Public Company Accounting Oversight Board; Notice of Filing of Proposed Amendment to Board Rules Relating to Inspections, 61722-61726 [E9-28239]
Download as PDF
<![CDATA[
sroberts on DSKD5P82C1PROD with NOTICES
61722
Federal Register / Vol. 74, No. 226 / Wednesday, November 25, 2009 / Notices
placement, and the responsibilities of
Rule 17j–1 organizations arising from
information collection requirements
under rule 17j–1. These include
notifying Access Persons of their
reporting obligations, preparing an
annual rule 17j–1 report and
certification for the board, documenting
their approval or rejection of IPO and
private placement requests, maintaining
annual rule 17j–1 records, maintaining
electronic reporting and recordkeeping
systems, amending their codes of ethics
as necessary, and, for new fund
complexes, adopting a code of ethics.
We estimate that there is an annual
cost burden of approximately $5,000 per
fund complex, for a total of $3,275,000,
associated with complying with the
information collection requirements in
rule 17j–1. This represents the costs of
purchasing and maintaining computers
and software to assist funds in carrying
out rule 17j–1 recordkeeping.
These burden hour and cost estimates
are based upon the Commission staff’s
experience and discussions with the
fund industry. The estimates of average
burden hours and costs are made solely
for the purposes of the Paperwork
Reduction Act. These estimates are not
derived from a comprehensive or even
a representative survey or study of the
costs of Commission rules.
An agency may not conduct or
sponsor, and a person is not required to
respond to a collection of information
unless it displays a currently valid
control number.
Written comments are invited on: (a)
Whether the collection of information is
necessary for the proper performance of
the functions of the Commission,
including whether the information will
have practical utility; (b) the accuracy of
the Commission’s estimate of the
burden of the collections of information;
(c) ways to enhance the quality, utility,
and clarity of the information collected;
and (d) ways to minimize the burdens
of the collection of information on
respondents, including through the use
of automated collection techniques or
other forms of information technology.
Consideration will be given to
comments and suggestions submitted in
writing within 60 days of this
publication.
Please direct your written comments
to Charles Boucher, Director/CIO,
Securities and Exchange Commission,
C/O Shirley Martinson, 6432 General
Green Way, Alexandria, VA 22312; or
send an e-mail to: PRA_Mailbox
@sec.gov.
VerDate Nov<24>2008
17:36 Nov 24, 2009
Jkt 220001
November 19, 2009.
Florence E. Harmon,
Deputy Secretary.
[FR Doc. E9–28226 Filed 11–24–09; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Rule 17Ad–16; SEC File No. 270–363; OMB
Control No. 3235–0413]
Proposed Collection; Comment
Request
Upon Written Request, Copies Available
From: Securities and Exchange
Commission, Office of Investor
Education and Advocacy,
Washington, DC 20549–0213.
Notice is hereby given that, pursuant
to the Paperwork Reduction Act of 1995
(44 U.S.C. 3501 et seq.), the Securities
and Exchange Commission
(‘‘Commission’’) is soliciting comments
on the existing collection of information
provided for in Rule 17Ad–13 (17 CFR
240.17Ad–13) under the Securities
Exchange Act of 1934 (15 U.S.C. 78a et
seq.) (‘‘Exchange Act’’). The
Commission plans to submit this
existing collection of information to the
Office of Management and Budget for
extension and approval.
Rule 17Ad–16 requires a registered
transfer agent to provide written notice
to the appropriate qualified registered
securities depository when assuming or
terminating transfer agent services on
behalf of an issuer or when changing its
name or address. In addition, transfer
agents that provide such notice shall
maintain such notice for a period of at
least two years in an easily accessible
place. This rule addresses the problem
of certificate transfer delays caused by
transfer requests that are directed to the
wrong transfer agent or the wrong
address.
We estimate that the transfer agent
industry submits 3,000 Rule 17Ad–16
notices to appropriate qualified
registered securities depositories. The
staff estimates that the average amount
of time necessary to create and submit
each notice is approximately 15 minutes
per notice. Accordingly, the estimated
total industry burden is 750 hours per
year (15 minutes multiplied by 3,000
notices filed annually).
Because the information needed by
transfer agents to properly notify the
appropriate registered securities
depository is readily available to them
and the report is simple and
straightforward, the cost is relatively
minimal. The average cost to prepare
and send a notice is approximately
PO 00000
Frm 00068
Fmt 4703
Sfmt 4703
$7.50 (15 minutes at $30 per hour). This
yields an industry-wide cost estimate of
$22,500 (3,000 notices multiplied by
$7.50 per notice).
Written comments are invited on: (a)
Whether the proposed collection of
information is necessary for the proper
performance of the functions of the
Commission, including whether the
information shall have practical utility;
(b) the accuracy of the Commission’s
estimates of the burden of the proposed
collection of information; (c) ways to
enhance the quality, utility, and clarity
of the information to be collected; and
(d) ways to minimize the burden of the
collection of information on
respondents, including through the use
of automated collection techniques or
other forms of information technology.
Consideration will be given to
comments and suggestions submitted in
writing within 60 days of this
publication.
Comments should be directed to
Charles Boucher, Director/Chief
Information Officer, Securities and
Exchange Commission, c/o Shirley
Martinson, 6432 General Green Way,
Alexandria, VA 22312 or send an e-mail
to: PRA_Mailbox@sec.gov.
Dated: November 18, 2009.
Florence E. Harmon,
Deputy Secretary.
[FR Doc. E9–28227 Filed 11–24–09; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–61032; File No. PCAOB–
2009–01]
Public Company Accounting Oversight
Board; Notice of Filing of Proposed
Amendment to Board Rules Relating to
Inspections
November 19, 2009.
Pursuant to Section 107(b) of the
Sarbanes-Oxley Act of 2002 (the ‘‘Act’’),
notice is hereby given that on July 2,
2009, the Public Company Accounting
Oversight Board (the ‘‘Board’’ or
‘‘PCAOB’’) filed with the Securities and
Exchange Commission (the ‘‘SEC’’ or
‘‘Commission’’) the proposed rule
changes described in Items I, II, and III
below, which items have been prepared
by the Board. The Commission is
publishing this notice to solicit
comments on the proposed rule from
interested persons.
I. Board’s Statement of the Terms of
Substance of the Proposed Rule
On June 25, 2009, the Board adopted
an amendment to its rule relating to the
E:\FR\FM\25NON1.SGM
25NON1
Federal Register / Vol. 74, No. 226 / Wednesday, November 25, 2009 / Notices
frequency of inspections. The proposed
amendment adds a new paragraph (g) to
existing Rule 4003. The text of the
proposed amendment is set out below.
Language added by the amendment is in
italics.
Rule 4003. Frequency of Inspections
* * * * *
(g) With respect to any foreign
registered public accounting firm
concerning which the preceding
provisions of this Rule, other than
paragraphs (a) and (f), would set a 2009
deadline for the first Board inspection
and that is headquartered in a country
in which no foreign registered public
accounting firm that the Board
inspected before 2009 is headquartered,
such deadline is extended to 2012,
provided, however, that from among the
group of all such firms, the Board shall
conduct some first inspections in each
of the years from 2009 to 2012,
scheduled according to such criteria as
the Board shall publicly announce.
