Amendments to the Informal and Other Procedures, Rules of Organization and Program Management, and Rules of Practice; Interim Commission Review of Public Company Accounting Oversight Board Inspection Reports and Regulation P, 47444-47451 [2010-18860]

Agencies

• SECURITIES AND EXCHANGE COMMISSION

[Federal Register Volume 75, Number 151 (Friday, August 6, 2010)]
[Rules and Regulations]
[Pages 47444-47451]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2010-18860]


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SECURITIES AND EXCHANGE COMMISSION

17 CFR Parts 200, 201 and 202

[Release No. 34-62575]


Amendments to the Informal and Other Procedures, Rules of 
Organization and Program Management, and Rules of Practice; Interim 
Commission Review of Public Company Accounting Oversight Board 
Inspection Reports and Regulation P

AGENCY: Securities and Exchange Commission.

ACTION: Final rule.

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SUMMARY: The Securities and Exchange Commission (``Commission'') is 
amending its Informal and Other Procedures to add a rule to facilitate 
interim Commission review of Public Company Accounting Oversight Board

[[Page 47445]]

(``PCAOB'') inspection reports under Section 104(h) of the Sarbanes-
Oxley Act of 2002 (the ``Act''), and its Rules of Organization and 
Program Management and Rules of Practice to delegate authority to the 
Chief Accountant related to these reviews. The Commission is also 
establishing a subpart in its Informal and Other Procedures--Regulation 
P--to include procedural rules relating to the PCAOB.

DATES: Effective Date: September 7, 2010.

FOR FURTHER INFORMATION CONTACT: Jeffrey Cohan (Senior Special Counsel) 
or John Offenbacher (Professional Accounting Fellow) at (202) 551-5300, 
Office of the Chief Accountant, Securities and Exchange Commission, 100 
F Street, NE., Washington, DC 20549-7561.

SUPPLEMENTARY INFORMATION: The Commission is amending: (1) Its Informal 
and Other Procedures \1\ to establish a new subpart (``Regulation 
P''),\2\ to establish a set of procedures to facilitate requests by 
registered public accounting firms for interim Commission review of 
PCAOB inspection reports (Sec.  202.140), and to redesignate existing 
Rule 12 (Sec.  202.11) as Rule 190 (Sec.  202.190); (2) its Rules of 
Organization and Program Management \3\ to provide delegations of 
authority to the Chief Accountant related to these reviews (Sec.  
200.30-11); and (3) its Rules of Practice \4\ to reflect the new 
delegations of authority (Sec.  201.430 and Sec.  201.431).
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    \1\ 17 CFR 202 et seq.
    \2\ 17 CFR 202 subpart 100.
    \3\ 17 CFR 200 et seq.
    \4\ 17 CFR 201 et seq.
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I. Discussion of Rule Amendments

A. Introduction

    The Act established the PCAOB to oversee the audit of companies 
that are subject to the securities laws, and related matters, in order 
to protect the interests of investors and further the public interest 
in the preparation of informative, accurate, and independent audit 
reports. The PCAOB operates under the comprehensive oversight and 
enforcement authority of the Commission.\5\
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    \5\ The Act vests the Commission with oversight duties and 
responsibilities, including the duties to appoint the members of the 
PCAOB, approve PCAOB rules and professional standards for them to 
take effect, act as an appellate authority for PCAOB enforcement 
actions, and approve the PCAOB's budget and annual accounting 
support fee. The Commission also, among other things, may amend 
existing PCAOB rules, assign additional tasks to the PCAOB as 
appropriate, oversee the PCAOB's exercise of certain assigned powers 
and duties, and limit the PCAOB's activities and remove PCAOB 
members. See, e.g., Title I of the Act [15 U.S.C. 7211-7219].
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    Consistent with that oversight, Section 104(h) of the Act provides 
for the opportunity of a registered public accounting firm to request 
interim Commission review with respect to PCAOB inspection reports. The 
Commission is adopting new rules to implement the Act's provisions 
relating to these interim review requests.

B. Background

    Section 104 of the Act requires the PCAOB to conduct a continuing 
program of inspections of each registered public accounting firm.\6\ 
That section of the Act directs the PCAOB to publish a written report 
of its findings for each inspection.\7\
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    \6\ See Section 104(a) of the Act.
    \7\ See Section 104(g) of the Act.
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    As required by the Act, PCAOB rules provide that a registered 
public accounting firm may review and respond to a draft inspection 
report.\8\ However, when the PCAOB first publishes its report, no 
portions of the inspection report that deal with criticisms of, or 
potential defects in, the quality control systems of the firm under 
inspection shall be made public if those criticisms or defects are 
addressed by the firm, to the satisfaction of the PCAOB, not later than 
12 months after the date of the inspection report.\9\
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    \8\ See Section 104(f) of the Act and PCAOB Rule 4007.
    \9\ See Section 104(g)(2) of the Act.
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    Section 104 of the Act also provides that a registered public 
accounting firm may seek interim review by the Commission, pursuant to 
such rules as the Commission may promulgate, if the firm either:
    (1) Has responded to the substance of particular items in the 
PCAOB's draft inspection report and disagrees with the assessments 
contained in any final report prepared by the PCAOB following that 
response, or
    (2) Disagrees with the PCAOB's determination that quality control 
criticisms or defects identified in the inspection report have not been 
addressed to the satisfaction of the PCAOB within 12 months of the date 
of the inspection report.\10\
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    \10\ See Section 104(h)(1) of the Act.

