Public Company Accounting Oversight Board; Notice of Filing of Proposed Rule on Board Determinations Under the Holding Foreign Companies Accountable Act, 53699-53718 [2021-21056]

Download as PDF Federal Register / Vol. 86, No. 185 / Tuesday, September 28, 2021 / Notices conclusions with respect to the proposed rule change. IV. Request for Written Comments The Commission requests that interested persons provide written submissions of their views, data, and arguments with respect to the issues identified above, as well as any other concerns they may have with the proposed rule change. In particular, the Commission invites the written views of interested persons concerning whether the proposed rule change is consistent with the Exchange Act and the rules thereunder. Although there do not appear to be any issues relevant to approval or disapproval that would be facilitated by an oral presentation of views, data, and arguments, the Commission will consider, pursuant to Rule 19b–4, any request for an opportunity to make an oral presentation.45 Interested persons are invited to submit written data, views, and arguments regarding whether the proposed rule change should be approved or disapproved by October 13, 2021. Any person who wishes to file a rebuttal to any other person’s submission must file that rebuttal by October 19, 2021. Comments may be submitted by any of the following methods: Electronic Comments • Use the Commission’s internet comment form (https://www.sec.gov/ rules/sro.shtml); or • Send an email to rule-comments@ sec.gov. Please include File Number SR– FINRA–2021–016 on the subject line. Paper Comments • Send paper comments in triplicate to Secretary, Securities and Exchange Commission, 100 F Street NE, Washington, DC 20549–1090. All submissions should refer to File Number SR- FINRA–2021–016. This file number should be included on the subject line if email 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 website (https://www.sec.gov/ 45 Section 19(b)(2) of the Exchange Act, as amended by the Securities Acts Amendments of 1975, Public Law 94–29, 89 Stat. 97 (1975), grants the Commission flexibility to determine what type of proceeding—either oral or notice and opportunity for written comments—is appropriate for consideration of a particular proposal by a selfregulatory organization. See Securities Acts Amendments of 1975, Report of the Senate Committee on Banking, Housing and Urban Affairs to Accompany S. 249, S. Rep. No. 75, 94th Cong., 1st Sess. 30 (1975). VerDate Sep<11>2014 16:35 Sep 27, 2021 Jkt 253001 rules/sro.shtml). Copies of the submission, all subsequent amendments, all written statements with respect to the proposed rule change that are filed with the Commission, and all written communications relating to the proposed rule change 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 website viewing and printing in the Commission’s Public Reference Room, 100 F Street NE, Washington, DC 20549, on official business days between the hours of 10:00 a.m. and 3:00 p.m. Copies of such filing also will be available for inspection and copying at the principal office of FINRA. All comments received will be posted without change. Persons submitting comments are cautioned that we do not redact or edit personal identifying information from comment submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File Number SR–FINRA–2021–016 and should be submitted on or before October 13, 2021. If comments are received, any rebuttal comments should be submitted on or before October 19, 2021. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.46 J. Matthew DeLesDernier, Assistant Secretary. [FR Doc. 2021–20970 Filed 9–27–21; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–93112; File No. PCAOB– 2021–01] Public Company Accounting Oversight Board; Notice of Filing of Proposed Rule on Board Determinations Under the Holding Foreign Companies Accountable Act September 23, 2021. Pursuant to Section 107(b) of the Sarbanes-Oxley Act of 2002 (the ‘‘Act’’), notice is hereby given that on September 23, 2021, the Public Company Accounting Oversight Board (the ‘‘Board’’ or ‘‘PCAOB’’) filed with the Securities and Exchange Commission (the ‘‘Commission’’ or ‘‘SEC’’) the proposed rule described in 46 17 CFR 200.30–3(a)(12); 17 CFR 200.30– 3(a)(57). PO 00000 Frm 00072 Fmt 4703 Sfmt 4703 53699 items I and II 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 September 22, 2021, the Board adopted PCAOB Rule 6100, Board Determinations Under the Holding Foreign Companies Accountable Act (the ‘‘proposed rule’’). The text of the proposed rule appears in Exhibit A to the SEC Filing Form 19b–4 and is available on the Board’s website at https://pcaobus.org/about/rulesrulemaking/rulemaking-dockets/docket048-proposed-rule-governing-boarddeterminations-under-holding-foreigncompanies-accountable-act and at the Commission’s Public Reference Room. 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 and discussed comments it received on 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, C, and D below, of the most significant aspects of such statements. In addition, the Board is requesting that the Commission determine that Section 103(a)(3)(C) of the Act does not apply to the proposed rule. The Board’s conclusion in this regard is set forth in Section D. A. Board’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule (a) Purpose The Act mandates that the Board inspect registered public accounting firms and investigate possible statutory, rule, and professional standards violations committed by those firms and their associated persons. That mandate applies with equal force to the Board’s oversight of registered firms in the United States and in foreign jurisdictions. Over the course of more than a decade, the Board has worked effectively with authorities in foreign jurisdictions to fulfill its mandate to oversee registered firms located outside the United States. With rare exceptions, foreign audit regulators have cooperated with the Board and allowed it to exercise its oversight authority as it relates to registered firms located within E:\FR\FM\28SEN1.SGM 28SEN1 53700 Federal Register / Vol. 86, No. 185 / Tuesday, September 28, 2021 / Notices their respective jurisdictions. The norms of international comity have guided those efforts and allowed the Board to work cooperatively across borders, to resolve conflicts of law, and to overcome other potential obstacles. The Board benefits greatly from cross-border cooperation with its international counterparts and has built constructive relationships that facilitate meaningful oversight. Authorities in a limited number of foreign jurisdictions, however, have taken positions that deny the Board the access it needs to conduct its mandated oversight activities. Recognizing the ongoing obstacles to Board inspections and investigations in certain foreign jurisdictions, Congress enacted the Holding Foreign Companies Accountable Act (‘‘HFCAA’’).1 The HFCAA requires that the Board determine whether it is unable to inspect or investigate completely registered public accounting firms located in a foreign jurisdiction because of a position taken by one or more authorities in that jurisdiction. The HFCAA, among other things, also mandates that, after the Board makes such a determination, the Commission shall require covered issuers 2 who retain such firms to make certain disclosures in their annual reports and, eventually, if certain conditions persist, shall prohibit trading in those issuers’ securities.3 Following public comment, the Board adopted the proposed rule, with some modifications after consideration of comments, to establish a framework for the Board to make its determinations under the HFCAA. The proposed rule establishes the manner of the Board’s determinations; the factors the Board will evaluate and the documents and information it will consider when assessing whether a determination is warranted; the form, public availability, effective date, and duration of such determinations; and the process by which the Board will reaffirm, modify, or vacate any such determinations. (b) Statutory Basis The statutory basis for the proposed rule is Title I of the Act. 1 Public Law 116–222, 134 Stat. 1063 (Dec. 18, 2020). 2 See HFCAA § 2(i)(1)(A), 15 U.S.C. 7214(i)(1)(A) (defining ‘‘covered issuer’’). An ‘‘issuer,’’ as that term is used here, is distinct from a ‘‘covered issuer,’’ and is defined in Section 2(a)(7) of the Act. 3 See generally Holding Foreign Companies Accountable Act Disclosure, SEC Exchange Act Release No. 91364 (Mar. 18, 2021). VerDate Sep<11>2014 16:35 Sep 27, 2021 Jkt 253001 B. Board’s Statement on Burden on Competition Not applicable. The Board’s consideration of the economic impacts of the proposed rule is discussed in Section D below. C. Board’s Statement on Comments on the Proposed Rule Received From Members, Participants or Others Rulemaking History On May 13, 2021, the Board proposed a new rule that would establish a framework for the Board’s determinations under the HFCAA.4 The Board received eight comments on the proposal from commenters across a range of affiliations.5 Commenters generally noted that the Board’s statutorily mandated oversight activities—including the Board inspections and investigations referenced in the HFCAA—promote audit quality and enhance the quality of financial reporting, which serve to protect investors and further the public interest. The proposed rule is informed by the comments received. The proposed rule also takes into account observations based on PCAOB oversight activities. Background The Board’s Oversight of Non-U.S. Registered Public Accounting Firms Through Board Inspections and Investigations Section 102 of the Act prohibits public accounting firms that are not registered with the Board from preparing or issuing, or from participating in the preparation or issuance of, audit reports with respect to issuers, brokers, or dealers.6 Implementing this prohibition, PCAOB Rule 2100, Registration Requirements for Public Accounting Firms, provides that each public accounting firm that prepares or issues an audit report with 4 See PCAOB Rel. No. 2021–001, Proposed Rule Governing Board Determinations Under the Holding Foreign Companies Accountable Act (May 13, 2021). 5 The comment letters on the proposal are available on the Board’s website in Rulemaking Docket No. 048, available at https://pcaobus.org/ about/rules-rulemaking/rulemaking-dockets/ docket-048-proposed-rule-governing-boarddeterminations-under-holding-foreign-companiesaccountable-act. During the comment period, Board members and staff discussed the proposal during a webinar for investors on international issues, a transcript of which also is available in Rulemaking Docket No. 048. 6 See Section 102(a) of the Act; see also Section 2(a)(7) of the Act & PCAOB Rule 1001(i)(iii) (defining ‘‘issuer’’); Section 110(3) of the Act & PCAOB Rule 1001(b)(iii) (defining ‘‘broker’’); Section 110(4) of the Act & PCAOB Rule 1001(d)(iii) (defining ‘‘dealer’’). PO 00000 Frm 00073 Fmt 4703 Sfmt 4703 respect to an issuer, broker, or dealer, or plays a substantial role in the preparation or furnishing of such a report, must be registered with the Board.7 These provisions apply equally to U.S. and non-U.S. public accounting firms. Section 106 of the Act provides that any non-U.S. public accounting firm that prepares or furnishes an audit report with respect to an issuer, broker, or dealer is subject to the Act and to the Board’s rules ‘‘in the same manner and to the same extent’’ as a U.S. public accounting firm.8 Therefore, non-U.S. firms issuing such reports must register with the Board. Section 106 of the Act further authorizes the Board to require non-U.S. firms that do not issue such reports but that play a substantial role in the preparation or furnishing of such reports to register with the Board,9 and the Board exercised that authority when it adopted Rule 2100.10 Thus, by virtue of Section 106 of the Act and Rule 2100, non-U.S. firms are subject to the same registration requirements as U.S. firms, and, once registered, they are subject to the same oversight as U.S. firms. This oversight includes Board inspections at mandated regular intervals and Board investigations. The Board’s Inspection Mandate The Act mandates that the Board administer a continuing program of inspections that assesses registered firms’ and their associated persons’ compliance with the Act, the rules of the Board, the rules of the Commission, and professional standards in connection with the performance of audits, the issuance of audit reports, and related matters involving issuers.11 7 See PCAOB Rule 2100; see also PCAOB Rule 1001(p)(ii) (defining ‘‘play a substantial role in the preparation or furnishing of an audit report’’). 8 Section 106(a)(1) of the Act. 9 See Section 106(a)(2) of the Act. 10 See PCAOB Rule 2100. Section 106(c) of the Act allows the Board, subject to Commission approval, to exempt a non-U.S. firm or any class of such firms from any provision of the Act or the Board’s rules, upon a determination that doing so is necessary or appropriate in the public interest or for the protection of investors. In connection with the launch of its oversight system in 2003, the Board received numerous requests that non-U.S. firms be exempted from the Board’s oversight requirements, but the Board declined to adopt any such exemptions, finding such exemptions to be inconsistent with its mandate to protect investors. See, e.g., Registration System for Public Accounting Firms, PCAOB Rel. No. 2003–007, at 13, 17–20 (May 6, 2003); see also, e.g., Final Rule Concerning the Timing of Certain Inspections of Non-U.S. Firms, and Other Issues Relating to Inspections of Non-U.S. Firms, PCAOB Rel. No. 2009–003, at 9 n.23 (June 25, 2009). 11 See Section 104(a)(1) of the Act; see also Section 101(c)(3) of the Act; PCAOB Rule 4000(a), General. The Act also permits the Board to E:\FR\FM\28SEN1.SGM 28SEN1 Federal Register / Vol. 86, No. 185 / Tuesday, September 28, 2021 / Notices Board inspections are the Board’s ‘‘primary tool of oversight.’’ 12 In accordance with the Act, and as set forth in the Board’s rules, the Board periodically inspects the audits of registered public accounting firms.13 Board inspections must be performed annually with respect to each registered firm that regularly provides audit reports for more than 100 issuers, and at least triennially with respect to each registered firm that regularly provides audit reports for 100 or fewer issuers.14 The Board also may conduct special inspections on its own initiative or at the Commission’s request.15 During an inspection, the Board reviews audit engagements ‘‘selected by the Board.’’ 16 The Board also evaluates the sufficiency of the firm’s quality control system (and the documentation and communication of that system), and may perform other testing of the firm’s audit, supervisory, and quality control procedures as deemed necessary or appropriate in light of the purpose of the inspection and the responsibilities of the Board.17 To conduct an inspection, the Board must obtain documents and information from the firm and its associated persons, and when the Board requests such documents or information, registered firms and their associated persons must comply. In this regard, the Act provides that a firm’s cooperation in and establish, by rule, a program of inspection with respect to registered firms that provide one or more audit reports for a broker or dealer. See Section 104(a)(2) of the Act. The Board’s rules provide for an interim inspection program related to audits of brokers and dealers. See PCAOB Rule 4020T, Interim Inspection Program Related to Audits of Brokers and Dealers. 12 PCAOB Rel. No. 2009–003, at 8–9; see also Order Approving Proposed Amendment to Board Rules Relating to Inspections, SEC Exchange Act Release No. 61649, at 5 (Mar. 4, 2010) (observing that inspections are ‘‘the cornerstone of the Board’s regulatory oversight of audit firms’’). 13 See Section 104(a)(1) of the Act. Generally, a registered firm’s issuance of an audit report triggers a PCAOB inspection, subject to certain limited exceptions. See Section 104(b)(1) of the Act; PCAOB Rules 4003(a)–(b), Frequency of Inspections; see also PCAOB Rules 4003(c) & (e) (identifying certain circumstances in which the Board has discretion to forgo an inspection of a firm). Additionally, the Board conducts inspections of firms that have not issued an audit report with respect to an issuer but have played a substantial role in the preparation or furnishing of such a report. See PCAOB Rule 4003(h). 