II. Board’s Statement of the Purpose of,
and Statutory Basis for, the Proposed
Rule
In its filing with the Commission, the
Board included statements concerning
the purpose of, and basis for, the
proposed rule. The text of these
statements may be examined at the
places specified in Item IV below. The
Board has prepared summaries, set forth
in sections A, B, and C below, of the
most significant aspects of such
statements.
sroberts on DSKD5P82C1PROD with NOTICES
A. Board’s Statement of the Purpose of,
and Statutory Basis for, the Proposed
Rule
(a) Purpose
The Sarbanes-Oxley Act of 2002
directs the Board to conduct a
continuing program of inspections to
assess registered public accounting
firms’ compliance with certain
requirements.1 The Act prescribes
inspection frequency requirements but
also authorizes the Board to adjust the
frequency requirements by rule if the
Board finds that an adjustment is
consistent with the purposes of the Act,
the public interest, and the protection of
investors.2 Inspection frequency
requirements adopted by the Board are
set out in PCAOB Rule 4003,
‘‘Frequency of Inspections.’’
The Board began a regular cycle of
inspections of U.S. firms in 2004 and
has conducted 982 such inspections,
including repeat inspections of several
firms. Inspections of non-U.S. firms
1 See
2 See
Section 104(a) of the Act.
Section 104(b) of the Act.
VerDate Nov<24>2008
17:36 Nov 24, 2009
Jkt 220001
began in 2005, and the Board has
inspected 140 non-U.S. firms. Those
firms are located in 26 jurisdictions.3
There are, however, currently 68 nonU.S. firms that, by virtue of when they
first issued audit reports after registering
with the PCAOB, the Board is required
to inspect for the first time by the end
of 2009.4 For the reasons described
below, the Board has adopted Rule
4003(g), which would affect the timing
of a subset of those 68 inspections.
Specifically, Rule 4003(g) will give the
Board the ability to postpone, for up to
three years, first inspections that the
Board is currently required to conduct
before the end of 2009 in jurisdictions
where the Board conducted no
inspections before 2009. The
amendment does not affect inspection
frequency requirements concerning any
other first inspections, or concerning
any second or later inspections, of firms
that issue audit reports for issuers.5
The PCAOB has recognized since the
outset of its inspection program that
inspections of non-U.S. firms pose
special issues.6 In its oversight of nonU.S. firms, the Board seeks, to the extent
reasonably possible, to coordinate and
cooperate with local authorities. Since
2003, when the PCAOB began
operations, a number of jurisdictions
have also developed their own auditor
oversight authorities with inspection
responsibilities or enhanced existing
oversight systems.7 The Board believes
3 The Board has inspected non-U.S. firms located
in Argentina, Australia, Bermuda, Brazil, Canada,
Chile, Colombia, Greece, Hong Kong, India,
Indonesia, Ireland, Israel, Japan, Kazakhstan,
Mexico, New Zealand, Norway, Panama, Peru, the
Russian Federation, Singapore, South Africa, South
Korea, Chinese-Taipei, and the United Kingdom.
4 This discussion does not include, or apply to,
21 non-U.S. firms whose first inspection deadline
has been moved from 2008 to 2009 under Rule
4003(f).
5 Existing Rule 4003 effectively sets deadlines for
the Board’s inspections not only of firms that issue
audit reports, but also of firms that play a
substantial role in the preparation or furnishing of
an audit report (as defined in PCAOB Rule
1001(p)(ii)). The Board has previously submitted for
Commission approval amendments to Rules 4003(b)
and 4003(d) that would eliminate from the Rule any
frequency requirement or deadline for the Board to
inspect a firm that plays a substantial role but does
not issue an audit report. Unless and until the
Commission approves such a rule change, however,
the extension in proposed rule 4003(g) would (if
approved by the Commission) apply to required
2009 PCAOB inspections of non-U.S. firms (in
jurisdictions encompassed by the rule’s terms) that
have played a substantial role as well as to required
2009 inspections of non-U.S. firms that have issued
audit reports.
6 See Briefing Paper, Oversight of Non-U.S. Public
Accounting Firms (October 28, 2003) (hereinafter
‘‘Oversight of Non-U.S. Firms’’); Final Rules
Relating to the Oversight of Non-U.S. Public
Accounting Firms, PCAOB Release No. 2004–005
(June 9, 2004).
7 In 2006, for instance, the European Union
enacted a directive requiring the creation of an
PO 00000
Frm 00069
Fmt 4703
Sfmt 4703
61723
that it is in the interests of the public
and investors for the Board to develop
efficient and effective cooperative
arrangements with its non-U.S.
counterparts.8 In jurisdictions that have
their own inspection programs, this may
include conducting joint inspections of
firms that are subject to both regulators’
authority.
Indeed, the Board has a specific
framework for working cooperatively
with its non-U.S. counterparts to
conduct joint inspections and, to the
extent deemed appropriate by the Board
in any particular case, relying on
inspection work performed by that
counterpart.9 PCAOB Rule 4011 permits
non-U.S. firms that are subject to Board
inspection to formally request that the
Board, in conducting its inspection, rely
on a non-U.S. inspection to the extent
deemed appropriate by the Board. If a
Rule 4011 request is made, Rule 4012
provides that the Board will, at an
appropriate time before each inspection
of the firm, determine the degree, if any,
to which the Board may rely on the nonU.S. inspection. Rule 4012 describes
aspects of the non-U.S. system that the
Board will evaluate in making that
determination. Even where the Board
does not work with a local regulator to
conduct joint inspections, the Board
communicates with its counterpart or
other local authorities (such as
securities regulators or other
government agencies and ministries)
regarding its inspections to be
conducted in the jurisdiction.
In some jurisdictions, the PCAOB’s
ability to conduct inspections, either by
itself or jointly with a local regulator, is
complicated by the concerns of local
authorities about potential legal
obstacles and sovereignty issues. The
Board seeks to work with the homecountry authorities to try to resolve
these and any other concerns.10
The effort involved in attempting to
resolve potential conflicts of law, or to
evaluate a non-U.S. system in response
to a Rule 4011 request, can be
effective system of public oversight for statutory
auditors and audit firms within each Member State.
See The Directive 2006/43/EC of the European
Parliament and the Council (May 17, 2006) (the
‘‘Eighth Directive’’). In addition, among others,
Canada created the Canadian Public Accountability
Board, and in Australia, the responsibilities of the
Australian Securities and Investments Commission
were expanded to include auditor oversight. In
Asia, Japan established the Certified Public
Accountants and Auditing Oversight Board, South
Korea delegated responsibility for auditor oversight
to its Financial Supervisory Service, and Singapore
established the Accounting and Corporate
Regulatory Authority.
8 See Oversight of Non-U.S. Firms at 2–3.
9 See PCAOB Rules 4011 and 4012; see also
Oversight of Non-U.S. Firms at 2–3.