The Act further provides that a firm may request any such review within 
30 days of the event that gives rise to the review.\11\ We believe 
implicit in the language of 104(h)(1) is that the firm may seek review 
both with respect to items to which the firm responded to the PCAOB in 
connection with a draft inspection report and disagrees with the 
assessments relating to those items contained in any final report, as 
well as any assessments contained in any final inspection report that 
was not contained in the draft inspection report provided to the firm 
with which the firm disagrees (e.g., items on which the firm did not 
have an opportunity to comment in connection with the draft report). 
New Rule 140, which we are adopting today, clarifies that these are 
separate reviewable matters.
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    \11\ See Section 104(h)(3) of the Act.
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    To implement Section 104 of the Act as to the PCAOB's basic 
inspection program, the Commission approved a set of rules proposed by 
the PCAOB.\12\ These rules provide that the PCAOB will make a draft 
inspection report available for review by the firm that is the subject 
of the report, and the firm may submit a written response to the draft 
report, which will become part of the inspection report.\13\ A separate 
PCAOB rule implements the Act's 12-month delay of publication of any 
portions of an inspection report that deal with criticisms of, or 
defects in, the inspected firm's quality control systems.\14\ During 
that 12-month period, the firm that is the subject of the report may 
submit evidence or otherwise demonstrate to the PCAOB that it has 
improved its quality control systems and remedied the defects in 
question. If the PCAOB determines that the firm has addressed the 
quality control defects and criticisms in the final report 
satisfactorily, the portion of the report that dealt with those defects 
and criticisms will not be made public.\15\
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    \12\ See PCAOB Rules 4000-4010, PCAOB Release No. 2003-19 
(October 7, 2003). The rules were approved by the Commission in 
Release No. 34-49787 (June 1, 2004).
    \13\ See PCAOB Rule 4007. See also Section 104(f) of the Act.
    \14\ See PCAOB Rule 4009.
    \15\ See Section 104(g)(2) of the Act.
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    On the other hand, if the inspected firm has failed to address 
those defects and criticisms to the satisfaction of the PCAOB within 
the 12-month period mandated by Sections 104(g) and (h) of the Act, the 
PCAOB will take one of the following actions:
    (1) If the inspected firm failed to make any submission to the 
PCAOB concerning the firm's efforts to address the quality control 
defects or criticisms, the PCAOB will make those portions of the report 
public upon expiration of the 12-month period;
    (2) If the firm made a submission to the PCAOB concerning the 
firm's efforts to address the quality control defects or criticisms, 
but did not seek timely interim Commission review of an adverse PCAOB 
determination concerning those defects or criticisms,

[[Page 47446]]

the PCAOB will make public those portions of the report that deal with 
criticisms of or potential defects in quality control systems that the 
firm has not addressed to the satisfaction of the Board upon expiration 
of a 30-day period during which the firm may seek Commission review; or
    (3) If the inspected firm made a timely request for interim 
Commission review, the PCAOB will make public those portions of the 
report that deal with criticisms of or potential defects in quality 
control systems that the firm has not addressed to the satisfaction of 
the Board 30 days after the firm formally requested interim Commission 
review, unless the Commission, by rule or order, directs otherwise.\16\
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    \16\ See PCAOB Rule 4009(d).
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C. Rule Amendments