14 See Section 104(b)(1) of the Act; see also PCAOB Rules 4003(a)–(b). The Act provides that the Board, by rule, may adjust the annual and triennial inspection schedules if the Board finds that different schedules are consistent with the purposes of the Act, the public interest, and the protection of investors. See Section 104(b)(2) of the Act; see also PCAOB Rules 4003(d)–(g) (adjusting the inspection schedule in certain circumstances). 15 See Section 104(b)(2) of the Act. 16 Section 104(d)(1) of the Act. 17 See Sections 104(d)(2) and 104(d)(3) of the Act. VerDate Sep<11>2014 16:35 Sep 27, 2021 Jkt 253001 compliance with document requests made in furtherance of the Board’s authority and responsibilities under the Act are a condition to the continuing effectiveness of the firm’s registration with the Board.18 Furthermore, PCAOB Rule 4006, Duty to Cooperate With Inspectors, imposes on registered firms and their associated persons a duty to cooperate with PCAOB inspectors, which includes complying with requests for access to, and the ability to copy, any record in their possession, custody, or control, and with requests for information by oral interviews, written responses, or otherwise.19 The Board’s Investigation Mandate The Act also authorizes the Board to conduct investigations (and, relatedly, disciplinary proceedings) with respect to registered firms and their associated persons.20 The Board may investigate any act, practice, or omission to act by a registered firm or associated person that may violate the Act, the rules of the Board, the provisions of the securities laws relating to the preparation and issuance of audit reports and the obligations and liabilities of accountants with respect thereto, including the rules of the Commission issued under the Act, or professional standards, regardless of how the act, practice, or omission came to the Board’s attention.21 As with inspections, the Board’s ability to conduct investigations depends on the Board’s ability to obtain documents and information from registered firms and their associated 18 See Section 102(b)(3) of the Act. Section 102(b)(3)(A) of the Act specifies that each registration application shall contain ‘‘a consent executed by the . . . firm to cooperation in and compliance with any request for . . . documents made by the Board in the furtherance of its authority and responsibilities’’ under the Act. Section 102(b)(3)(B) of the Act, in turn, provides that each registration application shall contain a statement that the firm ‘‘understands and agrees that [such] cooperation and compliance . . . shall be a condition to the continuing effectiveness of the registration of the firm with the Board.’’ 19 See PCAOB Rule 4006; see also Gately & Assocs., LLC, SEC Exchange Act Release No. 62656, at 9 (Aug. 5, 2010) (‘‘The obligations under Rule 4006 are unequivocal, and apply to ‘any request[ ] made in furtherance of the Board’s authority and responsibilities. ’ ’’ (quoting Rule 4006)). Documents and information prepared or received by or specifically for the Board in connection with an inspection are confidential and privileged as an evidentiary matter, but the Board may share them with the Commission and, under certain circumstances, with the Attorney General of the United States, certain federal regulators, state attorneys general, certain state regulators, and certain self-regulatory organizations. See Section 105(b)(5)(B) of the Act. 20 See Section 101(c)(4) of the Act; see also Section 105(a) of the Act. 21 See Section 105(b)(1) of the Act. PO 00000 Frm 00074 Fmt 4703 Sfmt 4703 53701 persons. Pursuant to the Act,22 the Board has adopted rules under which the Board may (1) require testimony of a registered firm or an associated person thereof with respect to any matter that the Board considers relevant or material to an investigation; 23 (2) require production of audit work papers and any other document or information possessed by a registered firm or associated person, wherever domiciled, that the Board considers relevant or material to an investigation; 24 (3) inspect the books or records of a registered firm or associated person to verify the accuracy of any documents or information supplied; 25 (4) request the testimony of, or any document in the possession of, any other person that the Board considers relevant or material to an investigation, subject to certain limitations; 26 and (5) seek issuance by the Commission, in a manner established by the Commission, of a subpoena requiring the testimony of, or the production of any document in the possession of, any person that the Board considers relevant or material to an investigation.27 Pursuant to the Act, a firm’s cooperation in and compliance with requests for testimony and for the production of documents made in furtherance of the Board’s authority and responsibilities are a condition to the continuing effectiveness of the firm’s registration with the Board.28 Moreover, if a registered firm or associated person refuses to testify, produce documents, or otherwise cooperate with a Board investigation, the Board can impose sanctions, which may include suspending or revoking a firm’s registration and suspending or barring an individual from associating with a registered firm.29 As the Commission has observed, failing to cooperate in a 22 See Section 105(b)(2) of the Act. PCAOB Rule 5102, Testimony of Registered Public Accounting Firms and Associated Persons in Investigations. 24 See PCAOB Rule 5103, Demands for Production of Audit Workpapers and Other Documents from Registered Public Accounting Firms and Associated Persons. 25 See PCAOB Rule 5104, Examination of Books and Records in Aid of Investigations. 26 See PCAOB Rule 5105, Requests for Testimony or Production of Documents from Persons Not Associated with Registered Public Accounting Firms. 27 See PCAOB Rule 5111, Requests for Issuance of Commission Subpoenas in Aid of an Investigation. 28 See Section 102(b)(3) of the Act. 29 See Section 105(b)(3) of the Act; PCAOB Rule 5110, Noncooperation with an Investigation. 23 See E:\FR\FM\28SEN1.SGM 28SEN1 53702 Federal Register / Vol. 86, No. 185 / Tuesday, September 28, 2021 / Notices Board investigation is ‘‘very serious misconduct.’’ 30 The Act requires the Board to coordinate its investigations with the Commission. The Board must notify the Commission of any pending Board investigation that involves a potential violation of the securities laws, and must thereafter coordinate its work with the Commission’s Division of Enforcement as necessary to protect any ongoing Commission investigation.31 The Act also authorizes the Board to refer an investigation to the Commission, a self-regulatory organization, certain other federal regulators, and, at the Commission’s direction, certain attorneys general and state regulators.32 The Board’s Cooperative Framework for International Oversight The Board has long observed that certain aspects of its inspection and investigation mandates raise special concerns for non-U.S. firms, including potential conflicts with non-U.S. law.33 Acknowledging these challenges early on, the Board affirmed its commitment ‘‘to finding ways to accomplish the goals of the Act without subjecting nonU.S. firms to conflicting requirements.’’ 34 The Board then worked with its international counterparts where necessary or appropriate, based on norms of international comity, to develop arrangements and working practices to enable the Board and other audit regulators to achieve their respective mandates in a manner responsive to the potential conflicts of law that non-U.S. firms might confront.35 The Board’s 30 R.E. Bassie & Co., SEC Accounting and Auditing Enforcement Release No. 3354, at 11 (Jan. 10, 2012). 31 See Section 105(b)(4)(A) of the Act; see also PCAOB Rule 5112(a), Commission Notification of Order of Formal Investigation. Documents and information prepared or received by or specifically for the Board in connection with an investigation are confidential and privileged as an evidentiary matter, but the Board may share them with the Commission and, under certain circumstances, with the Attorney General of the United States, certain federal regulators, state attorneys general, certain state regulators, and certain self-regulatory organizations. See Section 105(b)(5)(B) of the Act. 32 See Section 105(b)(4)(B) of the Act; see also PCAOB Rule 5112(b), Board Referrals of Investigations; PCAOB Rule 5112(c), Commissiondirected Referrals of Investigations. 33 See, e.g., Proposed Rules Relating to the Oversight of Non-U.S. Public Accounting Firms, PCAOB Rel. No. 2003–024, at 3 (Dec. 10, 2003). 34 Inspection of Registered Public Accounting Firms, PCAOB Rel. No. 2003–019, at 5, A2–15–A2– 16 (Oct. 7, 2003). 35 See, e.g., Briefing Paper, Oversight of Non-U.S. Public Accounting Firms, PCAOB Rel. No. 2003– 020, at 1–2 (Oct. 28, 2003) (‘‘[T]he PCAOB seeks to become partners with its international counterparts in the oversight of the audit firms that operate in VerDate Sep<11>2014 16:35 Sep 27, 2021 Jkt 253001 cooperative approach to oversight of registered firms located outside the United States did not, however, entail any abandonment of the Board’s inspection or investigation mandates or any relinquishment of the Board’s statutory authority to obtain the documents and information it needs from non-U.S. firms in order to execute those mandates.36 When the Board adopted its cooperative framework for overseeing non-U.S. registered firms,37 it rejected calls to afford non-U.S. firms that elected to register with the Board a legal-conflict accommodation during inspections and investigations.38 In so doing, the Board reiterated that ‘‘[p]reserving the Board’s ability to access audit work papers and other documents or information maintained by registered public accounting firms, including non-U.S. registered public accounting firms, is critical to the Board carrying out its obligations under the Act.’’ 39 For that reason, the Board did not believe that it would be ‘‘in the interests of U.S. investors or the public for the Board to adopt a rule of general application that would limit its ability to access such documents or information regardless of the circumstances or need for those documents or information.’’ 40 The Commission approved the Board’s rules regarding oversight of nonU.S. firms, which embody the cooperative approach described above.41 The Commission observed that the PCAOB was discussing potential conflicts of law with foreign audit oversight bodies and encouraged the PCAOB to continue those discussions and to consider ways to work the global capital markets. . . . [A]n arrangement based on mutual cooperation with other high quality regulatory systems respects the cultural and legal differences of the regulatory regimes that exist around the world.’’); PCAOB Rel. No. 2003–024, at 8 (‘‘The Board also believes its [cooperative] arrangements may reduce potential conflicts of law . . . .’’). 36 PCAOB Rel. No. 2003–020, at 5 (‘‘The Board believes that it is appropriate that a cooperative approach respect the laws of other jurisdictions, to the extent possible. At the same time, every jurisdiction must be able to protect the participants in, and the integrity of, its capital markets as it deems necessary and appropriate.’’); accord Final Rules Relating to Oversight of Non-U.S. Firms, PCAOB Rel. No. 2004–005, at 3, A2–17 (June 9, 2004). 37 See generally PCAOB Rel. No. 2004–005. 38 See id. at A2–15–A2–16. 39 Id. at A2–16. 40 Id. at A2–16–A2–17. 41 See Order Approving Proposed Rules Relating to Oversight of Non-U.S. Registered Public Accounting Firms, SEC Exchange Act Release No. 34–50291, at 3 (Aug. 30, 2004). PO 00000 Frm 00075 Fmt 4703 Sfmt 4703 cooperatively with its international counterparts.42 Those discussions have continued, and nearly all have been fruitful. The Board’s oversight programs take into account the possibility that a non-U.S. firm’s obligations under the Act or the Board’s rules might conflict with nonU.S. law. The Board has established procedures that enable non-U.S. firms to assert legal conflicts during the registration and periodic reporting processes so that such firms are not prevented from completing a registration application or complying with periodic reporting requirements.43 The Board also seeks to coordinate and cooperate with its international counterparts when conducting inspections or investigations in other countries.44 Nevertheless, in all respects, the Board has made clear that its statutory authority to obtain the documents and information it needs to conduct inspections and investigations has not been relinquished, surrendered, forfeited, or otherwise vitiated.45 Resolution of Obstacles to Inspections and Investigations in Non-U.S. Jurisdictions The practices and approaches the Board has successfully developed with foreign regulators to resolve conflicts and to complete inspections and investigations under the Act can differ from jurisdiction to jurisdiction, but they all implement three core principles: 42 See id. at 3. Rule 2105, Conflicting Non-U.S. Laws, permits a non-U.S. firm to withhold required information from its registration application based on an asserted conflict with non-U.S. law. That rule allows the Board to treat a registration application as complete if the firm, among other things, submits a copy of the purportedly conflicting non-U.S. law and an accompanying legal opinion. But Rule 2105 does not provide a vehicle for resolving conflicts of law during registration, nor does it apply ‘‘to potential conflicts of law that may arise subsequent to registration.’’ PCAOB Rel. No. 2004–005, at A2– 16–A2–18; see also PCAOB Rule 2207, Assertions of Conflicts with Non-U.S. Laws (establishing a similar process for registered firms’ annual and special reports to the Board). 44 See, e.g., Rules on Periodic Reporting by Registered Public Accounting Firms, PCAOB Rel. No. 2008–004, at 32 (June 10, 2008). 45 See, e.g., id. at 41 (‘‘The Board has consistently maintained that, although it will seek to work cooperatively with and through non-U.S. regulators, and although it is willing to accommodate a nonU.S. firm’s reluctance (rooted in an asserted conflict of law) to provide the required written consent to cooperate, each firm ultimately has an obligation to cooperate with the Board to the extent that the Board requires cooperation. The Board does not view this statutory obligation as limited or qualified by non-U.S. legal restrictions.’’). 43 PCAOB E:\FR\FM\28SEN1.SGM 28SEN1 Federal Register / Vol. 86, No. 185 / Tuesday, September 28, 2021 / Notices (1) The Board must be able to conduct inspections and investigations consistent with its mandate; 46 (2) The Board must be able to select the audit work and potential violations to be examined; 47 and (3) The Board must have access to firm personnel, audit work papers, and other information and documents deemed relevant by Board staff.48 The Board has been able to accommodate the legal requirements of most non-U.S. jurisdictions without compromising on these three core principles, which the Board considers to be fundamental to its ability to inspect and investigate non-U.S. firms completely. Building collaborative working relationships with international counterparts based on these principles has taken considerable time and substantial effort, but the Board believes that ‘‘it is in the interests of the public and investors for the Board to develop efficient and effective cooperative 46 See, e.g., Section 104(a)(1) of the Act (requiring a ‘‘continuing program of inspections’’); Section 104(b)(1) of the Act (establishing inspection frequency requirements); Section 104(c) of the Act (requiring identification of non-compliant acts, practices, or omissions to act, and providing for reporting of such conduct to the Commission and appropriate state regulatory authorities, when appropriate); Section 105(b)(1) of the Act (authorizing Board investigations); Section 105(b)(3) of the Act (authorizing the imposition of sanctions for noncooperation with an investigation); Section 105(b)(4) of the Act (requiring coordination with the Commission’s Division of Enforcement and authorizing referrals of investigations in certain circumstances); Section 105(b)(5)(B)(i) of the Act (authorizing the Board to share with the Commission documents received in connection with an inspection or investigation). 