10 See Oversight of Non-U.S. Firms at 3.
E:\FR\FM\25NON1.SGM
25NON1
sroberts on DSKD5P82C1PROD with NOTICES
61724
Federal Register / Vol. 74, No. 226 / Wednesday, November 25, 2009 / Notices
substantial. The effort typically involves
negotiating the principles of an
arrangement for cooperation consistent
with the inspection obligations that the
Act imposes on the Board. It also
involves the Board gaining a detailed
understanding of the other jurisdiction’s
auditor oversight system in order for the
Board to determine the degree of
reliance it is willing to place on
inspection work performed under that
system in a particular inspection year.
Additional effort is involved in
coordinating the scheduling of specific
inspections. Where possible, the Board
seeks to conduct inspections jointly
with local authorities both to take
advantage of potential efficiencies and
to avoid imposing unnecessary
regulatory burdens on firms. Like the
PCAOB, several of these other
authorities proceed according to
inspection frequency requirements.
While some of the Board’s counterparts
are established and have inspection
programs, many have only recently
begun inspections or are still building
up their inspections resources. As a
result, synchronizing the inspections
schedules of these authorities and the
PCAOB’s requirements is sometimes
difficult.
Notwithstanding these challenges, the
Board has so far conducted 140 nonU.S. inspections. Moreover, 61 of those
inspections, in six jurisdictions, have
been conducted jointly with other
auditor oversight authorities, while
inspections in 20 jurisdictions have
been conducted solely by the PCAOB.11
As noted above, under existing Rule
4003, there are 68 non-U.S. firms that,
by virtue of when they first issued audit
reports after registering with the
PCAOB, the Board is required to inspect
for the first time by the end of 2009.
Those firms are located in 36
jurisdictions, including several
jurisdictions in which the Board has
already conducted first inspections of
other firms. Of those firms, 49 are
located in 24 jurisdictions where the
Board has not conducted any
inspections to date. Most of those 24
jurisdictions have or soon will have a
local auditor oversight authority with
which the Board would seek to work
toward cooperative arrangements before
conducting inspections. Because of the
steps involved in concluding such
arrangements and to evaluate the local
system, the Board has concerns about
proceeding as if that work can be
completed for all of the jurisdictions in
which the PCAOB has not previously
11 Joint inspections have been conducted in
Australia, Canada, South Korea, Norway, Singapore
and the United Kingdom.
VerDate Nov<24>2008
17:36 Nov 24, 2009
Jkt 220001
conducted inspections in time to
conduct the required inspections by the
end of 2009.
Accordingly, the Board is adopting a
new paragraph (g) to Rule 4003 to allow
the Board to postpone, for up to three
years, the first inspection of any nonU.S. firm that the Board is currently
required to conduct by the end of 2009
and that is in a jurisdiction where the
Board has not conducted an inspection
before 2009.
In determining the schedule for
completion of the inspections subject to
new paragraph (g), the Board will
implement its proposal to sequence
these 49 inspections such that certain
minimum thresholds will be satisfied in
each of the years from 2009 to 2012. The
minimum thresholds relate to U.S.
market capitalization of firms’ issuer
audit clients. The Board will begin by
ranking the 49 firms according to the
total U.S. market capitalization of a
firm’s foreign private issuer audit
clients.12 Working from the top of the
list (highest U.S. market capitalization
total) down, the 49 firms will be
distributed over 2009 to 2012 such that,
at a minimum, the following criteria are
satisfied:
• By the end of 2009, the Board will
inspect firms whose combined issuer
audit clients’ U.S. market capitalization
constitutes at least 35 percent of the
aggregate U.S. market capitalization of
the audit clients of all 49 firms;
• By the end of 2010, the Board will
inspect firms whose combined issuer
audit clients’ U.S. market capitalization
constitutes at least 90 percent of that
aggregate;
• By the end of 2011, the Board will
inspect firms whose combined issuer
audit clients’ U.S. market capitalization
constitutes at least 99.9 percent of that
aggregate; and
• The Board will inspect the
remaining firms in 2012.13
In addition to meeting those market
capitalization thresholds, the Board also
will satisfy certain criteria concerning
the number of those 49 firms that will
be inspected in each year. Specifically,
the Board will conduct at least four of
the 49 inspections in 2009, at least 11
more in 2010, and at least 14 more in
2011.14
It is important to note that the
distribution described above will not
operate to prevent an inspection from
occurring earlier than called for by the
schedule. Any inspection may be moved
to an earlier year for a variety of reasons,
such as the presence of risk factors
(including risk factors relating to
referred work 15 that the firm performs
on audits for which it is not the
principal auditor), synchronization of
schedules with a local regulator for
purposes of a joint inspection, or simply
the opportunity and the availability of
resources to do an inspection earlier
(including availability of inspectors
with specialized industry knowledge
and relevant language skills). In
addition, the Board will at least
annually review updated market
capitalization data and consider
whether there have been any changes
that warrant moving a particular
inspection forward to an earlier year.
Conversely, the Board does not intend
to make changes that would move an
inspection of one of these 49 firms to a
later year than in the initial distribution
except as the result of a development
relating to the market capitalization of
the firm’s issuer clients. Specifically, if
a firm’s issuer audit client market
capitalization drops significantly and
the firm performs no significant amount
of referred work on audits, its
inspection might be delayed to a later
year. In any event, the Board will not,
for any reason, move one of these 49
inspections to a later year than in the
initial distribution without publicly
describing the change and the reason for
it.
In the Board’s view, this adjustment
to the inspection frequency requirement
is consistent with the purposes of the
Act, the public interest, and the
protection of investors. The Board
believes that its approach to
implementing Rules 4011 and 4012,
developing cooperative arrangements,
and conducting joint inspections with
foreign regulators is enhancing the
Board’s efforts to carry out its inspection
responsibilities. There is long-term
value in accepting a limited delay in
inspections to continue working toward
12 For purposes of the ranking described here, the
Board will use the average monthly market
capitalization on which each issuer’s share of the
Board’s 2008 accounting support fee was based.
Thus, the market capitalization figure used for the
ranking does not include the value of any referred
work performed by the firm.
13 Under existing provisions of Rule 4003 that are
not affected by this amendment, 2012 would also
be the deadline for the Board to conduct the second
inspection of those of the 49 firms whose first
inspection occurs in 2009.
14 The issuer audit client U.S. market
capitalization currently associated with a
significant number of the 49 firms is relatively low,
and even zero in a number of cases where firms
appear to have stopped issuing audit reports for
issuers. As a result, approximately 92% of the
relevant issuer market capitalization is associated
with 15 of the 49 firms.
15 Because the PCAOB is still in the process of
gathering information about each firm’s referred
work, the 2009 inspections will not use referred
work as a risk factor for purposes of scheduling.
PO 00000
Frm 00070
Fmt 4703
Sfmt 4703
E:\FR\FM\25NON1.SGM
25NON1
Federal Register / Vol. 74, No. 226 / Wednesday, November 25, 2009 / Notices
cooperative arrangements where it
appears reasonably possible to reach
them. The Board also believes that the
additional time to conduct certain
inspections will have the added benefit
of giving the Board more time to
continue to enhance its inspection
program, particularly in the areas of risk
assessment and pre-inspection
planning, and the Board intends to do
so.
