept release.11 The Board also
adopted a rule amendment further
delaying the implementation of Rule
3523 to apply to tax services provided
on or before July 31, 2007 when those
services are provided during the audit
period and are completed before the
professional engagement period begins.
On July 24, 2007, the Board proposed
an amendment to Rule 3523 12 to
exclude the portion of the audit period
that precedes the beginning of the
professional engagement period, as well
as a new ethics and independence rule
regarding communication with audit
committees. Concurrent with issuing the
proposed rule and rule amendment, the
Board also adopted a rule amendment to
further delay the implementation of
Rule 3523 to apply to tax services
provided on or before April 30, 2008
when those services are provided during
the audit period and are completed
8 PCAOB
Rule 3501(a)(iii)(2).
Release No. 2005–014 .
10 PCAOB Release No. 2006–006.
11 PCAOB Release No. 2007–001.
12 PCAOB Release No. 2007–008.
9 PCAOB
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jlentini on PROD1PC65 with NOTICES
before the professional engagement
period begins.
On April 22, 2008, the Board adopted
the amendment to PCAOB Rule 3523 to
exclude the portion of the audit period
that precedes the beginning of the
professional engagement period and a
rule amendment to further delay the
implementation date for that portion of
Rule 3523 until December 31, 2008.
The proposed amendment to PCAOB
Rule 3523 provides that the Board will
not apply Rule 3523 to tax services
when those services are provided during
the audit period and are completed
before the professional engagement
period begins. Rule 3523 continues to
apply to tax services provided during
the professional engagement period.
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 PCAOB’s
proposed Ethics and Independence Rule
3526, Communication with Audit
Committees Concerning Independence,
conforming amendments to its interim
standard ISB No. 1 and two related
interpretations, and amendment to Rule
3523, Tax Services for Persons in
Financial Reporting Oversight Roles for
public comment in the Federal Register
on July 14, 2008.13
III. Discussion
The Commission received two
comment letters relating to proposed
Rule 3526, both of which were generally
supportive of the proposed rule.14 One
of the firms, however, expressed
concerns relating to the timing of the
required communication of Rule 3526
and its effect on an auditor’s
participation in the activities associated
with an initial public offering. The firm
also expressed concerns about the
difference between the ‘‘audit and
professional engagement period’’
referenced in the SEC’s independence
rules and Rule 3526’s requirement to
communicate matters that may have
existed outside of this time period. The
firm requested that the Commission
include clarifying commentary in its
approval order regarding these matters
and urged the PCAOB to issue
additional interpretive guidance to aid
in the consistent application of the
rules.
The PCAOB carefully considered the
commenter’s concerns before it adopted
Rule 3526 and addressed those concerns
in its adopting release. We do not
believe that any clarifying commentary
13 See SEC Release No. 34–58121 (Jul. 9, 2008);
73 FR 40418 (Jul. 14, 2008).
14 Ernst & Young LLP and Deloitte & Touche LLP.
VerDate Aug<31>2005
17:36 Aug 27, 2008
Jkt 214001
50845
is necessary at this time. We encourage
the PCAOB to carefully monitor the
implementation of Rule 3526 and to
provide appropriate guidance if it is
needed in the future.
The Commission received three
comment letters relating to the proposed
amendment to Rule 3523. Two of the
commenters were supportive of the
amendment to Rule 3523.15 The other
commenter 16 expressed concern that
Rule 3523 ‘‘put[s] a huge burden on
smaller companies and larger tax firms’’
because some companies could have
large numbers of employees and
chances are that some of those
employees could be receiving tax
services from potential external
auditors. While purportedly outside the
scope of the proposed amendment,
which in fact limits the scope of the rule
to a narrower period of just the
professional engagement period, it
should also be noted that Rule 3523
applies only to persons in a financial
reporting oversight role (FROR). This
term is defined in PCAOB Rule 3501 as:
IV. Conclusion
On the basis of the foregoing, the
Commission finds that the PCAOB’s
proposed Ethics and Independence Rule
3526, Communication with Audit
Committees Concerning Independence,
conforming amendments to its interim
standard ISB No. 1 and two related
interpretations, and amendment to Rule
3523, Tax Services for Persons in
Financial Reporting Oversight Roles, 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 therefore ordered, pursuant to
Section 107 of the Act and Section
19(b)(2) of the Exchange Act, that the
proposed rule changes (File No.