    We are adopting new Rule 140 to provide procedures for firms to 
follow in requesting interim Commission review with respect to a PCAOB 
inspection report, including examples of the types of information that 
would facilitate the Commission's review. Consistent with the time 
periods in the Act, the rule specifies that a request for interim 
Commission review must be submitted to the Commission's Office of the 
Secretary, with a copy to the PCAOB, within 30 days following either 
the date the firm is provided a copy of the final inspection report 
(with respect to a review sought pursuant to Section 104(h)(1)(A) of 
the Act), or the date the firm receives notice of the PCAOB's adverse 
determination with respect to remediation of quality control defects or 
criticisms (with respect to a review sought pursuant to Section 
104(h)(1)(B) of the Act).\17\
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    \17\ Time periods for purposes of Rule 140 shall be computed as 
provided in Rule 160 of the Commission's Rules of Practice. 17 CFR 
201.160.
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    The review request should be marked ``Request for Interim 
Commission Review with Respect to PCAOB Inspection Report.'' Firms 
seeking interim Commission review should submit, along with the review 
request, information that, to the extent possible, is focused on the 
specific matters for which review is requested, and that clearly and 
succinctly addresses the issues raised by the PCAOB. Generally, we 
expect that this information would include, but may not necessarily be 
limited to:
     The particular inspection report that is the subject of 
the request,
     The specific assessments or determinations that are the 
subject of the request,
     The alleged errors or deficiencies in the assessments or 
determinations and the reasons they are believed to be in error or 
deficient,
     If the action relates to an adverse determination by the 
PCAOB with respect to remediation of quality control defects or 
criticisms, any actions the firm took to address criticisms or defects 
identified in the inspection report,\18\ and
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    \18\ A request with respect to Section 104(h)(1)(B) is limited 
to situations where the firm disagrees with a Board determination 
that criticisms or defects indentified in a previously issued 
inspection report have not been satisfactorily addressed. It is not 
an additional opportunity to seek review with respect to the 
original criticisms or defects themselves. If a firm disagrees with 
an original criticism or defect and wishes to request Commission 
review, the firm should initiate that request in accordance with 
Section 104(h)(1)(A) within 30 days of when the firm is originally 
provided a copy of the final inspection report.
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     Any supporting documentation relevant to the review 
including, but not limited to, any documents previously submitted to 
the PCAOB that the firm wishes the Commission to consider.
    The rule directs the firm to provide a copy of its review request 
to the PCAOB simultaneously with its submission to the Commission. This 
is consistent with directions throughout the new rule for the firm and 
the PCAOB to provide copies of the information they submit to the 
Commission to the other party simultaneous with their submission to the 
Commission to provide an opportunity for both parties to be informed of 
each other's respective positions.
    With respect to interim reviews contemplated by Section 
104(h)(1)(A) of the Act, PCAOB Rule 4008 is silent regarding whether a 
final inspection report would be made public before an inspected firm 
has an opportunity to review the final inspection report and determine 
whether to request interim Commission review. In order to prevent the 
release of any final report before the inspected firm has an 
opportunity to seek Commission review, the new rule provides that the 
PCAOB shall not make a final inspection report publicly available until 
the firm that is the subject of the report has had 30 calendar days in 
which to seek interim Commission review, unless the firm consents in 
writing to earlier publication of the report. As noted above, this is 
consistent with the provision in PCAOB Rule 4009 that delays 
publication of unresolved quality control defects or criticisms for 30 
calendar days in certain circumstances. New Rule 140 also provides for 
a similar delay of publication with respect to the possibility of a 
review request pursuant to Section 104(h)(1)(B) of the Act.
    We do not believe that matters potentially subject to interim 
Commission review should be subject to publication, absent consent by 
the firm, before the firm's time to seek that review has expired, and 
we see no sufficient reason to vary this result based on whether review 
would be pursuant to Section 104(h)(1)(A) of the Act or Section 
104(h)(1)(B) of the Act.\19\ We understand this procedure may require 
the PCAOB to adjust its processes to account for the 30-day period for 
a firm to request review before initial publication of the final 
inspection report. However, given the standard of review articulated 
below with respect to the Commission's processing of such reviews, as 
well as the fact that the Commission may decline to grant review 
requests, we do not believe providing for an initial stay of the 
publication of a final inspection report will result in needless delays 
or routine appeals simply to delay publication.
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    \19\ In particular, we believe this approach is consistent with 
Section 104(h) that an opportunity for interim Commission review is 
meant to precede publication. Further, we believe this approach is 
consistent with Section 104(g) of the Act, which provides that the 
final inspection report will be made available to the public 
``subject to'' the Section 104(h) review process, which itself is a 
logical extension of the statutory requirement for the PCAOB to 
provide for a procedure for review before publication in accordance 
with Section 104(f) of the Act.
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    New Rule 140 also provides that a timely review request by a firm 
will operate as an automatic stay of publication of the portions of the 
final inspection report that are the subject of the firm's review 
request (with respect to requests pursuant to Section 104(h)(1)(A) of 
the Act) or the portions of the inspection report that deal with 
criticism of or potential defects in the quality control systems of the 
firm that are the subject of the firm's review request (with respect to 
requests pursuant to Section 104(h)(1)(B) of the Act) unless the 
Commission determines otherwise, in its own discretion.
    At the end of the 30-day review request period, the PCAOB shall 
make publicly available any portions of the final inspection report 
that are not the subject of the firm's review request (with respect to 
Section 104(h)(1)(A) of the Act) or criticisms of or potential defects 
in the quality control systems of the firm that are not the subject of 
the firm's review request (with respect to Section 104(h)(1)(B) of the 
Act), unless the Commission otherwise determines that such a result 
would not be necessary or appropriate. This helps to ensure timely 
publication of the portions of the report that are not

[[Page 47447]]