The Board recognizes that some nonU.S. firms may be reluctant to comply
with PCAOB inspection demands
because of a concern that doing so might
violate local law or the sovereignty of
their home country. The Board believes
that the purposes of the Act, the public
interest, and the protection of investors
are better served, up to a point, by
delaying some of the first inspections to
work toward a cooperative resolution
than by precipitating legal disputes
involving conflicts between U.S. and
non-U.S. law that could arise if the
Board sought to enforce compliance
with its preferred schedule without
regard for the concerns of non-U.S.
authorities.
The Board does not intend, however,
to make any further adjustments to the
inspection frequency requirements
applicable to firms whose first
inspection was due no later than 2009.
While the Board will continue to work
toward cooperation and coordination
with authorities in the relevant
jurisdictions, the Board will make
inspection demands on the firms early
enough in the year in which they are
scheduled for inspection according to
the above described sequencing to allow
the Board to conduct the inspections
during that year.16
(b) Statutory Basis
sroberts on DSKD5P82C1PROD with NOTICES
The statutory basis for the proposed
rule is Title I of the Act.
16 Apart from the proposed rule amendment, the
Board has implemented certain practices to provide
additional transparency with regard to the Board’s
international inspections program. These practices
include (1) making a public announcement, near
the beginning of each year until 2012, identifying
all non-U.S. jurisdictions in which there are firms
that the Board will inspect that year, (2)
maintaining a public list of all registered firms that
have not yet had their first Board inspection even
though more than four years have passed since the
end of the calendar year in which they first issued
an audit report while registered with the Board, and
(3) making biannual public announcements of the
Board’s progress toward meeting the thresholds
described above with respect to the number of firms
to be inspected and the aggregate market
capitalization of firm clients. The Board also
maintains on its Web site a list of all jurisdictions
in which there are registered firms that the Board
has inspected. Additional details concerning these
practices are provided in PCAOB Release No. 2009–
003, available on the Board’s Web site at https://
www.pcaobus.org/Rules/Docket_027.
VerDate Nov<24>2008
17:36 Nov 24, 2009
Jkt 220001
B. Board’s Statement on Burden on
Competition
The Board does not believe that the
proposed rule will result in any burden
on competition that is not necessary or
appropriate in furtherance of the
purposes of the Act. The proposed rule
imposes no burden beyond the burdens
clearly imposed and contemplated by
the Act.
C. Board’s Statement on Comments on
the Proposed Rule Received From
Members, Participants or Others
The Board released the proposed rule
amendment for public comment in
Release No. 2008–007 (December 4,
2008). A copy of Release No. 2008–007
and the comment letters received in
response to the PCAOB’s request for
comment are available on the PCAOB’s
Web site at https://www.pcaobus.org/
Rules/Docket_027. The Board received
twenty-four written comment letters.
The Board has carefully considered the
comment letters, as discussed below.
Several commenters suggested that
the Board exercise its authority under
Section 106 of the Act to exempt firms
that cannot cooperate with PCAOB
inspections due to legal conflicts or
sovereignty-based opposition from their
local governments. The Board believes
that it is not in the interests of investors
or the public to exempt non-U.S. firms
from the Act’s inspection requirement
given that the Board has previously
determined not to exempt non-U.S.
firms from the Act’s registration
requirements and given that an
inspection is the Board’s primary tool of
oversight.17
The Board also received several
comment letters addressing the length of
the proposed extension for certain firms
with 2009 deadlines. Some comment
letters expressed concern about the
inspection delay of up to three years but
ultimately expressed qualified support
for the Board’s decision. These
comments urged the Board to permit no
further delays and to proceed as
described above by sequencing the
inspection of firms subject to the
extension based on certain thresholds
relating to the U.S. market capitalization
of firms’ issuer audit clients. Some
comments also suggested that the Board
should utilize the additional time
provided by the proposed extension to
17 When it first became operational, the Board
considered whether to exempt non-U.S. firms from
registration with the Board. The Board determined
that exempting non-U.S. firms would not protect
the interests of investors or further the public
interest given that registration is the predicate to all
of the Board’s other oversight programs. See
Registration System for Public Accounting Firms,
PCAOB Release No. 2003–007 (May 6, 2003) at 13.
PO 00000
Frm 00071
Fmt 4703
Sfmt 4703
61725
enhance its international inspections
program, particularly in the areas of risk
assessment and pre-inspection
planning.
Other comment letters supported the
Board’s decision to extend the
inspection deadlines, but some qualified
their support by noting that three years
may not be enough time to overcome the
legal conflicts and sovereignty concerns
in all relevant jurisdictions. Several
comments expressed support for the
Board’s plan to sequence the deferred
inspections in time based on the U.S.
market capitalization of the firms’
clients, but some also noted that this
plan did not adequately take into
account the varying degree of legal
conflicts present in the different
jurisdictions and might have the effect
of requiring early on during the three
year period the inspection of firms in
jurisdictions with legal obstacles that
cannot be overcome quickly.
As explained above, the Board
believes that an extension of up to three
years for the relevant firms is the
appropriate course. Distributing the
affected firms across three years strikes
the proper balance between avoiding
unnecessary delays in the inspection of
registered firms and allowing reasonable
time for the Board to continue its efforts
to reach cooperative arrangements with
the relevant home-country regulators.
The Board believes that any longer or
further extension would not be in the
interests of investors or the public.
III. Date of Effectiveness of the
Proposed Rule and Timing for
Commission Action
Within 60 days of the date of
publication of this notice in the Federal
Register or within such longer period as
(i) the Commission may designate up to
90 days of such date if it finds such
longer period to be appropriate and
publishes its reasons for so finding or
(ii) as to which the Board consents, the
Commission will:
(A) By order approve such proposed
rule change, or
(B) Institute proceedings to determine
whether the proposed rule change
should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views and
arguments concerning the foregoing,
including whether the proposed rule
changes are consistent with the
requirements of Title I of the Act.
Comments may be submitted by any of
the following methods:
E:\FR\FM\25NON1.SGM
25NON1
61726
Federal Register / Vol. 74, No. 226 / Wednesday, November 25, 2009 / Notices
Electronic Comments
• Use the Commission’s Internet
comment form (https://www.sec.gov/
rules/pcaob.shtml); or
• Send an e-mail to rulecomments@sec.gov. Please include File
Number PCAOB–2009–01 on the subject
line.
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–61025; File No. SR–
NYSEArca–2009–102]
Self-Regulatory Organizations; Notice
of Filing and Immediate Effectiveness
of Proposed Rule Change by NYSE
Arca, Inc. Amending Rule 7.25
November 18, 2009.
Paper Comments
Pursuant to Section 19(b)(1) 1 of the
Securities Exchange Act of 1934 (the
‘‘Act’’) 2 and Rule 19b–4 thereunder,3
notice is hereby given that, on
November 6, 2009, NYSE Arca, Inc.