47 See, e.g., Section 104(d)(1) of the Act (directing the Board to inspect and review audit and review engagements ‘‘as selected by the Board’’); Section 104(d)(3) of the Act (authorizing the Board to perform other testing of audit, supervisory, and quality control procedures as are necessary or appropriate in light of the purpose of the inspection and the responsibilities of the Board); Section 105(b)(1) of the Act (authorizing the Board to conduct an investigation of ‘‘any’’ act, practice, or omission to act by a registered firm or an associated person thereof that may violate ‘‘any’’ provision of the Act, the rules of the Board, the provisions of the securities laws relating to the preparation and issuance of audit reports and the obligations and liabilities of accountants with respect thereto, including the rules of the Commission under the Act, or professional standards). 48 See, e.g., Section 104(d)(1) of the Act (directing the Board to inspect and review audit and review engagements); Section 104(d)(2) of the Act (directing the Board to evaluate the sufficiency of a registered firm’s quality control system, including the manner of the documentation and communication of that system); Section 105(b)(2)(A)–(B) of the Act (authorizing the Board to require the testimony of, and the production of audit work papers and any other documents or information from, registered firms and their associated persons, wherever domiciled, and to inspect the books and records of such firm or associated person to verify the accuracy of any documents or information supplied). VerDate Sep<11>2014 16:35 Sep 27, 2021 Jkt 253001 arrangements with its non-U.S. counterparts.’’ 49 The Board now has extensive experience with cooperative arrangements that successfully resolve conflicts and allow the PCAOB and its international counterparts to satisfy their respective oversight mandates. Board Inspections of Non-U.S. Firms Inspections of non-U.S. firms began in 2005,50 and the Board quickly identified obstacles that required negotiation with its international counterparts. When a registered firm issuing audit reports for an issuer is located in a non-U.S. jurisdiction that has an auditor oversight authority of its own, the Board seeks to engage with that local regulator. The PCAOB conducts many inspections of non-U.S. firms jointly with local authorities, using approaches that take into consideration the laws and practices of the local jurisdiction. The Board also developed a specific regulatory framework for assessing the degree, if any, to which the Board may rely on the inspection work of the local regulator in an effort to reduce redundancy.51 Even where the Board conducts its own inspection rather than a joint inspection with a local auditor oversight authority, the Board may communicate with its international counterpart regarding the Board’s inspections in the jurisdiction.52 By December 2008, the Board had inspected non-U.S. firms in 24 jurisdictions.53 But the Board also observed that home-country legal obstacles and sovereignty concerns were impeding the Board’s ability to conduct inspections of some non-U.S. firms.54 Given these obstacles, the Board, in 2009, adjusted the schedule for its first inspections of non-U.S. firms in certain 53703 jurisdictions so that the Board could continue its efforts to reach cooperative arrangements with those firms’ homecountry regulators.55 In so doing, however, the Board expressly rejected the suggestion that it should exempt from inspection nonU.S. firms ‘‘that cannot cooperate with PCAOB inspections due to legal conflicts or sovereignty-based opposition from their local governments,’’ finding that exempting such firms from inspections is not in the interests of investors or the public.56 Instead, the Board reaffirmed the ultimate obligation of all registered firms, including non-U.S. firms, to be subject to inspection and to comply with the Board’s inspection-related requests.57 The Commission, in approving the Board’s extension of the deadline for the first inspections of certain non-U.S. firms, recognized that ‘‘the adjustment would provide additional time [for the Board] to continue discussions on outstanding matters and work towards cooperation and coordination with authorities in all relevant jurisdictions.’’ 58 And in connection with its approval of other adjustments to the inspection schedule of non-U.S. firms, the Commission stated that ‘‘the PCAOB should continue to work toward cooperative arrangements with the appropriate local auditor oversight authorities where it is reasonably likely that appropriate cooperative arrangements can be obtained.’’ 59 By the end of 2009, the Board had conducted inspections of non-U.S. firms in an additional nine jurisdictions, bringing the cumulative total to 33 jurisdictions.60 The Board, however, 55 See 49 PCAOB Rel. No. 2009–003, at 4–5. 50 See Rule Amendments Concerning the Timing of Certain Inspections of Non-U.S. Firms, and Other Issues Relating to Inspections of Non-U.S. Firms, PCAOB Rel. No. 2008–007, at 4 (Dec. 4, 2008). 51 See PCAOB Rel. No. 2009–003, at 5–6. NonU.S. firms may formally request that the Board rely on a non-U.S. inspection to the extent deemed appropriate by the Board, and the Board will examine certain factors to determine the degree, if any, to which the Board may rely on the non-U.S. inspection. See PCAOB Rule 4011, Statement by Foreign Registered Public Accounting Firms; PCAOB Rule 4012, Inspections of Foreign Registered Public Accounting Firms; PCAOB Rel. No. 2009–003, at 5. In contrast to an exemption, reliance on a non-U.S. inspection pursuant to Rule 4012 is a cooperative approach that can be used when efficient and appropriate. 52 See PCAOB Rel. No. 2009–003, at 5. 53 See PCAOB Rel. No. 2008–007, at 4 & n.9 (inspections had been conducted in Argentina, Australia, Bermuda, Brazil, Canada, Chile, Colombia, Greece, Hong Kong, India, Indonesia, Ireland, Israel, Japan, Kazakhstan, Mexico, New Zealand, Panama, Peru, Singapore, South Africa, South Korea, Taiwan, and the United Kingdom). 54 PCAOB Rel. No. 2009–003, at 5. PO 00000 Frm 00076 Fmt 4703 Sfmt 4703 id. at 9. id. at 8–9. 57 See id. at 13–14 (‘‘[F]irms must register with the Board in order to engage in certain professional activity directly related to, and affecting, U.S. financial markets, and all registered firms are subject to the Act and the rules of the Board irrespective of their location. A registered firm is subject to various requirements and conditions, including PCAOB Rule 4006’s requirement to cooperate in an inspection. In addition, as reflected in Section 102(b)(3) of the Act, a firm’s compliance with Board requests for information is a condition of the continuing effectiveness of the firm’s registration with the Board.’’). The Board also reiterated that it ‘‘does not view non-U.S. legal restrictions or the sovereignty concerns of local authorities as a sufficient defense in a Board disciplinary proceeding . . . for failing or refusing to provide information requested in an inspection.’’ Id. at 14; accord PCAOB Rel. No. 2008–007, at 16 n.35. 58 Order Approving Proposed Amendment to Board Rules Relating to Inspections, SEC Exchange Act Release No. 34–59991, at 3 (May 28, 2009). 59 Id. at 5. 60 See Jurisdictions in Which the PCAOB Has Conducted Inspections (as of Dec. 31, 2009) (Feb. 56 See E:\FR\FM\28SEN1.SGM Continued 28SEN1 53704 Federal Register / Vol. 86, No. 185 / Tuesday, September 28, 2021 / Notices was still prevented from inspecting registered firms in mainland China, Hong Kong (to the extent an audit encompassed a company’s operations in mainland China), Switzerland, and the European countries required to follow the European Union’s Directive on Statutory Auditors.61 The Board responded to these obstacles in several ways 62 and, since 2010, the Board has inspected non-U.S. firms in an additional 20 jurisdictions, bringing the total number of non-U.S. jurisdictions in which the PCAOB has conducted inspections to 53.63 Where 3, 2010), available at https://pcaobassets.azureedge.net/pcaob-dev/docs/defaultsource/inspections/documents/12-31_ jurisdictions.pdf?sfvrsn=2c09bd73_0 (adding Belize, Bolivia, Cayman Islands, Norway, Papua New Guinea, Philippines, Russia, Ukraine, and United Arab Emirates). 61 See PCAOB Publishes Updated Staff Guidance Related to Registration Process for Applicants from Certain Non-U.S. Jurisdictions (June 1, 2010), available at https://org/events/news-releases/newsrelease-detail/pcaob-publishes-updated-staffguidance-related-to-registration-process-forapplicants-from-certain-non-u-s-jurisdictions_289. 62 In 2009, the Board began publishing a list of registered firms whose first inspections were overdue, which identified the jurisdiction in which each firm was located. See PCAOB Rel. No. 2009– 003, at 10–11. In 2010, the Board expanded the publication to include a list of non-U.S. public companies with securities traded in U.S. markets that had retained a registered firm the Board could not inspect because of asserted restrictions based on non-U.S. law or objections on grounds of national sovereignty (the ‘‘Denied Access List’’). See PCAOB Publishes List of Issuer Audit Clients of Non-U.S. Registered Firms in Jurisdictions where the PCAOB is Denied Access To Conduct Inspections (May 18, 2010), available at https://pcaobus.org/newsevents/news-releases/news-release-detail/pcaobpublishes-list-of-issuer-audit-clients-of-non-u-sregistered-firms-in-jurisdictions-where-the-pcaob-isdenied-access-to-conduct-inspections_284 (‘‘The auditors of the issuers appearing on this list are located in [mainland] China, Hong Kong, Switzerland, and 18 European Union countries. The PCAOB continues to work to eliminate obstacles to inspections in these jurisdictions.’’). Also, in October 2010, the Board modified its approach to registration applications from firms in jurisdictions where there were unresolved obstacles to inspections, stating that ‘‘its consideration of new applications from firms in those jurisdictions will no longer be premised on an expectation that those obstacles will be resolved without undue delay to any necessary PCAOB inspection of the firm.’’ Consideration of Registration Applications From Public Accounting Firms in Non-U.S. Jurisdictions Where There Are Unresolved Obstacles to PCAOB Inspections, PCAOB Rel. No. 2010–007, at 2–3 (Oct. 7, 2010). A list of those jurisdictions is maintained on the PCAOB’s website. See Frequently Asked Questions Regarding Issues Relating to Non-U.S. Accounting Firms (Apr. 20, 2021), available at https://pcaobus.org/oversight/registration/non_us_ registration_faq (FAQ 6). 63 See Non-U.S. Jurisdictions Where the PCAOB has Conducted Oversight, available at https:// pcaobus.org/oversight/international/international/ pcaob-inspections-of-registered-non-u-s--firms (adding Austria, Bahamas, Denmark, Finland, France, Germany, Hungary, Italy, Jamaica, Luxembourg, Malaysia, Netherlands, Nicaragua, Nigeria, Pakistan, Spain, Sweden, Switzerland, Thailand, and Turkey). VerDate Sep<11>2014 16:35 Sep 27, 2021 Jkt 253001 needed, the Board enters into formal bilateral cooperative agreements with non-U.S. regulators, and has done so with authorities in 25 jurisdictions.64 The Board continues to publish its Denied Access List, which identifies the jurisdictions where the PCAOB cannot conduct inspections because foreign authorities have denied access, the auditors from those jurisdictions that issued audit reports filed with the Commission, and those auditors’ nonU.S. public company clients.65 The Board also still adheres to the registration approach it adopted in 2010 and maintains a public list of the jurisdictions whose applicants are subject to that approach.66 All told, more than 840 non-U.S. firms from more than 80 jurisdictions are registered with the Board. Over 200 of those firms, from more than 40 jurisdictions, are presently subject to PCAOB inspection on a triennial basis because they have chosen to audit issuers.67 As of the date of this release, as reflected on the Board’s website,68 the Board can conduct inspections everywhere it needs to do so except in mainland China and Hong Kong. Board Investigations of Non-U.S. Firms The Board has conducted numerous investigations in which it appeared that an act, practice, or omission to act by a 64 See PCAOB Cooperative Arrangements with Non-U.S. Regulators, available at https:// pcaobus.org//international/regulatorycooperation. Although a formal bilateral agreement is not necessarily a prerequisite to a PCAOB inspection in a non-U.S. jurisdiction, the PCAOB often enters into such agreements with foreign audit regulators to minimize administrative burdens and potential legal or other conflicts that non-U.S. firms might face in their home countries. 65 See Audit Reports Issued by PCAOB-Registered Firms in Jurisdictions where Authorities Deny Access to Conduct Inspections, available at https:// pcaobus.org/oversight/international/denied-accessto-inspections (identifying jurisdictions where the Board has been denied access to conduct inspections). 66 See Frequently Asked Questions Regarding Issues Relating to Non-U.S. Accounting Firms (Apr. 20, 2021), available at https://pcaobus.org/ oversight/registration/non_us_registration_faq (FAQ 6, identifying jurisdictions where obstacles to inspection exist). This list of jurisdictions is broader than the Denied Access List, because this list includes certain European jurisdictions where the Board presently does not need to conduct inspections because no registered firms in the jurisdiction are issuing audit reports, but where an agreement regarding inspections would need to be reached before any future inspections could take place. 67 Currently, there are no non-U.S. firms that the PCAOB is required by the Act to inspect on an annual basis. 68 See International, available at https:// pcaobus.org/oversight/international (providing a map showing where the Board currently is able to conduct oversight of registered firms and where the Board currently is denied the necessary access to conduct oversight activities). PO 00000 Frm 00077 Fmt 4703 Sfmt 4703 non-U.S. firm or its associated persons might have violated an applicable law, rule, or standard. In the course of those investigations, the Board has used a variety of tools, provided for in the Act and the Board’s rules, to access relevant documents and information. Using those tools, the Board has requested and obtained audit work papers and other documents and information from nonU.S. firms and associated persons, and has conducted interviews and testimony of non-U.S. firm personnel. In many of those instances, the Board coordinated its investigation with a nonU.S. regulator with which it had entered a bilateral cooperative arrangement. Those cooperative arrangements have allowed the Board and its international counterpart to communicate and share information, facilitating the Board’s access to the documents and information it needed to conduct the investigation. In some but not all circumstances, in parallel with the Board’s investigation, a non-U.S. regulator may conduct its own investigation of the same firm or associated persons for possible violations under the regulator’s laws and standards. Many of the Board’s investigations of non-U.S. firms or their associated persons remain confidential, because Board investigations are non-public and cannot be disclosed unless they have resulted in the imposition of disciplinary sanctions.69 The Board does, however, disclose its settled and adjudicated disciplinary orders imposing sanctions.70 To date, the Board has sanctioned more than 50 nonU.S. registered firms and more than 60 associated persons of such firms, from 24 non-U.S. jurisdictions.71 In addition to the investigations that resulted in the imposition of sanctions, the Board also has conducted investigations that did not result in sanctions in numerous other non-U.S. jurisdictions. Yet despite these results, the Board has been unable to complete some investigations of nonU.S. firms or their personnel because they refused to cooperate with an investigation based on a position taken 69 See Section 105(b)(5)(A) of the Act. the Board imposes sanctions, the Board’s disciplinary action is stayed if the respondent applies for Commission review of the Board’s order or if the Commission initiates such review on its own. In either situation, the Board’s sanctions remain stayed (and non-public) unless and until the Commission lifts the stay. See Section 105(e)(1) of the Act. After the stay is lifted, the Board’s order may be made public. See Section 105(d)(1)(C) of the Act. 71 See Enforcement Actions, available at https:// pcaobus.org/oversight/enforcement/enforcementactions. 