subject to review. Further, if the firm fails to make a timely review 
request, the PCAOB shall make publicly available the final inspection 
report (with respect to Section 104(h)(1)(A) of the Act) or the 
portions of the inspection report that deal with criticism of or 
potential defects in the quality control systems of the firm (with 
respect to Section 104(h)(1)(B) of the Act).
    If a timely request for interim review with respect to an 
inspection report is made, the Commission will notify the firm and the 
PCAOB within 30 calendar days of the receipt of the request as to 
whether the Commission in its discretion will grant the request for 
interim review. We believe this provides an appropriate period of time 
to evaluate the initial review request while balancing the interest in 
timely publication of inspection determinations. In considering whether 
to grant a review request, among the factors that the Commission may 
consider are whether the review request makes a reasonable showing that 
review is appropriate or otherwise presents a concern. We do not intend 
to routinely grant review requests absent some indication of concern.
    If the Commission does not grant the review request, the stay of 
publication is terminated upon notification to the firm and the PCAOB. 
If the Commission notifies the firm and the PCAOB that the request for 
interim review has been granted, the stay of publication shall continue 
unless the Commission determines otherwise in its own discretion, or 
unless the firm consents in writing to the PCAOB, with a copy to the 
Commission to earlier publication.
    Rule 140 provides that where the Commission has notified the firm 
and the PCAOB that it is granting the request for an interim review, 
the PCAOB may submit responsive information or documents with the 
Commission, with a copy to the firm, within 15 calendar days of receipt 
of such notice. We believe this period of time should be reasonable 
given that the PCAOB drafted the final inspection report and considered 
the evidence for its decision.
    The Commission also may request additional information, and provide 
a period of up to seven calendar days to respond to such request, from 
the firm in question, the PCAOB, and any associated person of the firm. 
The Commission may grant the firm or the PCAOB a period of up to seven 
calendar days to respond to any information obtained. This period of 
time is selected to balance the interest for an opportunity to respond 
with the expediency needed to complete the review and, if applicable, 
have the underlying findings or determinations published. Likewise, if 
the firm or the PCAOB fails to respond timely to a request from the 
Commission, such failure may make it impossible for the Commission to 
complete its review and therefore could result in a determination 
adverse to the non-responsive party.\20\
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    \20\ Such failure on the part of the firm would include the 
failure of an ``associated person'' of a firm to respond.
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    The information provided by the firm, together with any additional 
information provided by the PCAOB or associated persons, provides a 
basis for Commission consideration of the review. Rule 140 provides 
that, based on this information, the Commission shall consider whether 
the PCAOB's assessments or determinations are arbitrary and capricious, 
or otherwise not consistent with the purposes of the Act.
    Congress did not prescribe a standard of review for PCAOB 
inspection reports in the Act. Therefore, in establishing this standard 
of review, the Commission is informed by the approach that the courts 
have generally taken in reviewing agency action in the absence of a 
statutorily prescribed standard of review.\21\ Further, an arbitrary 
and capricious standard of review creates an incentive for the firm to 
fully address and pursue areas of concern in the inspection report with 
the PCAOB, under its rules, prior to requesting review by the 
Commission.
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    \21\ See Alaska Department of Environmental Conservation v. 
Environmental Protection Agency, 540 U.S. 461, 496 (2004); see also 
5 U.S.C. 706(2)(A) (Administrative Procedure Act). Also, we note 
that this is the standard that the courts have utilized in reviewing 
Commission actions. See, e.g., Natural Resources Defense Council, 
Inc., et al. v. SEC, et al., 606 F.2d 1031, 1049 (DC Cir. 1979); 
Bradford Nat'l Clearing Corp. et al. v. SEC, 590 F.2d 1085, 1093 (DC 
Cir. 1978).
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    At the end of its review, the Commission shall inform the firm 
seeking review and the PCAOB in writing that the Commission:
    (1) Does not object to all or part of the PCAOB's assessments or 
determination and the stay of publication is terminated; or
    (2) Remands to the PCAOB with instructions that the stay of 
publication is permanent or that the PCAOB take such other actions as 
the Commission deems necessary or appropriate with respect to 
publication, including, but not limited to, revising the final 
inspection report or determinations before publication.
    To further encourage expediency in the review process, the rule 
provides that the review is to be completed and written notice provided 
to the firm and the PCAOB no more than 75 calendar days after 
notification to the firm and the PCAOB that the Commission is granting 
the request for an interim review, unless the Commission extends the 
period of review for good cause. The default 75-day period allows for 
the maximum 15-day period in the rule for the PCAOB to respond, an 
opportunity for the Commission to determine if additional information 
is needed, the ability, if appropriate, to have at least one request 
for additional information and an opportunity for the other party to 
respond (up to seven days under the rule each), and an opportunity for 
the Commission to review and complete the request.
    Consistent with the purpose of providing an opportunity for review 
before public disclosure of all or a portion of an inspection report by 
the PCAOB, Rule 140 provides that, unless otherwise determined by the 
Commission, the decision to grant or deny a review request and the 
results of the Commission's review shall be non-public, and the 
information or documents submitted, created, or obtained by the 
Commission or its staff in the course of the review shall be deemed 
non-public.\22\ Further Section 104(h)(2) provides that any decision of 
the Commission with respect to interim review under Section 104(h) is 
not subject to judicial review.\23\ Finally, again consistent with the 
limited purposes of review under Section 104(h), any action taken by 
the Commission relates solely to the publication of the relevant 
inspection report and does not imply that the firm is exonerated or 
that no action may ultimately result from the inspection or from an 
investigation by the Commission, the PCAOB, or any other party.
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    \22\ See also Section 105(b)(5) of the Act. Rule 140 also 
provides that nothing shall be construed to impair or limit the 
ability of any party to request confidential treatment under the 
Freedom of Information Act [15 U.S.C. 7215(b)(5)], or any other 
applicable law. Applicants may wish to consider whether seeking 
confidential treatment would be appropriate.
    \23\ 15 U.S.C. 7214(h)(2).
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D. Regulation P

    The Commission is establishing a separate subpart in the 
Commission's Informal and Other Procedures--Regulation P--to include 
procedural rules relating to the PCAOB in one central location. The 
intention is to designate Rules in Regulation P according to the 
Section of the Act to which they primarily relate. As such, the 
procedural rule regarding interim

[[Page 47448]]

inspection report reviews, which relates primarily to Section 104 of 
the Act, is being designated as Rule 140. In addition, the Commission 
is redesignating its existing procedural rule relating to the PCAOB 
budget process from Rule 11 to Rule 190 given the process relates 
primarily to Section 109 of the Act.