PCAOB–2008–03) be, and hereby are,
approved.
[A] role in which a person is in a position
to or does exercise influence over the
contents of the financial statements or
anyone who prepares them, such as when the
person is a member of the board of directors
or similar management or governing body,
chief executive officer, president, chief
financial officer, chief operating officer,
general counsel, chief accounting officer,
controller, director of internal audit, director
of financial reporting, treasurer, or any
equivalent position.
BILLING CODE 8010–01–P
Rule 3523 is further limited to exclude
persons (i) who are in a FROR only
because he or she serves as a member of
the board of directors or similar
management or governing body of the
audit client, (ii) who are in FROR at
affiliates if the affiliate’s financial
statements are immaterial or audited by
a different auditor and (iii) who
received tax services before being hired
or promoted into a FROR if the services
are completed on or before 180 days
after the hiring or promotion event.
The PCAOB is not proposing to
change the persons subject to Rule 3523
in its proposing amendment. The
PCAOB gave careful consideration to
the issues raised by the commenter prior
to Rule 3523’s adoption by the Board.
PCAOB Rules 3526 and 3523,
including the proposed amendment to
Rule 3523 and the conforming
amendments to the interim standards,
are a reasonable exercise of the Board’s
rule-making authority under the Act.
& Young LLP and Deloitte & Touche LLP.
L. Garzia, Student, Business
Management, Tappan, New York.
By the Commission.
Florence E. Harmon,
Acting Secretary.
[FR Doc. E8–19989 Filed 8–27–08; 8:45 am]
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–58408; File No. SR–BSE–
2008–42]
Self-Regulatory Organizations; Notice
of Filing of Proposed Rule Change by
the Boston Stock Exchange, Inc.
Relating to the Appointment of Market
Makers on the Boston Options
Exchange Facility
August 22, 2008.
Pursuant to section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Act’’),1 and Rule 19b–4 thereunder,2
notice is hereby given that on August
19, 2008, the Boston Stock Exchange,
Inc. (‘‘BSE’’ or ‘‘Exchange’’) filed with
the Securities and Exchange
Commission (‘‘Commission’’) the
proposed rule change as described in
Items I, II, and III below, which Items
have been prepared by the selfregulatory organization. The
Commission is publishing this notice to
solicit comments on the proposed rule
from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to amend
section 5 (Obligations of Market Makers)
of Chapter VI of the Rules of the Boston
Options Exchange Group, LLC (‘‘BOX’’).
15 Ernst
16 Matthew
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1 15
2 17
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U.S.C. 78s(b)(1).
CFR 240.19b–4.
28AUN1
]]>Agencies
[Federal Register Volume 73, Number 168 (Thursday, August 28, 2008)]
[Notices]
[Pages 50843-50845]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E8-19989]
=======================================================================
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-58415; File No. PCAOB-2008-03]
Public Company Accounting Oversight Board; Order Approving
Proposed Ethics and Independence Rule 3526, Communication With Audit
Committees Concerning Independence, Amendment to Interim Independence
Standards, and Amendment to Rule 3523, Tax Services for Persons in
Financial Reporting Oversight Roles
August 22, 2008.
I. Introduction
On April 24, 2008, the Public Company Accounting Oversight Board
(the ``Board'' or the ``PCAOB'') filed with the Securities and Exchange
Commission (the ``SEC'' or ``Commission'') proposed rule changes
(PCAOB-2008-03) pursuant to Section 107(b) of the Sarbanes-Oxley Act of
2002 (the ``Act''), relating to the Board's Ethics and Independence
Rules. Notice of the proposed rule changes was published in the Federal
Register on July 14, 2008.\1\ The Commission received three comment
letters relating to the proposed rule changes. For the reasons
discussed below, the Commission is granting approval of the proposed
rule changes.