70 When E:\FR\FM\28SEN1.SGM 28SEN1 Federal Register / Vol. 86, No. 185 / Tuesday, September 28, 2021 / Notices by non-U.S. authorities in their jurisdiction.72 The Holding Foreign Companies Accountable Act Against this backdrop, Congress enacted the HFCAA. The HFCAA, which amends Section 104 of the Act, calls for the Board to determine whether it is unable to inspect or investigate completely registered firms located in a foreign jurisdiction because of a position taken by an authority in that jurisdiction.73 The HFCAA, among other things, also mandates that after the Board makes such a determination, the Commission shall require covered issuers that retain firms subject to the Board’s determination to make certain disclosures in their annual reports and, eventually, if certain conditions persist, shall prohibit trading in those issuers’ securities.74 The Board’s determinations under the HFCAA supplement, rather than supplant, the Board’s other authorities under the Act. A registered firm’s cooperation in and compliance with Board requests during inspections and investigations continues to be a condition to the continuing effectiveness of its registration with the Board. Failure to cooperate with a Board inspection or investigation still can result in the imposition of disciplinary sanctions, including civil money penalties and revocation of the firm’s registration. Therefore, firms must consider their obligations to comply with PCAOB inspection and investigation demands when they choose to become and remain registered with the Board and when they accept or continue client engagements. Discussion of the Proposed Rule The HFCAA does not specify the procedure the Board should follow when making determinations. Nor does the HFCAA specify the content of the Board’s determinations; the manner in which any such determination should 72 See, e.g., Crowe Horwath (HK) CPA Limited, PCAOB Rel. No. 105–2017–031 (July 25, 2017) (noncooperation with a Board investigation based on positions taken by Chinese authorities); Kim Wilfred Ti, PCAOB Rel. No. 105–2016–004 (Jan. 12, 2016) (same); Derek Wan Tak Shing, PCAOB Rel. No. 105–2016–003 (Jan. 12, 2016) (same); Edith Lam Kar Bo, PCAOB Rel. No. 105–2016–002 (Jan. 12, 2016) (same); PKF [Hong Kong], PCAOB Rel. No. 105–2016–001 (Jan. 12, 2016) (same). 73 See HFCAA § 2(i)(2)(A), 15 U.S.C. 7214(i)(2)(A) (requiring that the Commission identify certain issuers that ‘‘retain[ ] a registered public accounting firm that has a branch or office that . . . is located in a foreign jurisdiction . . . and . . . the Board is unable to inspect or investigate completely because of a position taken by an authority in [that] foreign jurisdiction . . . , as determined by the Board’’). 74 See HFCAA §§ 2(i)(2)(B), 2(i)(3), 3(b), 15 U.S.C. 7214(i)(2)(B), 7214(i)(3), 7214a(b). VerDate Sep<11>2014 16:35 Sep 27, 2021 Jkt 253001 53705 Determinations as to Registered Firms Headquartered in a Particular Foreign Jurisdiction The Board believes that firms headquartered in a foreign jurisdiction necessarily have a branch or office that is located in that jurisdiction. Taking that into account, subparagraph (a)(1) of the proposed rule provides that the Board may determine that it is unable to inspect or investigate completely registered firms 76 headquartered in a foreign jurisdiction because of a position taken by one or more authorities in that jurisdiction. In other words, a jurisdiction-wide determination under subparagraph (a)(1) would apply to all firms headquartered in that jurisdiction. The Board adopted subparagraph (a)(1) as proposed. Commenters generally supported the Board’s proposed approach to jurisdiction-wide determinations. Several commenters noted that jurisdiction-wide determinations would be consistent with the HFCAA or otherwise appropriate, and several other commenters stated that having such determinations apply to firms that are headquartered in the jurisdiction would likewise be appropriate. No commenter asserted that jurisdiction-wide determinations would be inconsistent with the HFCAA or otherwise inappropriate. The Board believes that a jurisdictionwide approach to its determinations under the HFCAA is consistent with the structure of the statute. The statute requires the Board’s determinations to be based on ‘‘a position taken by an authority in the foreign jurisdiction.’’ It follows that if a foreign authority articulates or maintains a position that applies generally to PCAOB inspections or investigations in a foreign jurisdiction, that position could provide the basis for a jurisdiction-wide determination. Hence, the statute, in the Board’s view, can reasonably be interpreted to allow the Board to make jurisdiction-wide determinations.77 Having a jurisdiction-wide approach at the Board’s disposal is important for consistency and efficiency. When the obstacles to completing inspections and investigations are not specific to individual registered firms, but instead reflect threshold or general positions taken by a foreign authority, the Board believes that it should be able to address those obstacles on a jurisdiction-wide basis in a consistent manner and in a single determination. Under those circumstances, separate determinations as to each registered firm in the jurisdiction should not be required. The proposed rule provides that jurisdiction-wide determinations would be limited to registered firms that are 75 The Act states that ‘‘[t]he rules of the Board shall, subject to the approval of the Commission[,] . . . provide for the operation and administration of the Board, the exercise of its authority, and the performance of its responsibilities under this Act.’’ Section 101(g)(1) of the Act. 76 The HFCAA refers to a firm’s ‘‘branch or office’’ that the Board is unable to inspect or investigate completely. HFCAA § 2(i)(2)(A)(i), 15 U.S.C. 7214(i)(2)(A)(i). The Board does not inspect or investigate branches or offices. Rather, the Board inspects registered firms and investigates potential violations by registered firms or their associated persons. Accordingly, the proposed rule refers to the Board’s inability to inspect or investigate registered firms. 77 See, e.g., 166 Cong. Rec. H6033 (daily ed. Dec. 2, 2020) (statement of Rep. Gonzalez) (‘‘[T]he act should be read to apply to companies where the auditor that signs the audit report is located in a jurisdiction that does not permit PCAOB inspection access.’’). be shared with the Commission; how, and in what format, any such determination should be made publicly available; the effective date or duration of any such determination; or the manner in which any such determination can be reaffirmed, modified, or vacated. The proposed rule establishes those facets of the Board’s determination process. Although the HFCAA does not expressly require the Board to adopt a rule governing the determinations it makes under the statute, the Board believes that a rule will inform investors, registered firms, issuers, audit committees, foreign authorities, and the public at large as to how the Board will perform its functions under the statute. Furthermore, a Board rule will promote consistency in the Board’s processes regarding determinations under the HFCAA.75 Commenters generally agreed that a rule governing the Board’s determination process would promote transparency and consistency and reduce regulatory uncertainty. Two Types of Board Determinations Under the HFCAA The HFCAA requires that the Board determine whether it is unable to inspect or investigate completely registered public accounting firms that have a branch or office that is located in a foreign jurisdiction because of a position taken by one or more authorities in that jurisdiction. The proposed rule provides that the Board may make two types of determinations: Determinations as to a particular foreign jurisdiction and determinations as to a particular registered firm. Those two types of determinations are addressed in subparagraphs (a)(1) and (a)(2) of proposed Rule 6100. PO 00000 Frm 00078 Fmt 4703 Sfmt 4703 E:\FR\FM\28SEN1.SGM 28SEN1 53706 Federal Register / Vol. 86, No. 185 / Tuesday, September 28, 2021 / Notices ‘‘headquartered’’ in the jurisdiction. The Board believes that a position taken by a foreign authority will impact registered firms headquartered in the jurisdiction, but its impact on firms that are headquartered elsewhere can turn on multiple factors, including the extent of a firm’s presence in the jurisdiction and the nature and extent of the audit work it performs in that jurisdiction. Limiting jurisdiction-wide determinations to firms that are headquartered in the jurisdiction is intended to ensure that these determinations are appropriately tailored and do not encompass firms that have a physical presence of any kind, or personnel of any number, in the jurisdiction. Consistent with the scope of the HFCAA, however, the proposed rule provides that the Board may make individualized determinations as to firms that have an ‘‘office’’ in a noncooperative jurisdiction but are headquartered elsewhere, as discussed below. A firm is ‘‘headquartered,’’ as that term is used in the proposed rule, at its principal place of business (i.e., where the firm’s management directs, controls, and coordinates the firm’s activities).78 The Board would presume that a firm is headquartered at the physical address reported by the firm as its headquarters to the Board in the firm’s required filings.79 Absent an indication that the headquarters address reported by a firm may not be its principal place of business, the Board would use that address to determine where the firm is ‘‘headquartered’’ for purposes of the proposed rule. If questions arise as to whether a firm’s reported headquarters address is the firm’s principal place of business, however, the Board may consider other relevant and reliable information regarding the firm and may request additional information from the firm pursuant to the Board’s rules when determining where a firm is headquartered.80 78 See, e.g., Hertz Corp. v. Friend, 559 U.S. 77, 92–93 (2010) (defining ‘‘principal place of business’’ in the context of federal diversity jurisdiction, and further explaining that ‘‘in practice it should normally be the place where the corporation maintains its headquarters—provided that the headquarters is the actual center of direction, control, and coordination, i.e., the ‘nerve center,’ and not simply an office where the corporation holds its board meetings’’). 79 When registering with the Board, an applicant must provide its ‘‘HEADQUARTERS PHYSICAL ADDRESS’’ in Item 1.2.1 of its application for registration on Form 1. Each year thereafter, in Item 1.2.a of its annual report on Form 2, a firm must provide the ‘‘Physical address of the Firm’s headquarters office.’’ 80 See PCAOB Rule 4000(b) (‘‘In furtherance of the Board’s inspection process, the Board may at any time request that a registered public accounting VerDate Sep<11>2014 16:35 Sep 27, 2021 Jkt 253001 Several commenters stated that it was appropriate for the Board to look at a firm’s required filings with the Board in the first instance for information as to where the firm is headquartered. One commenter suggested that the Board look beyond such filings and also consider a firm’s filings with its homecountry regulator as well as other facts and circumstances regarding the firm. As noted in the preceding paragraph, the Board retains the ability to request and consider additional information— including the information identified by the commenter—if any questions arise regarding the location of a firm’s headquarters. Another commenter, contemplating that the Board might look to filings of Form AP for information as to where a firm is headquartered, cautioned that such forms may not be timely filed.81 The Board intends to rely on annual reports on Form 2 rather than Form APs for such information, though the Board is not precluded from considering information on Form APs or any other relevant and reliable information.82 In some instances, a member firm of an international firm network might be headquartered in a jurisdiction that becomes subject to a jurisdiction-wide determination of the Board. In such a circumstance, if that member firm is a separate legal entity from the other member firms in the network and signs audit reports in its own name, the Board would not treat other member firms in the network as being ‘‘located’’ or having an ‘‘office’’ in that jurisdiction merely because they are part of the same network as a member firm subject to the jurisdiction-wide determination.83 One firm provide to the Board additional information or documents relating to information provided by the firm in any report filed pursuant to Section 2 of these Rules, or relating to information that has otherwise come to the Board’s attention.’’). This approach aligns with the Board’s decade-long practice when assessing registration applications from firms located in non-U.S. jurisdictions where there are obstacles to PCAOB inspections. This approach has been applied to applicants that are headquartered in such jurisdictions, and the Board has sought additional information from applicants when necessary to assess where they are headquartered. 81 Item 3.1.7 of Form AP identifies the office (not the headquarters) of the firm that issued the audit report for the referenced audit engagement, but Item 4.1 of Form AP identifies the headquarters’ office location of the other accounting firms that contributed 5% or more of the total audit hours. 82 In any event, PCAOB Rule 3211, Auditor Reporting of Certain Audit Participants, already requires timely filing of accurate Form APs, and the failure to comply with that rule can provide the basis for inspection findings or disciplinary sanctions. 83 See SEC Exchange Act Release No. 91364, at 4 n.8. PO 00000 Frm 00079 Fmt 4703 Sfmt 4703 commenter addressed this topic and agreed with this approach. Based on its experience with inspections and investigations in foreign jurisdictions, the Board anticipates that most determinations made under proposed Rule 6100 would be jurisdiction-wide determinations under subparagraph (a)(1). Historically, the positions taken by foreign authorities have impaired the Board’s ability to conduct inspections or investigations in the jurisdiction generally. Some of the positions taken by foreign authorities have been based upon ‘‘gatekeeper’’ laws, which provide that a registered firm can transfer its audit work papers to the Board only via a local non-U.S. regulator. (By contrast, no audit oversight law in the U.S. requires foreign auditor oversight authorities to involve the PCAOB when seeking audit work papers from a U.S. firm.) As noted above, the Board has considerable experience resolving conflicts that arise from gatekeeper laws using bilateral arrangements, or statements of protocol, whereby the non-U.S. regulator facilitates the PCAOB’s access to audit work papers and associated information that registered firms are obligated to provide to the Board upon request. The Board’s ability to conduct inspections or investigations could become impaired in any of these jurisdictions, however, if such an arrangement were terminated; if non-performance under an arrangement were significant; or if, in the case of countries within the European Economic Area, an arrangement were rendered ineffective because the European Commission revoked or failed to renew its ‘‘adequacy decision’’ regarding the PCAOB.84 The resulting impairment would have jurisdictionwide impact, and thus could give rise to a jurisdiction-wide determination under subparagraph (a)(1) of the proposed rule. The Board believes that a jurisdiction-wide determination would be an efficient, appropriate response to such an impairment. 