E. Delegation of Authority

    In connection with adopting Rule 140, the Commission also is 
adopting Rule 30-11 of our Rules of Organization and Program Management 
to delegate authority to the Commission's Chief Accountant to process 
interim reviews subject to Rule 140. Among other matters, the Chief 
Accountant is delegated authority to grant or deny requests for interim 
review, to extend the time periods for the PCAOB or the firm to respond 
under the rule, to request additional information in conjunction with 
the review, to make a determination with respect to the review, and to 
notify the PCAOB and the firm of the results of the review. This 
delegation of authority is intended to conserve Commission resources by 
permitting the Chief Accountant to fulfill the Commission's review 
requirements in a timely manner. Nevertheless, the staff may submit 
matters to the Commission for consideration, as it deems 
appropriate.\24\ Further, we expect that the Commission staff will 
process interim Commission reviews with respect to inspection reports 
as efficiently and expeditiously as possible to avoid any unnecessary 
delay in making the inspection report available to the public, as 
required by the Act.
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    \24\ The Commission may also review any action taken by 
delegated authority. See Section 4A(b) of the Exchange Act. The 
Commission is revising its Rules of Practice to reflect this new 
delegation of authority to the Chief Accountant. Consistent with 
Section 104(h)(2), the Commission is also revising its Rules of 
Practice to provide that actions taken by delegated authority with 
respect to Rule 140 are not subject to judicial review.
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II. Administrative Procedure Act, Regulatory Flexibility Act, and 
Paperwork Reduction Act

    The Commission finds, in accordance with Section 553(b)(3)(A) of 
the Administrative Procedure Act (``APA''),\25\ that this revision 
relates solely to agency organization, procedure, or practice. It is, 
therefore, not subject to the provisions of the APA requiring notice 
and opportunity for public comment.\26\ The Regulatory Flexibility 
Act,\27\ therefore, does not apply. Similarly, because these rules 
relate to ``agency organization, procedure or practice that does not 
substantially affect the rights or obligations of non-agency parties,'' 
analysis of major status under the Small Business Regulatory 
Enforcement Fairness Act is not required.\28\ The rules do not contain 
any collection of information requirements as defined by the Paperwork 
Reduction Act of 1995, as amended.\29\
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    \25\ 5 U.S.C. 553(b)(3)(A).
    \26\ In addition, we intend to apply these procedures to pending 
applications, without further delay.
    \27\ 5 U.S.C. 601 et seq.
    \28\ 5 U.S.C. 804(3)(C).
    \29\ 44 U.S.C. 3501 et seq.
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    The Commission intends, after the Commission's initial experience 
under the new procedures, to issue a notice of comment in the future so 
the Commission can consider any such comments, along with the 
Commission's initial experience, in order to determine whether changes 
in pursuit of enhancements or efficiencies would be warranted.

III. Consideration of the Costs and Benefits of the Rule Amendments

    We are sensitive to the costs and benefits imposed by our rules and 
amendments, and we have identified certain costs and benefits of these 
rules.
    The potential benefits of the rule amendments include clarification 
and increased transparency of the Commission's review and oversight 
procedures with respect to the PCAOB \30\ and the interim review 
procedures set forth in Rule 140, and the benefits of process: Notice, 
opportunity to be heard, efficiency, and fairness. Rule 140 establishes 
a set of procedures for registered public accounting firms to follow in 
requesting interim Commission review with respect to a PCAOB inspection 
report, as required by the Act. The rule benefits inspected firms by 
informing them of the procedures to follow in initiating the review 
process and obtaining Commission review with respect to inspection 
findings and determinations with which they disagree. Commission review 
with respect to the PCAOB's inspection reports would allow the 
Commission to protect the public interest in the quality of PCAOB 
reports. It could provide a further incentive for the PCAOB to exercise 
diligence in its inspection and remedial determination process, 
including encouraging the PCAOB to make determinations on the basis of 
reasoned support and sound analysis. The review procedure also benefits 
inspected firms by protecting against publication of inspection 
findings that the Commission ultimately may remand to the PCAOB for 
reconsideration.
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    \30\ In addition, organizing Commission procedural rules 
relating to the PCAOB in one subpart also will make locating such 
rules easier.
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    There also are potential costs of the rule. Firms involved in 
Commission review proceedings may incur additional costs beyond those 
already incurred in complying with PCAOB procedures for seeking review 
of the inspection report's findings at the PCAOB level. However, a 
request for interim review of a PCAOB inspection report by the 
Commission is optional. Thus, a registered public accounting firm would 
incur these costs only if it expected the benefits from the review 
process to justify the costs.
    The PCAOB also may incur additional costs as a result of the rule 
amendments, for example by adjusting its inspection process in 
anticipation of review requests and providing information to the 
Commission, especially at the Commission's request. The imposition of 
additional costs, beyond those already incurred by the PCAOB, could 
lead to higher accounting support fees assessed against issuers to 
cover the PCAOB's recoverable budget expenditure. To the extent the 
PCAOB has been publishing inspection reports before it has been 
feasible for firms to request interim review of findings, the public 
may experience a delay in publication from existing practice. However, 
to the extent those reports have included findings that would be 
remanded under Rule 140, providing an opportunity for those findings to 
be corrected may increase public confidence in the findings, including 
that the findings would not be further subject to change upon 
publication.