(‘‘NYSE Arca’’ or the ‘‘Exchange’’) filed
with the Securities and Exchange
All submissions should refer to File
Commission (the ‘‘Commission’’) the
Number PCAOB–2009–01. This file
proposed rule change as described in
number should be included on the
Items I, II, and III below, which Items
subject line if e-mail is used. To help the have been prepared by the selfCommission process and review your
regulatory organization. The
comments more efficiently, please use
Commission is publishing this notice to
only one method. The Commission will solicit comments on the proposed rule
post all comments on the Commission’s change from interested persons.
Internet Web site (https://www.sec.gov/
I. Self-Regulatory Organization’s
rules/pcaob/shtml). Copies of the
Statement of the Terms of Substance of
submission, all subsequent
the Proposed Rule Change
amendments, all written statements
The Exchange proposes to amend
with respect to the proposed rule
Rule 7.25 to remove the requirement
changes that are filed with the
that for each security in which a Market
Commission, and all written
Maker is registered as a Lead Market
communications relating to the
Maker, the Lead Market Maker also
proposed rule changes between the
register as an Odd Lot Dealer in that
Commission and any person, other than
security. The text of the proposed rule
those that may be withheld from the
change is available at the Exchange, the
public in accordance with the
Commission’s Public Reference Room,
provisions of 5 U.S.C. 552, will be
and https://www.nyse.com.
available for inspection and copying in
II. Self-Regulatory Organization’s
the Commission’s Public Reference
Statement of the Purpose of, and
Section, 100 F Street, NE., Washington,
Statutory Basis for, the Proposed Rule
DC 20549 on official business days
between the hours of 10 a.m. and 3 p.m. Change
In its filing with the Commission, the
Copies of such filing also will be
self-regulatory organization included
available for inspection and copying at
statements concerning the purpose of,
the principal office of the PCAOB. All
and basis for, the proposed rule change
comments received will be posted
without change; we do not edit personal and discussed any comments it received
on the proposed rule change. The text
identifying information from
of those statements may be examined at
submissions. You should submit only
the places specified in Item IV below.
information that you wish to make
The Exchange has prepared summaries,
available publicly. All submissions
set forth in sections A, B, and C below,
should refer to File Number PCAOB–
of the most significant parts of such
2009–01 and should be submitted on or
statements.
before December 16, 2009.
A. Self-Regulatory Organization’s
By the Commission.
Statement of the Purpose of, and the
Elizabeth M. Murphy,
Statutory Basis for, the Proposed Rule
Secretary.
Change
sroberts on DSKD5P82C1PROD with NOTICES
Send paper comments in triplicate to
Elizabeth M. Murphy, Secretary,
Securities and Exchange Commission,
100 F Street, NE., Washington, DC
20549–1090.
[FR Doc. E9–28239 Filed 11–24–09; 8:45 am]
BILLING CODE 8011–01–P
1. Purpose
The Exchange proposes to amend
Rule 7.25 to remove the requirement
1 15
U.S.C.78s(b)(1).
U.S.C. 78a.
3 17 CFR 240.19b–4.
2 15
VerDate Nov<24>2008
17:36 Nov 24, 2009
Jkt 220001
PO 00000
Frm 00072
Fmt 4703
Sfmt 4703
that for each security in which a Market
Maker is registered as a Lead Market
Maker (‘‘LMM’’), the LMM also register
as an Odd Lot Dealer (‘‘OLD’’) in that
security (the ‘‘LMM–OLD
requirement’’). Going forward, LMMs
may choose to register as an OLD, but
will not be required to do so.
The LMM–OLD requirement was
originally established in order to ensure
that a mechanism existed whereby the
Exchange could facilitate odd lot
executions for its primary listings that
could not otherwise be routed away to
another market center for execution.4
This historical concern no longer exists.
All orders in primary listings, whether
odd lot or round lot, are eligible for
routing to away market centers. Any
eligible unexecuted balance of odd lot
orders, like round lot orders, shall be
routed to away market centers for
execution pursuant to NYSE Arca
Equities Rule 7.37(d). Also, for purposes
of ranking and execution, round lot,
mixed lot and odd lot orders are treated
in the same manner on the NYSE Arca
Marketplace.5 As a result, it is no longer
necessary to require LMMs to register as
OLDs. Instead, as with all market
makers, LMMs may choose to register as
an OLD, but will not be required to do
so.
In addition, until recently, the
Exchange paid a $0.02 per share credit
to market makers that executed against
an odd lot order. This rebate
represented a higher than standard
rebate, and acted as an incentive for
market makers to register as OLDs.
However, the Exchange notes that as of
August 3, 2009, the Exchange
eliminated all distinct odd lot pricing
and now makes no distinction with
respect to the rates applied to odd lot
and round lot executions.6
The Exchange is not otherwise
altering any other rights or obligations
of LMMs.
2. Statutory Basis
The Exchange believes the proposed
rule change is consistent with and
furthers the objectives of Section 6(b)(5)
of the Act,7 in that it is designed to
promote just and equitable principles of
4 See Securities Exchange Act Release No. 52827
(November 23, 2005), 70 FR 72139 (December 1,
2005) (order approving SR–PCX–2005–56).
5 If there is an Odd Lot Dealer registered in the
security, the order shall be matched in the Odd Lot
Tracking Order Process pursuant to Rule 7.37(c). If
there is no Odd Lot Dealer registered in that
security, the odd lot will be routed away pursuant
to NYSE Arca Equities Rule 7.37(d).
6 See Securities Exchange Act Release No. 60495
(August 13, 2009), 74 FR 41957 (August 19, 2009)
(notice of filing and immediate effectiveness of SR–
NYSEArca–2009–72).
7 15 U.S.C. 78f(b)(5).
E:\FR\FM\25NON1.SGM
25NON1
]]>Agencies
[Federal Register Volume 74, Number 226 (Wednesday, November 25, 2009)]
[Notices]
[Pages 61722-61726]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E9-28239]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-61032; File No. PCAOB-2009-01]
Public Company Accounting Oversight Board; Notice of Filing of
Proposed Amendment to Board Rules Relating to Inspections
November 19, 2009.
Pursuant to Section 107(b) of the Sarbanes-Oxley Act of 2002 (the
``Act''), notice is hereby given that on July 2, 2009, the Public
Company Accounting Oversight Board (the ``Board'' or ``PCAOB'') filed
with the Securities and Exchange Commission (the ``SEC'' or
``Commission'') the proposed rule changes described in Items I, II, and
III below, which items have been prepared by the Board. The Commission
is publishing this notice to solicit comments on the proposed rule from
interested persons.
I. Board's Statement of the Terms of Substance of the Proposed Rule
On June 25, 2009, the Board adopted an amendment to its rule
relating to the
[[Page 61723]]
frequency of inspections. The proposed amendment adds a new paragraph
(g) to existing Rule 4003. The text of the proposed amendment is set
out below. Language added by the amendment is in italics.
Rule 4003. Frequency of Inspections
* * * * *
(g) With respect to any foreign registered public accounting firm
concerning which the preceding provisions of this Rule, other than
paragraphs (a) and (f), would set a 2009 deadline for the first Board
inspection and that is headquartered in a country in which no foreign
registered public accounting firm that the Board inspected before 2009
is headquartered, such deadline is extended to 2012, provided, however,
that from among the group of all such firms, the Board shall conduct
some first inspections in each of the years from 2009 to 2012,
scheduled according to such criteria as the Board shall publicly
announce.