---------------------------------------------------------------------------
\1\ See SEC Release No. 34-58121 (Jul. 9, 2008); 73 FR 40418
(Jul. 14, 2008).
---------------------------------------------------------------------------
II. Description of Proposed Rule Changes
Section 103(a) 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
[[Page 50844]]
audit reports as required by the Act or the rules of the Commission.
In connection with its standards-setting function, the Board
adopted in 2003 on an initial, transitional basis five temporary rules
that incorporate the pre-existing professional standards of auditing,
attestation, quality control and ethics and independence (the ``interim
standards'').\2\ The interim standards include Independence Standards
Board Standard No. 1, Independence Discussions with Audit Committees
(``ISB No. 1''), ISB Interpretation 00-1, The Applicability of ISB
Standard No. 1 When ``Secondary Auditors'' Are Involved in the Audit of
a Registrant, and ISB Interpretation 00-2, The Applicability of ISB
Standard No. 1 When ``Secondary Auditors'' Are Involved in the Audit of
a Registrant, An Amendment of Interpretation 00-1.
---------------------------------------------------------------------------
\2\ The Commission approved the PCAOB's adoption of the interim
standards in Release No. 34-47745 (April 25, 2003); 68 FR 23335 (May
1, 2003).
---------------------------------------------------------------------------
On April 22, 2008, the PCAOB adopted proposed Ethics and
Independence Rule 3526, Communication with Audit Committees Concerning
Independence, which supersedes ISB No. 1, ISB Interpretation 00-1 and
ISB Interpretation 00-2, and a proposed amendment to Rule 3523, Tax
Services for Persons in Financial Reporting Oversight Roles, so that it
will no longer apply to the provision of tax services to persons in
financial reporting oversight roles during the portion of the audit
period that precedes the professional engagement period.
Proposed Rule 3526, Communication with Audit Committees Concerning
Independence, is intended to build on the communication requirements in
interim standard ISB No. 1 and provide audit committees with
information that may be important to its determination about whether to
hire a registered public accounting firm as the company's auditor. ISB
No. 1 currently provides that, at least annually, an auditor shall: (a)
Disclose to the audit committee of the company (or the board of
directors if there is no audit committee), in writing, all
relationships between the auditor and its related entities and the
company and its related entities that in the auditor's professional
judgment may reasonably be thought to bear on independence; (b) confirm
in the letter that, in its professional judgment, it is independent of
the company within the meaning of the ``Securities Acts administered by
the'' SEC; and (c) discuss the auditor's independence with the audit
committee.
Similar to ISB No. 1, the new rule requires a registered firm on at
least an annual basis after becoming the issuer's auditor to make a
similar written communication and also affirm to the audit committee of
the issuer, in writing, that the firm is independent. The PCAOB adopted
this new rule in part because it believed that the accounting firm
should discuss with the audit committee before accepting an initial
engagement pursuant to the standards of the PCAOB any relationships the
accounting firm has with the issuer that may reasonably be thought to
bear on its independence. The new rule also includes a new requirement
for the firm to document the substance of its discussion with the audit
committee.
The PCAOB adopted Ethics and Independence Rules Concerning
Independence, Tax Services and Contingent Fees \3\ on July 26, 2005.\4\
These rules included, among others, Rule 3523, which added to the list
of services an audit firm is prohibited from providing its audit
clients in order to maintain its independence by prohibiting audit
firms from providing any tax service to any person who fills a
financial reporting oversight role at an audit client, or an immediate
family member of such individual, unless such person is in that role
solely because he or she is a member of the board of directors or
similar management governing body. The Board adopted certain technical
amendments to the rules on November 22, 2005 and adopted an additional
amendment, delaying the implementation schedule for Rule 3523,\5\ on
March 28, 2006.\6\
---------------------------------------------------------------------------
\3\ PCAOB Release No. 2005-014.