84 Article 47 of the Directive 2014/56/EU of the European Parliament and of the Council of 16 April 2014 amending Directive 2006/43/EC on statutory audits of annual accounts and consolidated accounts requires that the European Commission issue an adequacy decision regarding a third country audit regulator (such as the PCAOB) and that regulator’s ability to safeguard audit work papers and related confidential information before a European Union member state audit regulator can execute a working arrangement allowing firms to provide access to such information. See Directive 2014/56/EU, available at https://eur-lex.europa.eu/ legal-content/EN/TXT/?uri=celex%3A32014L0056. The European Commission’s July 2016 adequacy decision with respect to the PCAOB is set to expire in July 2022. E:\FR\FM\28SEN1.SGM 28SEN1 Federal Register / Vol. 86, No. 185 / Tuesday, September 28, 2021 / Notices Apart from gatekeeper laws, foreign authorities’ positions also may be based on other substantive laws (e.g., personal data protection laws, state secrecy laws, banking secrecy laws, or commercial secrecy laws) that impair the Board’s ability to conduct inspections or investigations by obstructing the Board’s access to firm personnel, audit work papers, or other documents or information relevant to an inspection or investigation. The Board also has considerable experience working collaboratively with non-U.S. regulators to employ working practices that enable compliance with such non-U.S. laws without impairing the Board’s ability to complete inspections or investigations. The proposed rule contemplates circumstances in which a cooperative resolution to those legal conflicts might not be achieved. In those circumstances, the Board believes that investors and the public interest would be best served by making a jurisdiction-wide determination under the HFCAA, even if the foreign jurisdiction’s law (or interpretation or application of that law) affects the Board’s ability to inspect or investigate only certain types of audit engagements. For instance, a foreign jurisdiction might deny to the PCAOB access to critical parts of the audit work papers for entities operating in a particular business sector (e.g., financial services) or with particular business models (e.g., state-owned enterprises). In such a case, even if only a few registered firms in that jurisdiction presently are auditing issuers in that sector or with that business model, the Board would assess whether its access would be equally impaired should any registered firm in the jurisdiction perform the restricted engagements. If the foreign authority’s position applies generally to firms within the jurisdiction, then it impairs the Board’s ability to conduct inspections or investigations completely on a jurisdiction-wide basis, regardless of the differences among registered firms’ client portfolios at the time of the Board’s determination. No commenter challenged this reasoning, nor did any commenter suggest that investors or the public interest would be better served if the Board were to make determinations as to particular firms, rather than jurisdiction-wide determinations, in such circumstances. In the situation described above, the Board does not believe that firm-by-firm determinations would be appropriate. While the Board could make a determination as to particular firms under subparagraph (a)(2) of the proposed rule based, for instance, on the composition of each firm’s client VerDate Sep<11>2014 16:35 Sep 27, 2021 Jkt 253001 portfolio at a moment in time, the Board believes that such an approach may not effectively accomplish the HFCAA’s objectives. For instance, it might incentivize an issuer whose audit engagement cannot be inspected or investigated by the Board (a financial institution or state-owned enterprise in the example) to switch audit firms frequently. Specifically, if the issuer’s audit firm were made subject to a Board determination under the HFCAA, the issuer could switch to another audit firm in the jurisdiction that had not previously handled a restricted engagement and, when the Board subsequently issued a determination under the HFCAA as to the issuer’s new audit firm, the issuer could switch yet again. Such purposeful migration by issuers could trigger a perpetual cycle of Board determinations as to particular audit firms, while the issuers potentially evade some or all of the intended consequences of the HFCAA. A jurisdiction-wide determination, by contrast, would eliminate these concerns. No commenter disagreed with this analysis or the Board’s rationale. The jurisdiction-wide determinations contemplated by subparagraph (a)(1) of the proposed rule also comport with the historical practice of identifying publicly the jurisdictions where there are unresolved obstacles to Board inspections or investigations. Since 2010, information of this kind has been posted on the PCAOB’s website, for two purposes: To notify investors and potential investors of the public companies whose audit reports were issued by firms from those jurisdictions, and to notify firms considering potential registration with the Board of the consequences of obstacles to inspections in their jurisdictions.85 Jurisdiction-wide determinations would rest, as the HFCAA directs, on whether the Board is able ‘‘to inspect or investigate completely’’ firms in the jurisdiction. The HFCAA, however, does not define what it means ‘‘to inspect or investigate completely.’’ The Board does not view that phrase as limited to instances where the Board started, but was unable to finish, an inspection or investigation of a 85 See Audit Reports Issued by PCAOB-Registered Firms in Jurisdictions where Authorities Deny Access to Conduct Inspections, available at https:// pcaobus.org/oversight/international/denied-accessto-inspections; Frequently Asked Questions Regarding Issues Relating to Non-U.S. Accounting Firms (Apr. 20, 2021), available at https:// pcaobus.org/oversight/registration/non_us_ registration_faq (FAQ 6); see also International, available at https://pcaobus.org/oversight/ international/ (providing map showing where the Board currently can and cannot conduct oversight activities). PO 00000 Frm 00080 Fmt 4703 Sfmt 4703 53707 registered firm, because foreign authorities’ positions also can make it impossible or infeasible, as a practical matter, for the Board to attempt to commence such inspections or investigations in the first place. In other words, the Board may make a determination under the HFCAA under a range of circumstances, including when it is not able to commence an inspection or investigation or when, based on the Board’s knowledge and experience, it has concluded that commencing an inspection or investigation would be futile as a result of the position taken by a foreign authority. With that in mind, the proposed rule ties the Board’s ability to ‘‘inspect or investigate completely’’ to the three core principles that guide the Board’s framework for international cooperation. Specifically, the Board will consider whether it (1) can select the audits and audit areas it will review during inspections and the potential violations it will investigate; (2) has timely access to firm personnel, audit work papers, and other documents and information relevant to its inspections and investigations, and the ability to retain and use such documents and information; and (3) can otherwise conduct its inspections and investigations in a manner consistent with the Act and the Board’s rules. For a further discussion of how these three principles would inform the Board’s assessment of whether it can ‘‘inspect or investigate completely,’’ see below. The Board’s jurisdiction-wide determinations under the proposed rule would be based on ‘‘a position taken by one or more authorities’’ in the foreign jurisdiction. While the proposed rule refers to a singular ‘‘position,’’ that term encompasses all of the various positions taken by authorities in the jurisdiction that, when aggregated together, collectively constitute the position of authorities in the jurisdiction. In a similar vein, the proposed rule’s reference to ‘‘one or more authorities’’ acknowledges that, in some jurisdictions, multiple authorities can take positions that impair the Board’s ability to conduct inspections or investigations. Those ‘‘authorities’’ are not limited to a ‘‘foreign auditor oversight authority,’’ as that phrase is defined in the Act,86 but rather include any authority whose position can obstruct the Board’s oversight. Such authorities may include, for example, securities regulators, industry regulators, data protection authorities, national security bodies, foreign 86 See E:\FR\FM\28SEN1.SGM Section 2(a)(17) of the Act. 28SEN1 53708 Federal Register / Vol. 86, No. 185 / Tuesday, September 28, 2021 / Notices ministries, or authorities of political subdivisions (e.g., a provincial authority). Determinations as to a Particular Registered Firm With an Office in a Foreign Jurisdiction Although the Board anticipates that most determinations under the proposed rule would be jurisdictionwide determinations, the Board cannot anticipate every scenario that it might encounter when conducting oversight of firms in foreign jurisdictions. In light of that practical limitation, subparagraph (a)(2) of the proposed rule provides that the Board may determine that it is unable to inspect or investigate completely a particular registered firm that has an office 87 located in a foreign jurisdiction because of a position taken by one or more authorities in that jurisdiction. This provision would complement the Board’s ability to make jurisdiction-wide determinations in two important respects. First, if a foreign authority obstructs a Board inspection or investigation of a particular firm headquartered in the jurisdiction—but does not obstruct inspections or investigations in a more general manner that might apply to all firms in the jurisdiction—subparagraph (a)(2) provides the Board with an avenue for making a more tailored determination under the HFCAA when a jurisdiction-wide determination might be inappropriately broad. Second, subparagraph (a)(2) allows the Board to make determinations under the HFCAA as to firms that are not headquartered in the foreign authority’s jurisdiction but have an office located there. In this respect, a determination under subparagraph (a)(2) can supplement a jurisdiction-wide determination under subparagraph (a)(1) that applies to firms headquartered in the jurisdiction. Furthermore, the reach of subparagraph (a)(2) ensures that the Board’s determinations under the proposed rule can match the scope of its mandate under the HFCAA. The Board’s approach to determining where a firm’s offices are located is similar to the Board’s approach to 87 The HFCAA authorizes the Board to make determinations as to firms having a ‘‘branch’’ or ‘‘office’’ in a foreign jurisdiction where the Board is unable to inspect or investigate completely because of a position taken by an authority in that jurisdiction. HFCAA § 2(i)(2)(A), 15 U.S.C. 7214(i)(2)(A). Unlike in other contexts (such as banking), however, there is no commonly recognized distinction between a ‘‘branch’’ and an ‘‘office’’ with respect to accounting firms. Accordingly, the proposed rule refers only to an ‘‘office,’’ which is a term commonly used by the Board in connection with its oversight programs. A majority of the commenters who addressed this rationale agreed with it. VerDate Sep<11>2014 16:35 Sep 27, 2021 Jkt 253001 determining where a firm is headquartered. The Board will look principally to the firm’s filings with the Board,88 but if there is any uncertainty as to whether a firm has an office in a jurisdiction, the Board may consider other information regarding the firm and may request additional information from the firm pursuant to Rule 4000(b). Apart from those two distinguishing features (namely, that determinations are directed to a particular firm and can reach firms that have an office in the foreign jurisdiction but are not headquartered there), subparagraph (a)(2) mirrors the operation of subparagraph (a)(1). The Board’s inability ‘‘to inspect or investigate completely’’ is tied to the three principles that guide the Board’s approach to international cooperation, as noted above and discussed further below. The phrase ‘‘position taken by one or more authorities’’ has the same meaning as in subparagraph (a)(1). Finally, if a member firm of an international firm network becomes subject to a Board determination under subparagraph (a)(2), and is a separate legal entity from the other member firms in the network and signs audit reports in its own name, the Board would not treat it as an ‘‘office’’ of other member firms within the network, and accordingly the other member firms would not be subject to that Board determination under subparagraph (a)(2). The Board adopted subparagraph (a)(2) as proposed, except for one addition to the subparagraph’s title.89 Commenters generally supported the Board’s proposed approach to determinations as to a particular registered firm and stated that the distinction between those determinations and the jurisdictionwide determinations contemplated in subparagraph (a)(1) is clear. Several commenters also stated that it is appropriate for the Board to look at a firm’s required filings with the Board in the first instance for information as to where the firm’s offices are located, though two commenters suggested that the Board look beyond such filings to ascertain or validate the location of a 88 Firms are required to identify all of their offices when they first register with the Board (in Item 1.5 of the application for registration on Form 1) and annually thereafter (in Item 5.1 of the annual report on Form 2). 89 The phrase ‘‘Particular Registered Firm in a Foreign Jurisdiction’’ has been revised to ‘‘Particular Registered Firm With an Office in a Foreign Jurisdiction’’ to mirror more closely the text of subparagraph (a)(2), create a parallel structure between the titles of subparagraphs (a)(1) and (a)(2), and provide a clearer contrast between the scope of those two subparagraphs. PO 00000 Frm 00081 Fmt 4703 Sfmt 4703 firm’s offices. As previously noted, the Board retains the ability to consider other relevant and reliable information, including the information identified by the commenters, when determining where a firm’s offices are located. One commenter requested guidance about the application of the proposed rule when a firm that is headquartered in a cooperative jurisdiction uses local personnel in a noncooperative jurisdiction to perform an audit for an issuer located in the noncooperative jurisdiction. In such a circumstance, the firm could not be subject to a jurisdiction-wide determination under subparagraph (a)(1) because it is not headquartered in a noncooperative jurisdiction, but it could be subject to a determination under subparagraph (a)(2) if it has an office in the noncooperative jurisdiction. Timing of Board Determinations Subparagraph (a)(3) of the proposed rule addresses the timing of the Board’s determinations under the HFCAA. Promptly after the Board’s proposed rule becomes effective upon the Commission’s approval, the Board will make any determinations under subparagraph (a)(1) or (a)(2) that are appropriate. Thereafter, the Board will consider, at least annually, whether changes in facts and circumstances support any additional determinations under subparagraph (a)(1) or (a)(2). If so, the Board will make such additional determinations, as and when appropriate, to allow the Commission on a timely basis to identify covered issuers in accordance with the Commission’s rules. The Board is well positioned to assess the facts and circumstances surrounding its inspections and investigations and gauge whether and when a determination is appropriate under the proposed rule. The relevant circumstances in a jurisdiction can change quickly and unpredictably because foreign authorities can enact or amend laws, issue or modify rules or regulations, change their interpretation or application of those laws and rules, and otherwise take new positions with limited or no notice. The proposed rule allows the Board to make new determinations whenever appropriate, while acknowledging that the Board’s timing will be informed by the Commission’s process for timely identifying covered issuers and also establishing that the Board will consider whether new determinations are warranted at least once each year. When considering whether changed facts or circumstances provide a sufficient basis for a new Board E:\FR\FM\28SEN1.SGM 28SEN1 Federal Register / Vol. 86, No. 185 / Tuesday, September 28, 2021 / Notices determination, the Board may confront a number of different scenarios. It is not possible to identify with specificity all the developments that might lead to a new determination, but they could include the enactment of a new law or regulation, a change in the interpretation or the application of an existing law or regulation, the termination of or failure to perform under an existing cooperative arrangement, and the failure to take or renew an administrative action necessary to facilitate the Board’s oversight. The Board’s experience in a particular inspection or investigation also could supply the grounds for a new Board determination in accordance with the proposed rule. The Board adopted subparagraph (a)(3) substantially as proposed.90 The majority of commenters who addressed this issue expressed support for the Board’s approach to the timing of determinations. One commenter emphasized that the Board’s approach should be sufficiently flexible so that Board determinations do not conflict with the language and intent of the HFCAA. The Board believes that subparagraph (a)(3) provides such flexibility, insofar as it provides that the Board will make any appropriate determinations promptly after the proposed rule becomes effective and thereafter will make additional determinations as and when appropriate to allow the Commission to identify covered issuers on a timely basis. Another commenter suggested that the Board require firms to file special reports on Form 3 to apprise the Board of headquarters or office location changes. Such changes already are reported to the Board annually on Form 2. The Board does not believe that a new Form 3 reporting obligation should be imposed. If a firm opts to expose its issuer clients to the potential consequences of the HFCAA by moving the firm’s headquarters to a jurisdiction that is subject to a jurisdiction-wide determination, such a change could be captured through the Board’s current reporting procedures.91 Moreover, if a 90 For clarity, in the second sentence of the subparagraph, ‘‘changes in the facts and circumstances’’ has been changed to ‘‘changes in facts and circumstances.’’ 