II. Board's Statement of the Purpose of, and Statutory Basis for, the
Proposed Rule
In its filing with the Commission, the Board included statements
concerning the purpose of, and basis for, the proposed rule. The text
of these statements may be examined at the places specified in Item IV
below. The Board has prepared summaries, set forth in sections A, B,
and C below, of the most significant aspects of such statements.
A. Board's Statement of the Purpose of, and Statutory Basis for, the
Proposed Rule
(a) Purpose
The Sarbanes-Oxley Act of 2002 directs the Board to conduct a
continuing program of inspections to assess registered public
accounting firms' compliance with certain requirements.\1\ The Act
prescribes inspection frequency requirements but also authorizes the
Board to adjust the frequency requirements by rule if the Board finds
that an adjustment is consistent with the purposes of the Act, the
public interest, and the protection of investors.\2\ Inspection
frequency requirements adopted by the Board are set out in PCAOB Rule
4003, ``Frequency of Inspections.''
---------------------------------------------------------------------------
\1\ See Section 104(a) of the Act.
\2\ See Section 104(b) of the Act.
---------------------------------------------------------------------------
The Board began a regular cycle of inspections of U.S. firms in
2004 and has conducted 982 such inspections, including repeat
inspections of several firms. Inspections of non-U.S. firms began in
2005, and the Board has inspected 140 non-U.S. firms. Those firms are
located in 26 jurisdictions.\3\ There are, however, currently 68 non-
U.S. firms that, by virtue of when they first issued audit reports
after registering with the PCAOB, the Board is required to inspect for
the first time by the end of 2009.\4\ For the reasons described below,
the Board has adopted Rule 4003(g), which would affect the timing of a
subset of those 68 inspections. Specifically, Rule 4003(g) will give
the Board the ability to postpone, for up to three years, first
inspections that the Board is currently required to conduct before the
end of 2009 in jurisdictions where the Board conducted no inspections
before 2009. The amendment does not affect inspection frequency
requirements concerning any other first inspections, or concerning any
second or later inspections, of firms that issue audit reports for
issuers.\5\
---------------------------------------------------------------------------
\3\ The Board has inspected non-U.S. firms located in Argentina,
Australia, Bermuda, Brazil, Canada, Chile, Colombia, Greece, Hong
Kong, India, Indonesia, Ireland, Israel, Japan, Kazakhstan, Mexico,
New Zealand, Norway, Panama, Peru, the Russian Federation,
Singapore, South Africa, South Korea, Chinese-Taipei, and the United
Kingdom.
\4\ This discussion does not include, or apply to, 21 non-U.S.
firms whose first inspection deadline has been moved from 2008 to
2009 under Rule 4003(f).
\5\ Existing Rule 4003 effectively sets deadlines for the
Board's inspections not only of firms that issue audit reports, but
also of firms that play a substantial role in the preparation or
furnishing of an audit report (as defined in PCAOB Rule
1001(p)(ii)). The Board has previously submitted for Commission
approval amendments to Rules 4003(b) and 4003(d) that would
eliminate from the Rule any frequency requirement or deadline for
the Board to inspect a firm that plays a substantial role but does
not issue an audit report. Unless and until the Commission approves
such a rule change, however, the extension in proposed rule 4003(g)
would (if approved by the Commission) apply to required 2009 PCAOB
inspections of non-U.S. firms (in jurisdictions encompassed by the
rule's terms) that have played a substantial role as well as to
required 2009 inspections of non-U.S. firms that have issued audit
reports.
---------------------------------------------------------------------------
The PCAOB has recognized since the outset of its inspection program
that inspections of non-U.S. firms pose special issues.\6\ In its
oversight of non-U.S. firms, the Board seeks, to the extent reasonably
possible, to coordinate and cooperate with local authorities. Since
2003, when the PCAOB began operations, a number of jurisdictions have
also developed their own auditor oversight authorities with inspection
responsibilities or enhanced existing oversight systems.\7\ The Board
believes that it is in the interests of the public and investors for
the Board to develop efficient and effective cooperative arrangements
with its non-U.S. counterparts.\8\ In jurisdictions that have their own
inspection programs, this may include conducting joint inspections of
firms that are subject to both regulators' authority.
---------------------------------------------------------------------------
\6\ See Briefing Paper, Oversight of Non-U.S. Public Accounting
Firms (October 28, 2003) (hereinafter ``Oversight of Non-U.S.
Firms''); Final Rules Relating to the Oversight of Non-U.S. Public
Accounting Firms, PCAOB Release No. 2004-005 (June 9, 2004).
\7\ In 2006, for instance, the European Union enacted a
directive requiring the creation of an effective system of public
oversight for statutory auditors and audit firms within each Member
State. See The Directive 2006/43/EC of the European Parliament and
the Council (May 17, 2006) (the ``Eighth Directive''). In addition,
among others, Canada created the Canadian Public Accountability
Board, and in Australia, the responsibilities of the Australian
Securities and Investments Commission were expanded to include
auditor oversight. In Asia, Japan established the Certified Public
Accountants and Auditing Oversight Board, South Korea delegated
responsibility for auditor oversight to its Financial Supervisory
Service, and Singapore established the Accounting and Corporate
Regulatory Authority.
\8\ See Oversight of Non-U.S. Firms at 2-3.
---------------------------------------------------------------------------
Indeed, the Board has a specific framework for working
cooperatively with its non-U.S. counterparts to conduct joint
inspections and, to the extent deemed appropriate by the Board in any
particular case, relying on inspection work performed by that
counterpart.\9\ PCAOB Rule 4011 permits non-U.S. firms that are subject
to Board inspection to formally request that the Board, in conducting
its inspection, rely on a non-U.S. inspection to the extent deemed
appropriate by the Board. If a Rule 4011 request is made, Rule 4012
provides that the Board will, at an appropriate time before each
inspection of the firm, determine the degree, if any, to which the
Board may rely on the non-U.S. inspection. Rule 4012 describes aspects
of the non-U.S. system that the Board will evaluate in making that
determination. Even where the Board does not work with a local
regulator to conduct joint inspections, the Board communicates with its
counterpart or other local authorities (such as securities regulators
or other government agencies and ministries) regarding its inspections
to be conducted in the jurisdiction.
---------------------------------------------------------------------------
\9\ See PCAOB Rules 4011 and 4012; see also Oversight of Non-
U.S. Firms at 2-3.
---------------------------------------------------------------------------
In some jurisdictions, the PCAOB's ability to conduct inspections,
either by itself or jointly with a local regulator, is complicated by
the concerns of local authorities about potential legal obstacles and
sovereignty issues. The Board seeks to work with the home-country
authorities to try to resolve these and any other concerns.\10\
---------------------------------------------------------------------------
\10\ See Oversight of Non-U.S. Firms at 3.