\4\ On August 2, 2005, the PCAOB submitted its proposed rules to
the Commission for approval.
\5\ PCAOB Release No. 2006-001.
\6\ The March 28, 2006 amendment was adopted after the
Commission published the proposed rules for comment.
---------------------------------------------------------------------------
Rule 3523, as originally adopted, applies to all tax services
performed for persons in a financial reporting oversight role during
the ``audit and professional engagement period.'' The PCAOB's
definition of the term ``audit and professional engagement period'' is
consistent with the Commission's independence rules. The ``audit
period'' is the period covered by any financial statements being
audited or reviewed.\7\ The ``professional engagement period'' is the
period beginning when the accounting firm either signs the initial
engagement letter or begins audit procedures, whichever is earlier, and
ends when the audit client or the accounting firm notifies the
Commission that the client is no longer that firm's audit client.\8\
---------------------------------------------------------------------------
\7\ PCAOB Rule 3501(a)(iii)(1).
\8\ PCAOB Rule 3501(a)(iii)(2).
---------------------------------------------------------------------------
Rule 3523 relates to services provided to individuals and not the
audit clients. The Board adopted Rule 3523 because ``the provision of
tax services by the auditor to the senior management responsible for
the audit client's financial reporting creates an unacceptable
appearance of the auditor and such senior management having a mutual
interest.'' \9\ In discussing this concern, however, the Board's
release did not explore whether the provision of these tax services
during the audit period but before becoming the auditor of record
presents the same appearance issues as the auditor's provision of such
services while serving as the auditor of record. In addition, while the
Board received comment on this rule, commenters did not explicitly
address this matter. Since the PCAOB did not solicit comments relating
to this matter, it adopted an amendment to the rule delaying the
implementation of this part of the rule and issued a concept release to
solicit comments to determine whether restrictions during this period
unreasonably limit issuers' ability to change audit firms. On December
14, 2006, the Commission issued a notice of the PCAOB's rule amendment
for Rule 3523, as it applies to tax services provided during the period
subject to the audit but before the professional engagement period, so
that the Board could revisit this aspect of the rule.\10\
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\9\ PCAOB Release No. 2005-014 .
\10\ PCAOB Release No. 2006-006.
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On April 3, 2007, the Board issued that concept release.\11\ The
Board also adopted a rule amendment further delaying the implementation
of Rule 3523 to apply to tax services provided on or before July 31,
2007 when those services are provided during the audit period and are
completed before the professional engagement period begins.
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\11\ PCAOB Release No. 2007-001.
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On July 24, 2007, the Board proposed an amendment to Rule 3523 \12\
to exclude the portion of the audit period that precedes the beginning
of the professional engagement period, as well as a new ethics and
independence rule regarding communication with audit committees.
Concurrent with issuing the proposed rule and rule amendment, the Board
also adopted a rule amendment to further delay the implementation of
Rule 3523 to apply to tax services provided on or before April 30, 2008
when those services are provided during the audit period and are
completed
[[Page 50845]]
before the professional engagement period begins.
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\12\ PCAOB Release No. 2007-008.
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On April 22, 2008, the Board adopted the amendment to PCAOB Rule
3523 to exclude the portion of the audit period that precedes the
beginning of the professional engagement period and a rule amendment to
further delay the implementation date for that portion of Rule 3523
until December 31, 2008.
The proposed amendment to PCAOB Rule 3523 provides that the Board
will not apply Rule 3523 to tax services when those services are
provided during the audit period and are completed before the
professional engagement period begins. Rule 3523 continues to apply to
tax services provided during the professional engagement period.