IV. Consideration of Impact on the Economy, Burden on Competition and 
Promotion of Efficiency, Competition and Capital Formation

    Section 23(a)(2) of the Exchange Act requires us, when adopting 
rules under the Exchange Act, to consider the impact on competition of 
any rule we adopt. The rule amendments are intended to provide 
additional guidance with respect to the Commission's oversight 
responsibilities under Sections 104 and 107 of the Sarbanes-Oxley Act. 
The rule amendments provide procedures for requesting Commission review 
with respect to inspection reports issued by the PCAOB.
    Section 3(f) of the Securities Exchange Act of 1934 \31\ requires 
us, when engaging in rulemaking that requires us to consider or 
determine whether an

[[Page 47449]]

action is necessary or in the public interest, to consider, in addition 
to the protection of investors, whether the action will promote 
competition and capital formation. We are not aware of any effect the 
rule amendments will have on competition, and capital formation. They 
are designed to enhance the transparency of the Commission's and the 
PCAOB's administrative practices, by facilitating the public's 
understanding of the Commission's oversight responsibilities with 
respect to PCAOB, and by promoting public confidence in the PCAOB's 
auditor oversight functions. The amendments may increase the efficiency 
of the PCAOB inspection process. Rule 140, which sets forth the 
administrative procedures relating to the Commission's review with 
respect to PCAOB inspection reports, applies to all registered public 
accounting firms that seek administrative review by the Commission. 
Therefore, the Commission does not expect the rules to have an anti-
competitive effect.
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    \31\ 15 U.S.C. 78c(f).
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V. Statutory Basis and Text of Rules

    The Commission is amending its Informal and Other Procedures under 
the authority set forth in Sections 3, 101(c)(5), 104, and 107 of the 
Act; and Sections 4A and 23 of the Exchange Act. The amendments to the 
Commission's Rules of Organization and Program Management and Rules of 
Practice are adopted pursuant to the authorities set forth therein.

List of Subjects

17 CFR Part 200

    Administrative practice and procedure, Authority delegations 
(Government agencies), Organization and functions (Government 
agencies).

17 CFR Part 201

    Administrative practice and procedure.

17 CFR Part 202

    Administrative practice and procedure, Securities.

Text of Amendments

0
For the reasons set out in the preamble, Title 17, Chapter II of the 
Code of Federal Regulations is amended as follows:

PART 200--ORGANIZATION; CONDUCT AND ETHICS; AND INFORMATION AND 
REQUESTS

0
1. The general authority citation for part 200 is revised to read as 
follows:

    Authority: 15 U.S.C. 77o, 77s, 77sss, 78d, 78d-1, 78d-2, 78w, 
78ll(d), 78mm, 80a-37, 80b-11, and 7201 et seq., unless otherwise 
noted.
* * * * *

0
2. Add Sec.  200.30-11 to read as follows:


Sec.  200.30-11  Delegation of authority to the Chief Accountant.

    Pursuant to the provisions of Pub. L. 101-181, 101 Stat. 1254, 1255 
(15 U.S.C. 78d-1, 78d-2), the Securities and Exchange Commission hereby 
delegates, until the Commission orders otherwise, the following 
functions to the Chief Accountant of the Commission, to be performed by 
him or her or under his or her direction by such person or persons as 
may be designated from time to time by the Chairman of the Commission:
    (a) In connection with Commission review of inspection reports of 
the Public Company Accounting Oversight Board (``PCAOB'') under 15 
U.S.C. 7214(h) and Sec.  202.140:
    (1) To grant or deny review requests and notify the firm and the 
PCAOB as to whether the Commission will grant the review request under 
Sec.  202.140(d);
    (2) To extend the time periods set forth in Sec.  202.140(e) within 
which the PCAOB, registered public accounting firm or an associated 
person may submit responsive information and documents in connection 
with a request for Commission review.
    (3) To request additional information pursuant to Sec.  202.140(e) 
relating to the PCAOB's assessments or determination under review from 
the PCAOB, the registered public accounting firm, or any associated 
person of the firm during the course of an interim review of an 
inspection report, and to grant the PCAOB, the firm or any associated 
person a period of up to seven calendar days to respond to any 
information obtained.
    (4) To consider requests for review of inspection reports and, 
based on such review, to not object to all or part of the assessments 
or determination of the PCAOB and terminate the stay of publication, or 
to remand to the PCAOB with instructions that the stay of publication 
is permanent or that the PCAOB take such other actions as he or she 
deems necessary or appropriate with respect to publication, including, 
but not limited to, revising the final inspection report or 
determinations before publication, and to provide the written notice 
communicating the same to the PCAOB and the registered public 
accounting firm, consistent with Sec.  202.140.
    (5) To determine that a timely review request by a firm will not 
operate as a stay of publication of those portions of the final 
inspection report or determinations described in Sec.  202.140(b) that 
are the subject of the firm's review request pursuant to Sec.  
202.140(c)(5), as well as to determine that publication of the 
remainder of the final inspection report or criticisms or defects in 
the quality control systems would not be necessary or appropriate 
pursuant to Sec.  202.140(c)(5).
    (6) To, in the event the Commission does grant a review request 
pursuant to Sec.  202.140, determine that the stay of publication shall 
not continue pursuant to Sec.  202.140(d).
    (7) To, in the event that the review pursuant to Sec.  202.140(e) 
has not been completed and a written notice has not been sent 75 
calendar days after notification to the firm and the PCAOB that it is 
granting the request for an interim review, grant an extension of time 
under the authority set forth in Sec.  202.140(e).
    (b) Notwithstanding anything in the foregoing, in any case in which 
the Chief Accountant believes it appropriate, he or she may submit the 
matter to the Commission.