---------------------------------------------------------------------------
The effort involved in attempting to resolve potential conflicts of
law, or to evaluate a non-U.S. system in response to a Rule 4011
request, can be
[[Page 61724]]
substantial. The effort typically involves negotiating the principles
of an arrangement for cooperation consistent with the inspection
obligations that the Act imposes on the Board. It also involves the
Board gaining a detailed understanding of the other jurisdiction's
auditor oversight system in order for the Board to determine the degree
of reliance it is willing to place on inspection work performed under
that system in a particular inspection year.
Additional effort is involved in coordinating the scheduling of
specific inspections. Where possible, the Board seeks to conduct
inspections jointly with local authorities both to take advantage of
potential efficiencies and to avoid imposing unnecessary regulatory
burdens on firms. Like the PCAOB, several of these other authorities
proceed according to inspection frequency requirements. While some of
the Board's counterparts are established and have inspection programs,
many have only recently begun inspections or are still building up
their inspections resources. As a result, synchronizing the inspections
schedules of these authorities and the PCAOB's requirements is
sometimes difficult.
Notwithstanding these challenges, the Board has so far conducted
140 non-U.S. inspections. Moreover, 61 of those inspections, in six
jurisdictions, have been conducted jointly with other auditor oversight
authorities, while inspections in 20 jurisdictions have been conducted
solely by the PCAOB.\11\
---------------------------------------------------------------------------
\11\ Joint inspections have been conducted in Australia, Canada,
South Korea, Norway, Singapore and the United Kingdom.
---------------------------------------------------------------------------
As noted above, under existing Rule 4003, there are 68 non-U.S.
firms that, by virtue of when they first issued audit reports after
registering with the PCAOB, the Board is required to inspect for the
first time by the end of 2009. Those firms are located in 36
jurisdictions, including several jurisdictions in which the Board has
already conducted first inspections of other firms. Of those firms, 49
are located in 24 jurisdictions where the Board has not conducted any
inspections to date. Most of those 24 jurisdictions have or soon will
have a local auditor oversight authority with which the Board would
seek to work toward cooperative arrangements before conducting
inspections. Because of the steps involved in concluding such
arrangements and to evaluate the local system, the Board has concerns
about proceeding as if that work can be completed for all of the
jurisdictions in which the PCAOB has not previously conducted
inspections in time to conduct the required inspections by the end of
2009.
Accordingly, the Board is adopting a new paragraph (g) to Rule 4003
to allow the Board to postpone, for up to three years, the first
inspection of any non-U.S. firm that the Board is currently required to
conduct by the end of 2009 and that is in a jurisdiction where the
Board has not conducted an inspection before 2009.
In determining the schedule for completion of the inspections
subject to new paragraph (g), the Board will implement its proposal to
sequence these 49 inspections such that certain minimum thresholds will
be satisfied in each of the years from 2009 to 2012. The minimum
thresholds relate to U.S. market capitalization of firms' issuer audit
clients. The Board will begin by ranking the 49 firms according to the
total U.S. market capitalization of a firm's foreign private issuer
audit clients.\12\ Working from the top of the list (highest U.S.
market capitalization total) down, the 49 firms will be distributed
over 2009 to 2012 such that, at a minimum, the following criteria are
satisfied:
---------------------------------------------------------------------------
\12\ For purposes of the ranking described here, the Board will
use the average monthly market capitalization on which each issuer's
share of the Board's 2008 accounting support fee was based. Thus,
the market capitalization figure used for the ranking does not
include the value of any referred work performed by the firm.
---------------------------------------------------------------------------
By the end of 2009, the Board will inspect firms whose
combined issuer audit clients' U.S. market capitalization constitutes
at least 35 percent of the aggregate U.S. market capitalization of the
audit clients of all 49 firms;
By the end of 2010, the Board will inspect firms whose
combined issuer audit clients' U.S. market capitalization constitutes
at least 90 percent of that aggregate;
By the end of 2011, the Board will inspect firms whose
combined issuer audit clients' U.S. market capitalization constitutes
at least 99.9 percent of that aggregate; and
The Board will inspect the remaining firms in 2012.\13\
---------------------------------------------------------------------------
\13\ Under existing provisions of Rule 4003 that are not
affected by this amendment, 2012 would also be the deadline for the
Board to conduct the second inspection of those of the 49 firms
whose first inspection occurs in 2009.
---------------------------------------------------------------------------
In addition to meeting those market capitalization thresholds, the
Board also will satisfy certain criteria concerning the number of those
49 firms that will be inspected in each year. Specifically, the Board
will conduct at least four of the 49 inspections in 2009, at least 11
more in 2010, and at least 14 more in 2011.\14\
---------------------------------------------------------------------------
\14\ The issuer audit client U.S. market capitalization
currently associated with a significant number of the 49 firms is
relatively low, and even zero in a number of cases where firms
appear to have stopped issuing audit reports for issuers. As a
result, approximately 92% of the relevant issuer market
capitalization is associated with 15 of the 49 firms.
---------------------------------------------------------------------------
It is important to note that the distribution described above will
not operate to prevent an inspection from occurring earlier than called
for by the schedule. Any inspection may be moved to an earlier year for
a variety of reasons, such as the presence of risk factors (including
risk factors relating to referred work \15\ that the firm performs on
audits for which it is not the principal auditor), synchronization of
schedules with a local regulator for purposes of a joint inspection, or
simply the opportunity and the availability of resources to do an
inspection earlier (including availability of inspectors with
specialized industry knowledge and relevant language skills). In
addition, the Board will at least annually review updated market
capitalization data and consider whether there have been any changes
that warrant moving a particular inspection forward to an earlier year.
---------------------------------------------------------------------------
\15\ Because the PCAOB is still in the process of gathering
information about each firm's referred work, the 2009 inspections
will not use referred work as a risk factor for purposes of
scheduling.
---------------------------------------------------------------------------
Conversely, the Board does not intend to make changes that would
move an inspection of one of these 49 firms to a later year than in the
initial distribution except as the result of a development relating to
the market capitalization of the firm's issuer clients. Specifically,
if a firm's issuer audit client market capitalization drops
significantly and the firm performs no significant amount of referred
work on audits, its inspection might be delayed to a later year. In any
event, the Board will not, for any reason, move one of these 49
inspections to a later year than in the initial distribution without
publicly describing the change and the reason for it.
In the Board's view, this adjustment to the inspection frequency
requirement is consistent with the purposes of the Act, the public
interest, and the protection of investors. The Board believes that its
approach to implementing Rules 4011 and 4012, developing cooperative
arrangements, and conducting joint inspections with foreign regulators
is enhancing the Board's efforts to carry out its inspection
responsibilities. There is long-term value in accepting a limited delay
in inspections to continue working toward
[[Page 61725]]
cooperative arrangements where it appears reasonably possible to reach
them. The Board also believes that the additional time to conduct
certain inspections will have the added benefit of giving the Board
more time to continue to enhance its inspection program, particularly
in the areas of risk assessment and pre-inspection planning, and the
Board intends to do so.