91 For instance, whenever the business mailing address of a firm’s primary contact with the Board changes, the firm must file a special report on Form 3 that supplies the new address in Item 7.2. See PCAOB Rule 2203, Special Reports. Additionally, if a firm obtains a new license or certification to engage in the business of auditing or accounting from a governmental or regulatory authority, the firm must file a special report on Form 3 that identifies, in Item 6.2, the name of the state, agency, VerDate Sep<11>2014 16:35 Sep 27, 2021 Jkt 253001 firm that is headquartered outside a noncooperative jurisdiction opens an office in a noncooperative jurisdiction, the Board would not anticipate making a determination as to that particular firm under subparagraph (a)(2) without evidence that the Board’s ability to inspect and investigate the firm completely has become restricted as a result of the opening of the new office. Lastly, if a firm that is subject to a Board determination moves its headquarters out of or closes all of its offices in a noncooperative jurisdiction, the firm is required to notify the Board within five days of that development pursuant to subparagraph (e)(4) of the proposed rule, discussed below. Factors for Board Determinations Paragraph (b) provides factors for Board determinations under the proposed rule. When determining whether it can ‘‘inspect or investigate completely’’ under subparagraph (a)(1) as to a particular jurisdiction or subparagraph (a)(2) as to a particular firm, the Board will assess whether ‘‘the position taken by the authority (or authorities)’’ in the jurisdiction ‘‘impairs the Board’s ability to execute its statutory mandate with respect to inspections or investigations,’’ as detailed above. To make this assessment, the Board will evaluate three factors, which correlate to the three principles that guide the Board’s approach to international cooperation. These factors embody the access the Board needs, and already experiences nearly worldwide, to fulfill its inspection and investigation mandates. Conceding on these factors in particular jurisdictions would dilute the Board’s oversight in a selective, unequal manner and would be detrimental to the PCAOB’s mission. In other words, this framework promotes a level playing field for U.S. and non-U.S. registered firms, in accordance with the Act’s directive that non-U.S. registered firms are subject to the Act and the Board’s rules in the same manner and to the same extent as U.S. registered firms. No commenter suggested other benchmarks or factors that the Board should employ when making determinations, and one commenter stated that the factors set forth in paragraph (b) are appropriate and clear. The Board adopted paragraph (b) as proposed, except for one addition to board, or other authority that issued the new license or certification. See id. And if a firm changes the jurisdiction under the law of which it is organized, the firm may file a Form 4 to succeed to the registration status of its predecessor. See PCAOB Rule 2109, Procedure for Succeeding to the Registration Status of a Predecessor. PO 00000 Frm 00082 Fmt 4703 Sfmt 4703 53709 subparagraph (b)(2)’s second factor, as discussed below. The first factor is ‘‘the Board’s ability to select engagements, audit areas, and potential violations to be reviewed or investigated.’’ The ability to make such selections is critical to the Board’s oversight activities and is embedded in its statutory mandate.92 This factor would encompass situations in which a foreign authority takes the position that certain engagements, or certain parts of engagements, cannot be reviewed during an inspection, or that the Board cannot decide when (i.e., in which inspection year) certain engagements will be reviewed. It also would encompass situations in which a foreign authority takes the position that the Board cannot decide what potential violations it will investigate. No commenter expressed the view that this factor is unclear or inappropriate or sought further guidance about it. The second factor is ‘‘the Board’s timely access, and the ability to retain and use, any document or information (including through conducting interviews and testimony) in the possession, custody, or control of the firm(s) or any associated persons thereof that the Board considers relevant to an inspection or investigation.’’ The Board’s access to firm personnel, documents, and information is pivotal to its inspections and investigations, and is built into its mandate to oversee the audits of issuers that avail themselves of the U.S. capital markets.93 One commenter suggested that the Board add ‘‘timely’’ to this factor so that it refers to ‘‘timely access,’’ and, after consideration, the Board has made that revision. The Board agrees with the commenter that the Board cannot inspect or investigate completely if its access to documents or information is not timely. Unreasonable delays in obtaining documents or information hinder the Board’s ability to execute its statutory mandate 94 and therefore its ability to protect the interests of investors and further the public interest. No other commenter made any suggestions regarding this factor, and no commenter asserted that this factor is 92 See, e.g., Sections 104(d) and 105(b)(1) of the Act. 93 See, e.g., Sections 104(d) and 105(b)(2) of the Act. 94 See, e.g., Section 104(b) of the Act (specifying inspection frequency requirements); Section 105(b)(2)(B) of the Act (authorizing the Board to require production of audit work papers and other documents or information); PCAOB Rule 5103(b) (providing that requests for documents or information shall set forth ‘‘a reasonable time . . . for production’’). E:\FR\FM\28SEN1.SGM 28SEN1 53710 Federal Register / Vol. 86, No. 185 / Tuesday, September 28, 2021 / Notices unclear or inappropriate or sought further guidance about it. The third factor is ‘‘the Board’s ability to conduct inspections and investigations in a manner consistent with the provisions of the Act and the Rules of the Board, as interpreted and applied by the Board.’’ This provision captures all of the other aspects of the Board’s inspection and investigation mandates not already subsumed in the first and second factors. That includes the Board’s ability to satisfy inspection frequency requirements,95 to identify potentially violative acts during inspections,96 to impose sanctions for noncooperation with an investigation,97 and to share information with the Commission and other regulators.98 No commenter indicated that this factor is unclear or inappropriate or sought further guidance about it. Importantly, these three factors do not function as separate prerequisites for a Board determination. Instead, impairment in any one respect may be sufficient under the circumstances to support a Board determination. To underscore the disjunctive nature of this three-factor analysis, the proposed rule provides that the Board will assess whether its ability to execute its mandate has been impaired in ‘‘one or more’’ of these three respects. No commenter objected to, or expressed concerns about, this approach. Additionally, to make a determination under the proposed rule, the Board does not need to conclude that it has been impaired as to both its inspections and its investigations. The HFCAA authorizes the Board to make a determination if the Board is unable to inspect ‘‘or’’ investigate completely, and the proposed rule uses ‘‘or’’ in similar fashion: It is enough that the Board is impaired in its ability to execute its mandate with respect to either inspections or investigations. This approach is consistent with the HFCAA, and no commenter suggested otherwise. Basis for Board Determinations Paragraph (c) of the proposed rule addresses the basis for a Board determination. This provision establishes, first and foremost, that when assessing whether its ability to execute its mandate has been impaired, the Board may consider ‘‘any documents or information it deems relevant.’’ From there, the proposed rule specifies, for the avoidance of doubt, 95 See Section 104(b) of the Act. Section 104(c)(1) of the Act. 97 See Section 105(b)(3)(A) of the Act. 98 See Sections 104(c)(2) and 105(b)(4)–(5) of the Act. 96 See VerDate Sep<11>2014 16:35 Sep 27, 2021 Jkt 253001 three non-exclusive categories of documents and information that the Board can rely upon when making a determination. No commenter objected to this approach or expressed concern about the three non-exclusive categories identified in the proposed rule, and one commenter stated that paragraph (c) provides adequate and substantive guidance. The Board adopted paragraph (c) as proposed. Subparagraph (c)(1) states that the Board may consider a foreign jurisdiction’s laws, statutes, regulations, rules, and other legal authorities; in other words, the black-letter law of the foreign jurisdiction (and any political subdivisions thereof) in all of its varying forms. The Board also may consider relevant interpretations of those laws, whether by the promulgating authority or others, as well as real-world applications of those laws. Subparagraph (c)(2) provides that the Board may consider the entirety of its efforts to reach and secure compliance with agreements with foreign authorities in the jurisdiction. In so doing, the Board can take into account whether an agreement was reached, the terms of any such agreement, and the foreign authorities’ interpretation of and performance under any such agreement. Subparagraph (c)(3) recognizes that the Board may consider its experience with foreign authorities’ other conduct and positions relative to Board inspections or investigations. This allows the Board to consider the totality of a foreign authority’s prior conduct and positions in all contexts, including public and private statements made, positions asserted, and actions taken. This provision also may encompass circumstances where a foreign authority precipitously changes its position regarding PCAOB access without making any change to its laws or demanding any form of cooperative agreement. Together, these provisions establish that the Board can consider any relevant information (including, but not limited to, the three categories of information discussed above) when making a determination. As a corollary, paragraph (d) of the proposed rule establishes that the Board’s determination need not depend on the Board’s ‘‘commencement of, but inability to complete, an inspection or investigation.’’ The Board should not be expected to attempt to initiate inspections or investigations in a foreign jurisdiction that rejects the guiding principles for international cooperation, because such futile efforts would not advance the Board’s mission of protecting investors and furthering the public interest in the preparation of PO 00000 Frm 00083 Fmt 4703 Sfmt 4703 informative, accurate, and independent audit reports. No commenter challenged the Board’s reasoning or expressed the view that the Board must initiate an inspection or investigation as a prerequisite to making a determination under the HFCAA. Nor did any commenter indicate that the approach described in paragraph (d) is inappropriate. The Board adopted paragraph (d) as proposed. Form and Publication of Board Determinations Board Reports to the Commission The HFCAA does not specify how the Board should communicate its determinations to the Commission. Subparagraph (e)(1) of the proposed rule establishes that process. When the Board makes a determination, whether as to a particular jurisdiction under subparagraph (a)(1) or a particular firm under subparagraph (a)(2), the Board’s determination will be issued in the form of a report to the Commission.99 Such a reporting process is authorized under Sections 101(c)(5), 101(g)(1), and 101(f)(6) of the Act.100 The Board’s report will describe its assessment of whether the position taken by the foreign authority (or authorities) impairs the Board’s ability to execute its mandate with respect to inspections or investigations. The report will analyze the relevant factor(s) set forth in paragraph (b) and describe the basis for the Board’s conclusions. The Board will identify the firm(s) subject to the Board’s determination in two ways: by the name under which the firm is registered with the Board, and by the firm’s identification number with the Board. No commenter identified any additional information that should be included in the Board’s reports to the Commission. The Board adopted subparagraph (e)(1) as proposed but with one modification: The Board will identify the firm(s) to which a determination applies in an appendix to the Board’s report. Identifying such firms in a 99 The Board will decide whether to conduct a public or non-public meeting to consider a potential determination under the HFCAA in accordance with the PCAOB bylaws. See Bylaw 5.1, Governing Board Meetings. 100 See Section 101(c)(5) of the Act (the Board shall ‘‘perform such other duties or functions as the Board . . . determines are necessary or appropriate . . . to carry out this Act’’); Section 101(g)(1) of the Act (the Board’s rules ‘‘shall . . . provide for . . . the performance of its responsibilities under this Act’’); Section 101(f)(6) of the Act (the Board is authorized to ‘‘do any and all . . . acts and things necessary, appropriate, or incidental to . . . the exercise of its obligations . . . imposed’’ by the Act). E:\FR\FM\28SEN1.SGM 28SEN1 Federal Register / Vol. 86, No. 185 / Tuesday, September 28, 2021 / Notices separate appendix will facilitate the Board’s efforts to keep the list of firms subject to the determination current, as discussed below. Publication of Board Reports Promptly after the Board issues a report to the Commission, a copy of the report will be made publicly available on the PCAOB’s website. The Board expects that a copy of the report ordinarily will be prominently featured on the Board’s website on or about the same day the Board issues its report to the Commission. Subparagraph (e)(2) of the proposed rule specifies, however, that the content of the Board’s publicly available report will be subject to two limitations. First, the Board will be bound by Section 105 of the Act, which provides, in pertinent part, that ‘‘all documents and information prepared or received by or specifically for the Board . . . in connection with an inspection . . . or with an investigation . . . shall be confidential . . . , unless and until presented in connection with a public proceeding or released’’ in accordance with Section 105(c) of the Act.101 If the Board’s report contains material encompassed by Section 105(b)(5)(A) of the Act, such material will be redacted from the publicly available version of the report posted on the PCAOB’s website, in accordance with the Act. Second, while the Board does not anticipate that such situations will frequently arise, the version of the Board’s report posted on the PCAOB’s website will be redacted if it contains proprietary, personal, or other information protected by applicable confidentiality laws. In this respect, the proposed rule aligns with the Act’s treatment of registration applications and annual reports filed with the Board, which the Board may make publicly available subject to ‘‘applicable laws relating to the confidentiality of proprietary, personal, or other information.’’ 