PART 201--RULES OF PRACTICE

0
3. The authority citation for part 201 continues to read as follows:

    Authority: 15 U.S.C. 77s, 77sss, 78w, 78x, 79t, 80a-37 and 80b-
11; 5 U.S.C. 504(c)(1).
* * * * *

0
4. Section 201.430 is amended by adding a sentence to the end of 
paragraph (c) to read as follows:


Sec.  201.430  Appeal of actions made pursuant to delegated authority.

* * * * *
    (c) * * * Pursuant to 15 U.S.C. 7214(h)(2), any decision by the 
Commission pursuant to 200.30-11 shall not be reviewable under 15 
U.S.C. 78y and shall not be deemed `final agency action' for purposes 
of 5 U.S.C. 704.

PART 202--INFORMAL AND OTHER PROCEDURES

0
5. The general authority citation for part 202 is revised to read as 
follows:

    Authority: 15 U.S.C. 77s, 77t, 78d-1, 78u, 78w, 78ll(d), 79r, 
79t, 77sss, 77uuu, 80a-37, 80a-41, 80b-9, 80b-11, and 7201 et seq., 
unless otherwise noted.
* * * * *

0
6. Add subpart A to part 202 after Sec.  202.12 to read as follows:

[[Page 47450]]

Subpart A--Public Company Accounting Oversight Board (Regulation P)


Sec.  202.140  Interim Commission review of PCAOB inspection reports.

    (a) Definitions.
    (1) Board or PCAOB means the Public Company Accounting Oversight 
Board.
    (2) Registered public accounting firm or Firm shall have the 
meaning set forth in 15 U.S.C. 7201(a)(12).
    (3) Associated person means a person associated with the registered 
public accounting firm as defined in 15 U.S.C. 7201(a)(9).
    (b) Reviewable matters. A registered public accounting firm may 
request interim Commission review of an assessment or determination by 
the PCAOB contained in an inspection report prepared under 15 U.S.C. 
7214 and relating to that firm, if the firm:
    (1) Has provided the PCAOB with a response, pursuant to the rules 
of the PCAOB, to the substance of particular items in a draft 
inspection report and disagrees with the assessments relating to those 
items contained in any final inspection report prepared by the PCAOB 
following such response;
    (2) Disagrees with an assessment contained in any final inspection 
report that was not contained in the draft inspection report provided 
to the firm under 15 U.S.C. 7214(f) or the rules of the PCAOB; or
    (3) Disagrees with the determination of the PCAOB that criticisms 
or defects in the quality control systems of the firm that were 
identified in an inspection report, but not disclosed to the public, 
have not been addressed to the satisfaction of the PCAOB within 12 
months after the date of that inspection report.
    (c) Procedures for requesting interim Commission review.
    (1) A request for interim Commission review with respect to matters 
described in paragraph (b) of this section must be submitted to the 
Commission's Office of the Secretary within 30 calendar days of the 
following:
    (i) The date the firm is provided a copy of the final inspection 
report described in paragraph (b)(1) or (b)(2) of this section; or
    (ii) The date the firm receives notice of the PCAOB's determination 
described in paragraph (b)(3) of this section.
    (2) The PCAOB shall not make publicly available the final 
inspection report or criticisms or defects in the quality control 
systems of the firm subject to a determination described in paragraph 
(b) of this section, as applicable, during the 30-day period during 
which the firm may request interim Commission review, unless the firm 
consents in writing to earlier publication of the report.
    (3) A request for interim Commission review (``request'' or 
``submission'') must be marked ``Request for Interim Commission Review 
With Respect to PCAOB Inspection Report.'' The request must focus on 
the specific matters for which relief is requested and succinctly 
address the issues raised by the PCAOB. The request, to the extent 
possible, should include, for example:
    (i) A copy of the particular inspection report that is the subject 
of the request;
    (ii) The specific assessments or determinations that are the 
subject of the request;
    (iii) The alleged errors or deficiencies in the PCAOB's assessments 
or determination and the reasons for the firm's position;
    (iv) If the matter is being reviewed under paragraph (b)(3) of this 
section, any actions taken by the registered public accounting firm to 
address criticisms or defects identified in the inspection report; and
    (v) Any supporting documentation relevant to the review.
    (4) The firm must provide a copy of its review request to the PCAOB 
simultaneously with its submission to the Commission.
    (5) A timely review request by a firm will operate as a stay of 
publication of those portions of the final inspection report or 
criticisms or defects in the quality control systems of the firm 
subject to a determination described in paragraph (b) of this section, 
as applicable, that are the subject of the firm's review request, 
unless the Commission otherwise determines in its own discretion. Upon 
expiration of the 30-day period during which the firm may request 
interim Commission review, the PCAOB shall make publicly available the 
remainder of the final inspection report or criticisms or defects in 
the quality control systems of the firm that were indentified in an 
inspection report, as applicable, that are not the subject of the 
firm's review request, unless the Commission otherwise determines that 
such a result would not be necessary or appropriate.
    (6) If the firm fails to make a timely review request, pursuant to 
Section 104(g)(2) of the Act, the PCAOB shall make publicly available 
the final inspection report or criticisms or defects in the quality 
control systems of the firm that were indentified in an inspection 
report, as applicable.
    (d) Procedures for granting or denying the review request. Within 
30 calendar days of a timely review request, the Commission will notify 
the firm and the PCAOB as to whether the Commission will exercise its 
discretion to grant the request for an interim review. If the 
Commission does not grant the review request, the stay of publication 
is terminated upon notification to the firm and the PCAOB. If the 
Commission does grant the review request, the stay of publication shall 
continue unless the Commission determines otherwise in its own 
discretion, or unless the firm consents in writing to the PCAOB, with a 
copy to the Commission, to earlier publication.
    (e) Procedures where a review request has been granted.
    (1) Where the Commission has notified the firm and the PCAOB that 
it is granting the request for an interim review, the PCAOB may submit 
responsive information and documents with the Commission within 15 
calendar days of receipt of such notice. The PCAOB must provide a copy 
of such information and documents simultaneously to the firm.
    (2) During the course of the interim review, the Commission may 
request additional information relating to the PCAOB's assessments or 
determination under review, and provide a period of up to seven 
calendar days to respond to such request, from the PCAOB, the firm, and 
any associated person of the firm. The Commission may grant the firm or 
the PCAOB a period of up to seven calendar days to respond to any 
information obtained pursuant to this paragraph. The firm or the PCAOB, 
as applicable, shall provide simultaneously to the other party all 
information provided as a result of a request for additional 
information or responses thereto. The firm with which any associated 
person from whom information is requested shall provide simultaneously 
to the PCAOB all information provided as a result of a request for 
additional information or responses thereto. If the firm (including any 
associated person) or the PCAOB fails to respond timely to a request 
from the Commission, such failure may serve as the basis for the 
Commission to conclude its review and make a determination adverse to 
the non-responsive party.
    (3) The Commission, based on the information submitted by the firm, 
the PCAOB and any associated persons, shall consider whether the 
PCAOB's assessments or determination are arbitrary and capricious, or 
otherwise not consistent with the purposes of the Act.
    (4) At the conclusion of its review, the Commission shall inform 
the firm and the PCAOB in writing that the Commission:

[[Page 47451]]

    (i) Does not object to all or part of the assessments or 
determination of the PCAOB and the stay of publication is terminated; 
or
    (ii) Remands to the PCAOB with instructions that the stay of 
publication is permanent or that the PCAOB take such other actions as 
the Commission deems necessary or appropriate with respect to 
publication, including, but not limited to, revising the final 
inspection report or determinations before publication.
    (5) The review pursuant to this section shall be completed and a 
written notice pursuant to this section shall be sent no more than 75 
calendar days after notification to the firm and the PCAOB that the 
Commission is granting the request for an interim review, unless the 
Commission extends the period for good cause.
    (f) Treatment of review.
    (1) Time periods in this section shall be computed as provided in 
the Commission's Rules of Practice, 17 CFR 201.160.
    (2) Unless otherwise determined by the Commission, the decision to 
grant or deny a review request and the conclusions of the Commission's 
review shall be non-public, and the information or documents submitted, 
created, or obtained by the Commission or its staff in the course of 
the review shall be deemed non-public. Nothing in this rule shall be 
construed to impair or limit the ability of any party to request 
confidential treatment under the Freedom of Information Act, 15 U.S.C. 
7215(b)(5), or any other applicable law.
    (3) Pursuant to 15 U.S.C. 7214(h)(2), any decision of the 
Commission as a result of an interim review with respect to a PCAOB 
inspection report, including whether a request for review is granted or 
denied, shall not be reviewable under 15 U.S.C. 78y and shall not be 
deemed to be ``final agency action'' for purposes of 5 U.S.C. 704.
    (4) Any action taken by the Commission relates solely to the 
publication of the relevant inspection report and does not affect the 
ability of the Commission or PCAOB to take appropriate action.
    (g) Designation of address; Representation.
    (1) When a registered public accounting firm first submits a 
request for interim Commission review, or an associated person first 
submits information related to a request, the firm or associated person 
shall submit to the Commission, and keep current, an address at which 
any notice or other written communication furnished to the firm or 
associated person may be sent, a contact name and telephone number 
where the firm or associated person may be reached during business 
hours and, if represented, the representative's name, business address, 
and telephone number.
    (2) If the firm, PCAOB, or associated person will be represented by 
a representative, the initial submission of that person shall be 
accompanied by the notice of appearance required by Sec.  201.102(d). 
The other provisions of Sec.  201.102 with respect to representation 
before the Commission shall apply.


Sec.  202.11  [Redesignated as Sec.  202.190]

0
7. Redesignate Sec.  202.11 as Sec.  202.190 under Subpart A.

    Dated: July 26, 2010.

    By the Commission.
Elizabeth M. Murphy,
Secretary.
[FR Doc. 2010-18860 Filed 8-5-10; 8:45 am]
BILLING CODE 8010-01-P