The Board recognizes that some non-U.S. firms may be reluctant to
comply with PCAOB inspection demands because of a concern that doing so
might violate local law or the sovereignty of their home country. The
Board believes that the purposes of the Act, the public interest, and
the protection of investors are better served, up to a point, by
delaying some of the first inspections to work toward a cooperative
resolution than by precipitating legal disputes involving conflicts
between U.S. and non-U.S. law that could arise if the Board sought to
enforce compliance with its preferred schedule without regard for the
concerns of non-U.S. authorities.
The Board does not intend, however, to make any further adjustments
to the inspection frequency requirements applicable to firms whose
first inspection was due no later than 2009. While the Board will
continue to work toward cooperation and coordination with authorities
in the relevant jurisdictions, the Board will make inspection demands
on the firms early enough in the year in which they are scheduled for
inspection according to the above described sequencing to allow the
Board to conduct the inspections during that year.\16\
---------------------------------------------------------------------------
\16\ Apart from the proposed rule amendment, the Board has
implemented certain practices to provide additional transparency
with regard to the Board's international inspections program. These
practices include (1) making a public announcement, near the
beginning of each year until 2012, identifying all non-U.S.
jurisdictions in which there are firms that the Board will inspect
that year, (2) maintaining a public list of all registered firms
that have not yet had their first Board inspection even though more
than four years have passed since the end of the calendar year in
which they first issued an audit report while registered with the
Board, and (3) making biannual public announcements of the Board's
progress toward meeting the thresholds described above with respect
to the number of firms to be inspected and the aggregate market
capitalization of firm clients. The Board also maintains on its Web
site a list of all jurisdictions in which there are registered firms
that the Board has inspected. Additional details concerning these
practices are provided in PCAOB Release No. 2009-003, available on
the Board's Web site at https://www.pcaobus.org/Rules/Docket_027.
---------------------------------------------------------------------------
(b) Statutory Basis
The statutory basis for the proposed rule is Title I of the Act.
B. Board's Statement on Burden on Competition
The Board does not believe that the proposed rule will result in
any burden on competition that is not necessary or appropriate in
furtherance of the purposes of the Act. The proposed rule imposes no
burden beyond the burdens clearly imposed and contemplated by the Act.
C. Board's Statement on Comments on the Proposed Rule Received From
Members, Participants or Others
The Board released the proposed rule amendment for public comment
in Release No. 2008-007 (December 4, 2008). A copy of Release No. 2008-
007 and the comment letters received in response to the PCAOB's request
for comment are available on the PCAOB's Web site at https://www.pcaobus.org/Rules/Docket_027. The Board received twenty-four
written comment letters. The Board has carefully considered the comment
letters, as discussed below.
Several commenters suggested that the Board exercise its authority
under Section 106 of the Act to exempt firms that cannot cooperate with
PCAOB inspections due to legal conflicts or sovereignty-based
opposition from their local governments. The Board believes that it is
not in the interests of investors or the public to exempt non-U.S.
firms from the Act's inspection requirement given that the Board has
previously determined not to exempt non-U.S. firms from the Act's
registration requirements and given that an inspection is the Board's
primary tool of oversight.\17\
---------------------------------------------------------------------------
\17\ When it first became operational, the Board considered
whether to exempt non-U.S. firms from registration with the Board.
The Board determined that exempting non-U.S. firms would not protect
the interests of investors or further the public interest given that
registration is the predicate to all of the Board's other oversight
programs. See Registration System for Public Accounting Firms, PCAOB
Release No. 2003-007 (May 6, 2003) at 13.
---------------------------------------------------------------------------
The Board also received several comment letters addressing the
length of the proposed extension for certain firms with 2009 deadlines.
Some comment letters expressed concern about the inspection delay of up
to three years but ultimately expressed qualified support for the
Board's decision. These comments urged the Board to permit no further
delays and to proceed as described above by sequencing the inspection
of firms subject to the extension based on certain thresholds relating
to the U.S. market capitalization of firms' issuer audit clients. Some
comments also suggested that the Board should utilize the additional
time provided by the proposed extension to enhance its international
inspections program, particularly in the areas of risk assessment and
pre-inspection planning.
Other comment letters supported the Board's decision to extend the
inspection deadlines, but some qualified their support by noting that
three years may not be enough time to overcome the legal conflicts and
sovereignty concerns in all relevant jurisdictions. Several comments
expressed support for the Board's plan to sequence the deferred
inspections in time based on the U.S. market capitalization of the
firms' clients, but some also noted that this plan did not adequately
take into account the varying degree of legal conflicts present in the
different jurisdictions and might have the effect of requiring early on
during the three year period the inspection of firms in jurisdictions
with legal obstacles that cannot be overcome quickly.
As explained above, the Board believes that an extension of up to
three years for the relevant firms is the appropriate course.
Distributing the affected firms across three years strikes the proper
balance between avoiding unnecessary delays in the inspection of
registered firms and allowing reasonable time for the Board to continue
its efforts to reach cooperative arrangements with the relevant home-
country regulators. The Board believes that any longer or further
extension would not be in the interests of investors or the public.
III. Date of Effectiveness of the Proposed Rule and Timing for
Commission Action
Within 60 days of the date of publication of this notice in the
Federal Register or within such longer period as (i) the Commission may
designate up to 90 days of such date if it finds such longer period to
be appropriate and publishes its reasons for so finding or (ii) as to
which the Board consents, the Commission will:
(A) By order approve such proposed rule change, or
(B) Institute proceedings to determine whether the proposed rule
change should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views and
arguments concerning the foregoing, including whether the proposed rule
changes are consistent with the requirements of Title I of the Act.
Comments may be submitted by any of the following methods:
[[Page 61726]]
Electronic Comments
Use the Commission's Internet comment form (https://www.sec.gov/rules/pcaob.shtml); or
Send an e-mail to rule-comments@sec.gov. Please include
File Number PCAOB-2009-01 on the subject line.
Paper Comments
Send paper comments in triplicate to Elizabeth M. Murphy,
Secretary, Securities and Exchange Commission, 100 F Street, NE.,
Washington, DC 20549-1090.
All submissions should refer to File Number PCAOB-2009-01. This file
number should be included on the subject line if e-mail is used. To
help the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's Internet Web site (https://www.sec.gov/rules/pcaob/shtml). Copies of the submission, all subsequent amendments, all
written statements with respect to the proposed rule changes that are
filed with the Commission, and all written communications relating to
the proposed rule changes between the Commission and any person, other
than those that may be withheld from the public in accordance with the
provisions of 5 U.S.C. 552, will be available for inspection and
copying in the Commission's Public Reference Section, 100 F Street,
NE., Washington, DC 20549 on official business days between the hours
of 10 a.m. and 3 p.m. Copies of such filing also will be available for
inspection and copying at the principal office of the PCAOB. All
comments received will be posted without change; we do not edit
personal identifying information from submissions. You should submit
only information that you wish to make available publicly. All
submissions should refer to File Number PCAOB-2009-01 and should be
submitted on or before December 16, 2009.
By the Commission.
Elizabeth M. Murphy,
Secretary.
[FR Doc. E9-28239 Filed 11-24-09; 8:45 am]
BILLING CODE 8011-01-P