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 PCAOB's proposed Ethics and
Independence Rule 3526, Communication with Audit Committees Concerning
Independence, conforming amendments to its interim standard ISB No. 1
and two related interpretations, and amendment to Rule 3523, Tax
Services for Persons in Financial Reporting Oversight Roles for public
comment in the Federal Register on July 14, 2008.\13\
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\13\ See SEC Release No. 34-58121 (Jul. 9, 2008); 73 FR 40418
(Jul. 14, 2008).
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III. Discussion
The Commission received two comment letters relating to proposed
Rule 3526, both of which were generally supportive of the proposed
rule.\14\ One of the firms, however, expressed concerns relating to the
timing of the required communication of Rule 3526 and its effect on an
auditor's participation in the activities associated with an initial
public offering. The firm also expressed concerns about the difference
between the ``audit and professional engagement period'' referenced in
the SEC's independence rules and Rule 3526's requirement to communicate
matters that may have existed outside of this time period. The firm
requested that the Commission include clarifying commentary in its
approval order regarding these matters and urged the PCAOB to issue
additional interpretive guidance to aid in the consistent application
of the rules.
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\14\ Ernst & Young LLP and Deloitte & Touche LLP.
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The PCAOB carefully considered the commenter's concerns before it
adopted Rule 3526 and addressed those concerns in its adopting release.
We do not believe that any clarifying commentary is necessary at this
time. We encourage the PCAOB to carefully monitor the implementation of
Rule 3526 and to provide appropriate guidance if it is needed in the
future.
The Commission received three comment letters relating to the
proposed amendment to Rule 3523. Two of the commenters were supportive
of the amendment to Rule 3523.\15\ The other commenter \16\ expressed
concern that Rule 3523 ``put[s] a huge burden on smaller companies and
larger tax firms'' because some companies could have large numbers of
employees and chances are that some of those employees could be
receiving tax services from potential external auditors. While
purportedly outside the scope of the proposed amendment, which in fact
limits the scope of the rule to a narrower period of just the
professional engagement period, it should also be noted that Rule 3523
applies only to persons in a financial reporting oversight role (FROR).
This term is defined in PCAOB Rule 3501 as:
\15\ Ernst & Young LLP and Deloitte & Touche LLP.
\16\ Matthew L. Garzia, Student, Business Management, Tappan,
New York.
[A] role in which a person is in a position to or does exercise
influence over the contents of the financial statements or anyone
who prepares them, such as when the person is a member of the board
of directors or similar management or governing body, chief
executive officer, president, chief financial officer, chief
operating officer, general counsel, chief accounting officer,
controller, director of internal audit, director of financial
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reporting, treasurer, or any equivalent position.
Rule 3523 is further limited to exclude persons (i) who are in a FROR
only because he or she serves as a member of the board of directors or
similar management or governing body of the audit client, (ii) who are
in FROR at affiliates if the affiliate's financial statements are
immaterial or audited by a different auditor and (iii) who received tax
services before being hired or promoted into a FROR if the services are
completed on or before 180 days after the hiring or promotion event.
The PCAOB is not proposing to change the persons subject to Rule
3523 in its proposing amendment. The PCAOB gave careful consideration
to the issues raised by the commenter prior to Rule 3523's adoption by
the Board.
PCAOB Rules 3526 and 3523, including the proposed amendment to Rule
3523 and the conforming amendments to the interim standards, are a
reasonable exercise of the Board's rule-making authority under the Act.
IV. Conclusion
On the basis of the foregoing, the Commission finds that the
PCAOB's proposed Ethics and Independence Rule 3526, Communication with
Audit Committees Concerning Independence, conforming amendments to its
interim standard ISB No. 1 and two related interpretations, and
amendment to Rule 3523, Tax Services for Persons in Financial Reporting
Oversight Roles, 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 therefore ordered, pursuant to Section 107 of the Act and
Section 19(b)(2) of the Exchange Act, that the proposed rule changes
(File No. PCAOB-2008-03) be, and hereby are, approved.
By the Commission.
Florence E. Harmon,
Acting Secretary.
[FR Doc. E8-19989 Filed 8-27-08; 8:45 am]
BILLING CODE 8010-01-P