102 Commenters generally supported redacting from the Board’s publicly available reports any information that is subject to applicable confidentiality laws. One commenter suggested that redaction should not be limited to information covered by applicable confidentiality laws, but rather should be based on broader concepts of confidentiality. That commenter offered one example of such a concept, but that example—accountants’ professional responsibilities of confidentiality—does not apply to the Board’s performance of 101 Section 102 Section 105(b)(5)(A) of the Act. 102(e) of the Act. VerDate Sep<11>2014 16:35 Sep 27, 2021 Jkt 253001 its oversight functions. Another commenter similarly suggested that redaction should extend to all confidential information whether explicitly covered by confidentiality laws or not, but that commenter did not suggest how to define this broader concept of confidential information or what categories of information it would encompass. Neither of these commenters identified any specific type of relevant information that is not subject to a confidentiality law but is nevertheless worthy of protection under a broader view of confidential information. Besides one minor revision unrelated to redaction,103 the Board adopted subparagraph (e)(2) as proposed. The Board believes that it is appropriate to limit redaction to confidential information protected by law. That approach comports with the Board’s congressionally mandated treatment of registration applications and annual reports, which the Board also has extended to other reports filed with the Board. This approach also is more readily administrable than one that relies instead on broader, undefined concepts of confidentiality. Transmittal of Board Reports to Subject Firms The Board revised the proposed rule to add a new provision regarding the transmittal of reports to firms that are subject to a determination. While some commenters stated that posting Board reports on the Board’s website would give sufficient notice of Board determinations to such firms, other commenters disagreed, and the Board has concluded that it would be prudent to transmit reports to those firms. Subparagraph (e)(3) provides that promptly after the Board issues a report to the Commission under subparagraph (e)(1), a copy of the report will be sent by electronic mail to each registered public accounting firm that is listed in the appendix to that report (i.e., each firm as to which the determination applies). The Board expects that the report will be transmitted to the subject firm(s) by electronic mail after it has been posted on the Board’s website, though both actions will take place promptly after the issuance of the report. Such reports will be redacted to the extent required by confidentiality laws, and the electronic mail will be directed to the electronic mail address 103 For simplicity, the phrase ‘‘Board report containing a determination pursuant to subparagraph (a)(1) or (a)(2)’’ has been changed to ‘‘Board report pursuant to subparagraph (e)(1).’’ PO 00000 Frm 00084 Fmt 4703 Sfmt 4703 53711 of the firm’s primary contact with the Board.104 Two commenters suggested that the Board provide non-public advance notice of a forthcoming determination to firms that would be subject to that determination. One of those commenters indicated that firms could use this advance notice to initiate discussions with their issuer audit clients about the Board’s forthcoming determination. The Board does not believe that it is appropriate to provide non-public advance notice to firms. A firm headquartered in a noncooperative jurisdiction and performing audit work that subjects the firm to the PCAOB inspection requirement should know if it has not been inspected due to the PCAOB’s inability to inspect such firm or firms in that jurisdiction.105 Furthermore, as described above, the Board has long taken efforts to make known the access challenges it faces in certain jurisdictions. Although those disclosures are distinct from determinations under the proposed rule and predate the HFCAA’s enactment, they underscore the Board’s commitment to transparency about its oversight access. And if a firm-specific obstacle to Board inspections or investigations were to arise that might warrant a determination as to a particular registered firm pursuant to subparagraph (a)(2), the Board expects that it would have engaged with that firm about the Board’s inability to inspect or investigate the firm completely before such a determination would be made. In addition, providing non-public advance notice of a Board determination to firms would create information asymmetry in the marketplace: A forthcoming Board determination would be known to firms and to anyone with whom the firm elects to share that information (including not only the firm’s issuer clients’ management, but also potentially the issuers’ directors, the issuers’ outside counsel and other professional advisors, foreign government officials, and others), while 104 When applying to register with the Board, firms provide an electronic mail address for their primary contact with the Board in Item 1.3.7 of Form 1. Thereafter, firms confirm the electronic mail address for their primary contact with the Board annually in Item 1.3 of Form 2. If that electronic mail address changes, the firm must notify the Board within 30 days of the new electronic mail address for its primary contact with the Board in Item 7.2 of Form 3. 105 See also, e.g., SEC Exchange Act Release No. 91364, at 26 (noting ‘‘a highly similar type and pattern of disclosure regarding the PCAOB’s inability to inspect those firms’’ in Item 3 of Form 20–F and in Item 1A of Form 10–K). E:\FR\FM\28SEN1.SGM 28SEN1 53712 Federal Register / Vol. 86, No. 185 / Tuesday, September 28, 2021 / Notices the investing public would not be privy to the same information. The Board does not believe it would be in the public interest or the interests of investors to selectively preview its determinations in such a manner. Several commenters also suggested that the Board establish a rule-based mechanism that would allow firms to submit information to the Board regarding a determination. Some of those commenters recommended that the Board provide by rule for such a submission process before a Board determination takes effect, while others expressed concern that such an approach could delay the timely implementation of the HFCAA. No commenter, however, identified any type of information that a firm might have that would be both relevant to a Board determination and previously unknown to the Board. Because the Board believes that firms are unlikely to have new and relevant information regarding a determination, the Board is not establishing a rulebased process for firms to make such submissions. Board determinations turn on positions taken by authorities in foreign jurisdictions, and such positions, by virtue of having previously been ‘‘taken’’ by a foreign authority, necessarily will be known to the Board already. Indeed, the Board has extensive experience in this area and, over more than a decade, has engaged significantly with foreign authorities and registered firms regarding inspections and investigations of non-U.S. firms. Therefore, the Board knows, and will timely learn, relevant information about its ability to conduct inspections and investigations abroad. The Board’s history of engagement and negotiations regarding such inspections and investigations is detailed above, and no commenter disputed the Board’s description of that history. By the same token, any Board determination would be based on the Board’s judgment as to whether the extent of access available to it impairs its ability to conduct oversight in any of the three respects identified in paragraph (b). Consequently, the Board does not believe that firms will be able to contribute meaningfully to the mix of information available to the Board regarding foreign authorities’ positions or the Board’s experience-driven assessment of paragraph (b)’s three factors. Should a firm wish to communicate with the Board about its inspection or investigation experience, however, it can do so through existing channels for communicating with the Board’s inspection and enforcement staff. VerDate Sep<11>2014 16:35 Sep 27, 2021 Jkt 253001 Updating the Appendix to a Board Report Subparagraph (e)(4) addresses the Board’s process for determining that the list of firms subject to a determination remains accurate. A few commenters expressed concern about potential developments that could render such a list inaccurate, and the Board believes that it is prudent to establish a process in the proposed rule to ensure the list is appropriately updated and accurate. As provided in subparagraph (e)(1), the list of firms subject to a determination will be contained in an appendix to the Board’s report. For a jurisdiction-wide determination under subparagraph (a)(1), the appendix will provide, for each firm, the name under which it is registered with the Board, its identification number with the Board, and the jurisdiction in which its headquarters is located. For a determination as to a particular firm under subparagraph (a)(2), the appendix will provide the name under which the firm is registered with the Board, its identification number with the Board, and the location of the office(s) the firm maintains in the foreign jurisdiction whose authorities have taken a position that results in the Board being unable to inspect or investigate the firm completely. Subparagraph (e)(4) requires firms identified in an appendix to notify the PCAOB Secretary of any changes to the firm’s information in the appendix within five days of such a change.106 Firm names, identification numbers, headquarters locations, and office locations can change, and this requirement ensures that the Board will be alerted promptly to updated information.107 Instructions regarding how to notify the Secretary of such a change will be provided in the appendix. Subparagraph (e)(4) provides that the Board may issue an updated appendix at any time. This allows the Board to update its appendix to reflect changes reported by firms as required by 106 In practice, this five-day period would span at least seven calendar days. See PCAOB Rule 1002, Time Computation (providing that Saturdays, Sundays, and federal legal holidays are excluded from the computation of time when a prescribed period of time in a Board rule is seven days or less). 107 For example, if a firm changes its name while remaining the same legal entity, the firm has 30 days to notify the Board of its name change in Item 7.1 of Form 3. But if a firm changes its name while also changing its legal entity due to a change to its legal form of organization or as the result of a business combination, the firm may (but is not required to) file a Form 4 that, among other things, would notify the Board of the name change in Item 1.1, and that filing would be due 14 days after the change or business combination, unless the Board permits the firm to file its form out of time. PO 00000 Frm 00085 Fmt 4703 Sfmt 4703 subparagraph (e)(4). It also enables the Board to correct discrepancies or reflect changes identified by the Board or its staff through other means.108 An updated appendix will bear the date on which it was issued by the Board. The Board’s issuance of an updated appendix would not constitute a reassessment of the Board’s underlying determination. In other words, the Board can update an appendix without reanalyzing the three factors identified in paragraph (b). Whenever the Board issues an updated appendix, it will transmit that appendix to the Commission, make it publicly available in accordance with subparagraph (e)(2), and send it to firms that are identified in the appendix in accordance with subparagraph (e)(3). Effective Date and Duration of Board Determinations Paragraph (f) provides that a Board determination becomes effective on the date the Board issues its report to the Commission. Most commenters expressed support for this timing, though one commenter suggested that this timing would be appropriate only if firms received advance notice of a determination, and another commenter suggested that the Board delay the effectiveness of its determinations (e.g., for 120 days) so that issuers have time to understand and plan for them. The Board adopted paragraph (f) substantially as proposed.109 For many of the same reasons that the Board does not believe that firms should receive advance notice of Board determinations (as discussed above), the Board does not believe that the effectiveness of its determinations should be delayed. Furthermore, delaying the effectiveness of a determination could frustrate the objectives of the HFCAA and, in the Board’s view, impair the Commission’s ability to identify covered issuers on a timely basis pursuant to its rules. One commenter requested clarification regarding the date of issuance of a Board report. The date of issuance will be the date that appears on the report, which will correspond to the date upon which the Board’s report is transmitted to the Commission. 108 For instance, the list of firms in the appendix could be reduced if a firm withdraws from registration or has its registration revoked, and could be expanded if a registered firm moves its headquarters to a jurisdiction that is the subject of a jurisdiction-wide determination. 109 For simplicity, at the beginning of the paragraph, ‘‘When the Board makes a determination pursuant to subparagraph (a)(1) or (a)(2), the Board’s determination becomes effective’’ has been replaced by ‘‘A determination pursuant to subparagraph (a)(1) or (a)(2) becomes effective.’’ E:\FR\FM\28SEN1.SGM 28SEN1 Federal Register / Vol. 86, No. 185 / Tuesday, September 28, 2021 / Notices Paragraph (g) addresses the duration of Board determinations. The Board adopted paragraph (g) substantially as proposed,110 save for one conforming change. As first proposed, the proposed rule provided that a Board determination would remain in effect ‘‘unless and until’’ it was modified or vacated. As discussed below, however, the Board has elected to reassess at least annually each determination that is in effect and to issue, at the conclusion of each reassessment, a report reaffirming, modifying, or vacating the determination. To conform to that approach, paragraph (g) has been revised to provide that a Board determination will remain in effect until it is reaffirmed, modified, or vacated by the Board. Reassessment of Board Determinations As first proposed, paragraph (h) created a two-step process through which the Board would annually monitor the continued justification for a Board determination. First, the Board would consider whether changes in facts and circumstances warrant a reassessment of a determination that is in effect. Then, if the Board concludes that a reassessment is warranted, the Board would analyze the three factors identified in paragraph (b) and decide whether to leave its determination undisturbed or issue a new report modifying or vacating the determination. Apart from that annual process, the Board also could reassess a determination on its own initiative or at the Commission’s request at any time. Commenters generally supported that proposed two-step annual process. A few commenters suggested that the result of a reassessment should be made public in all circumstances, even when a determination is left undisturbed, and one commenter indicated that such public reporting could provide audit firms and issuers with more detailed guidance and transparent information. Some commenters suggested that firms should be able to request reevaluation of a determination outside of the annual cycle, with one commenter asking the Board to confirm that it would reassess a determination anytime there was a potentially material development in the facts and circumstances. The Board has revised paragraph (h) to reduce the two-step process to a onestep process by eliminating the ‘‘annual consideration of changed facts and circumstances’’ contemplated in the proposed rule. Instead of requiring the 110 For simplicity, at the beginning of the paragraph, ‘‘A determination made by the Board’’ has been changed to ‘‘A determination.’’ VerDate Sep<11>2014 16:35 Sep 27, 2021 Jkt 253001 Board to conduct a threshold inquiry each year to decide whether changes in facts and circumstances merit reassessment of a determination, the proposed rule requires the Board to annually reassess each determination that is in effect. The Board believes that annual reassessment best aligns with the HFCAA’s annual cycle, which includes the Commission’s identification of covered issuers based on the filing of annual reports and its designation of non-inspection years.111 Apart from its mandatory annual reassessments, the Board, on its own initiative or at the Commission’s request, may reassess a determination at any time. It is not possible to specify every development that might prompt the Board to reassess a determination outside of the annual reassessment cycle. In certain circumstances, the withdrawal of a law or the execution of a cooperative agreement might suffice, if, for example, the law or the absence of an agreement were the sole reason why the Board’s access was impaired in one or more of the respects identified in paragraph (b). However, as a general matter, when a determination derives from the Board’s prolonged inability to complete inspections or investigations in a particular jurisdiction or of a particular firm, the Board does not anticipate modifying or vacating such a determination—even if a cooperative agreement is in place—until it has concluded that the foreign authority has taken, and the Board can reasonably conclude that the authority will maintain, new positions that respond satisfactorily to the Board’s access needs with respect to each of the factors identified in paragraph (b). In such instances of prolonged lack of access, the Board would expect to conclude inspections or investigations in that jurisdiction or of that firm before modifying or vacating a determination. The conclusion of an inspection or investigation, however, is not necessarily conclusive evidence that the conditions preventing the Board from inspecting or investigating completely firms located in the foreign jurisdiction have been resolved. Together, the proposed rule’s framework of mandatory annual reassessment and discretionary off-cycle reassessment gives the Board the opportunity to reassess a determination whenever facts and circumstances warrant, and will help ensure that the Commission’s actions under the HFCAA are based on Board determinations that reflect the current status of the Board’s ability to inspect and investigate firms 111 HFCAA PO 00000 § 2(i)(1)–(2), 15 U.S.C. 7214(i)(1)–(2). Frm 00086 Fmt 4703 Sfmt 4703 53713 completely. When conducting a reassessment, whether annual or offcycle, the Board will reanalyze the three factors identified in paragraph (b), and at the conclusion of that reassessment, the Board will reaffirm, modify, or vacate its determination. Two commenters suggested that the Board allow firms to request reevaluation of a determination outside of the Board’s annual reassessment process. One commenter further suggested that reevaluation requests could be based on a triggering event, but did not provide any examples of such an event or explain how a firm would have knowledge of such an event that the Board would lack. As explained above, the Board believes that firms are unlikely to have new, relevant information about positions taken by foreign authorities vis-a`-vis the Board, and firms already have other channels through which they can communicate with the Board’s staff about inspectionand investigation-related developments. Furthermore, even without a rule-based mechanism through which firms could request reevaluation, the Board will reassess determinations to which any firm is subject at least once a year. One commenter suggested that the Board allow ‘‘jurisdictions’’ to request reevaluation of determinations at any time. That commenter was not a foreign authority; indeed, no foreign authority submitted a comment asking for the ability to request reevaluation. Nor did the commenter explain why foreign authorities cannot communicate with the Board through existing channels. The Board believes that those customary channels for communication with foreign authorities, together with the Board’s annual mandatory reassessments and discretionary offcycle reassessments, suffice to provide the Board appropriate information to reexamine determinations as and when appropriate. Reaffirmed, Modified, and Vacated Board Determinations Paragraph (i) addresses reaffirmed, modified, and vacated Board determinations. The Board adopted paragraph (i) with several conforming changes that align paragraph (i) with other revisions to the proposed rule, including revisions regarding appendices to Board reports, the transmittal of Board reports by electronic mail, and annual reassessment of determinations that are in effect. When the Board reaffirms, modifies, or vacates a determination, it will issue a report to the Commission describing its assessment and the basis for E:\FR\FM\28SEN1.SGM 28SEN1 53714 Federal Register / Vol. 86, No. 185 / Tuesday, September 28, 2021 / Notices reaffirming, modifying, or vacating the determination. In the case of a reaffirmed or modified determination, the Board will update the appendix to the report that identifies the firm(s) to which the determination applies. A copy of the report will be posted on the PCAOB’s website and sent by electronic mail to each firm’s primary contact with the Board, subject to the confidentiality limitations described above in connection with subparagraphs (e)(2) and (e)(3). A reaffirmed or modified determination, or the vacatur of a determination, will become effective on the date that the Board issues its report to the Commission. A reaffirmed or modified determination will be subject to reassessment under paragraph (h): It must be reassessed at least annually; it may be reassessed at any time; and the Board’s reassessment will consider the three factors identified in paragraph (b) and result in reaffirmation, modification, or vacatur. A reaffirmed or modified determination will remain in effect until it is reaffirmed, modified, or vacated. D. Economic Considerations The Board is mindful of the economic impacts of its rulemaking. This section discusses economic considerations related to the proposed rule, including the need for the rulemaking; a description of the baseline for evaluating the economic impacts of the proposed rule; consideration of the benefits, costs, and unintended consequences of the proposed rule; and alternatives considered by the Board. The proposed rule does not require ‘‘mandatory audit firm rotation or a supplement to the auditor’s report in which the auditor would be required to provide additional information about the audit and the financial statements’’ of issuers, nor does it impose any ‘‘additional requirements’’ on auditors.112 Accordingly, the Board has concluded that Section 103(a)(3)(C) of the Act does not apply to this rulemaking, and no commenter suggested otherwise. 112 Section 16:35 Sep 27, 2021 As discussed in Section C above, the HFCAA does not expressly require the Board to adopt a rule governing the determinations it makes under the statute. Rather, the HFCAA gives the Board discretion regarding the procedure for making those determinations and the content and format of the Board’s reporting to the Commission. The Board elected to pursue a rulemaking to bring transparency and consistency to its determinations. Specifically, the Board believes that a rule would inform investors, registered firms, issuers, audit committees, foreign authorities, and the public at large as to how the Board will perform its functions to satisfy its obligations under the statute. It also would promote consistency in the Board’s process regarding determinations. Baseline The Board has evaluated the potential benefits, costs, and unintended consequences of the proposed rule relative to a baseline that consists of the current regulatory framework and current market practices. Although the HFCAA requires the Board to make a determination about which audit firms located in a foreign jurisdiction it is unable to inspect or investigate completely because of a position taken by one or more authorities in that jurisdiction, the HFCAA does not expressly require the Board to adopt a rule governing the determinations it makes under the statute. Moreover, the PCAOB website has long identified the jurisdictions in which the Board lacks inspection access, as well as the registered firms located in those jurisdictions.113 Measured against this baseline, the proposed rule builds on existing PCAOB practices and provides a framework for the Board’s determinations under the HFCAA and, hence, should have limited economic impacts incremental to the impacts of the HFCAA and the Commission’s actions to implement the HFCAA. Under the HFCAA, issuers that retain firms that are subject to a Board determination to issue audit reports on 113 For an overview of this historical practice, see, for example, footnote 62. 103(a)(3)(C) of the Act. VerDate Sep<11>2014 Need for Rulemaking Jkt 253001 PO 00000 Frm 00087 Fmt 4703 Sfmt 4703 their financial statements must make certain disclosures and submissions and, eventually, if certain conditions persist, the securities of those issuers may be subject to a prohibition on trading. The Commission has adopted interim final amendments to Forms 20– F, 40–F, 10–K, and N–CSR to implement the disclosure and submission requirements of the HFCAA.114 Other aspects of the HFCAA, including the trading prohibition, will be addressed in subsequent Commission actions.115 The economic impact of these aspects of the HFCAA, while tied to the Board’s determinations about which audit firms it is unable to inspect or investigate completely, will depend on the implementation choices made by the Commission in carrying out its mandate under the HFCAA and thus are not considered as part of the economic analysis with respect to this rulemaking. The baseline also takes into consideration the current international reach of the Board’s oversight mandate. As of June 30, 2021, 851 non-U.S. firms, headquartered in 90 foreign jurisdictions, were registered with the Board.116 Out of those 851 non-U.S. registered firms, 202 issued at least one audit report on financial statements filed by an issuer with the Commission in the 12-month period ended June 30, 2021, and, altogether, they issued 1,260 audit reports during that 12-month period.117 Exhibit 1 reports the jurisdictions with the highest number of audit reports issued by non-U.S. registered firms on financial statements filed by issuers with the Commission during the 12month period ended June 30, 2021. The top 15 jurisdictions account for 84% of all audit reports issued by non-U.S. registered firms on financial statements filed by issuers during the 12-month period ended June 30, 2021. 114 See SEC Exchange Act Release No. 91364. The interim final rule amendments became effective on May 5, 2021. 115 See id. 116 Source: PCAOB Registration, Annual, and Special Reporting (‘‘RASR’’) System and Audit Analytics. 117 If a firm issued more than one audit report on financial statements filed by the same issuer during the 12-month period ended June 30, 2021, then only the most recent audit report is counted. E:\FR\FM\28SEN1.SGM 28SEN1 53715 Federal Register / Vol. 86, No. 185 / Tuesday, September 28, 2021 / Notices Exhibit 1. Top Fifteen Non-U.S. Jurisdictions by Number of Audit Reports Issued by Non-U.S. Registered Firms on Financial Statements Filed by Issuers Durio the 12-Month Period Ended June 30, 2021 118 Germany 1!'~j;fflj~,, iP~~::iir . + Other Non-US Jurisdictions 202 16.0% 3,563 28.6% 451 53.0% 88 43.6% m : - - ¥:a11ni:1:11W111¾AIDl\11WiMii~•&11,ilWl'ii-11M 1 1 As discussed in Section C above, over the years, the Board has been able to work effectively with authorities in foreign jurisdictions to fulfill its mandate to oversee registered firms located outside the United States. With rare exceptions, foreign audit regulators have cooperated with the Board and allowed it to exercise its oversight authority as it relates to registered firms located within their respective jurisdictions. Authorities in a limited number of foreign jurisdictions, however, have taken positions that deny the Board access for oversight activities. The PCAOB’s website identifies the 118 For purposes of Exhibit 1, a firm’s jurisdiction is the jurisdiction where it is headquartered. The number of audit reports issued on the financial statements of issuers and the number of registered firms that issued those reports are based on issuer filings during the 12-month period ended June 30, 2021. The market capitalization of those issuers and the number of registered firms in each jurisdiction are as of June 30, 2021. Due to a lack of data on the number of shareholders, some audit reports included in Exhibit 1 may have been issued on the financial statements of entities with fewer than 300 shareholders. If a firm issued more than one audit report on financial statements filed by the same issuer during the 12-month period ended June 30, 2021, then only the most recent audit report is counted. VerDate Sep<11>2014 16:35 Sep 27, 2021 Jkt 253001 jurisdictions that currently deny the Board such access.119 Considerations of the Benefits, Costs, and Unintended Consequences Compared to the baseline of no PCAOB rulemaking, the proposed rule would have incremental benefits and costs. The proposed rule’s scope is confined to establishing a framework for determinations that the Board is called upon by the HFCAA to make even absent a rulemaking. Additionally, neither the HFCAA nor the proposed rule gives the Board additional authority to take any action of legal consequence directly against a registered firm. Instead, the HFCAA contemplates that the Board would notify the Commission of its determinations, which may provide the predicate for other regulatory actions to be taken by the Commission if other conditions set forth in the HFCAA and the Commission’s rules are met. This situation is in contrast to the direct impact of the 119 See Audit Reports Issued by PCAOBRegistered Firms in Jurisdictions where Authorities Deny Access to Conduct Inspections, available at https://pcaobus.org/oversight/ational/deniedaccess-to-inspections. The information contained on this web page does not constitute a Board determination under the HFCAA. The Board has not yet made any determinations under the HFCAA. PO 00000 Frm 00088 Fmt 4703 Sfmt 4703 Board’s statutory mandate to register, set professional standards for, inspect, investigate, and discipline registered firms. One commenter stated that economic benefits and costs arise from the HFCAA, which the PCAOB cannot change and must implement. The Board’s analysis of the potential benefits, costs, and unintended consequences of the proposed rule does not presuppose any determination that the Board may make under the proposed rule, because the Board would determine whether to make any future determimations based on the facts and circumstances at that time. The Board’s analysis discusses the economic impacts of four central features of the proposed rule: (1) The Board’s ability to make determinations as to a particular foreign jurisdiction; (2) limiting those jurisdiction-wide determinations to firms headquartered in the jurisdiction; (3) the Board’s complementary ability to make determinations as to a particular registered firm; and (4) the Board’s publication of its determinations on its website. The analysis is qualitative in nature because of a lack of information and data necessary to provide reasonable quantitative estimates. Overall, the Board expects that the benefits of the proposed rule will justify E:\FR\FM\28SEN1.SGM 28SEN1 EN28SE21.001</GPH> Source: RASR, Audit Analytics, and Standard & Poor' s. 53716 Federal Register / Vol. 86, No. 185 / Tuesday, September 28, 2021 / Notices any costs and unintended negative effects. Benefits The Board believes that the proposed rule would inform investors, registered firms, issuers, audit committees, foreign authorities, and the public at large as to how the Board will perform its functions under the HFCAA. The improved transparency and reduced regulatory uncertainty might help market participants make more efficient investment decisions and, hence, enhance capital formation. Furthermore, the proposed rule will promote consistency in the Board’s processes regarding determinations. It will also assist the Commission in its consistent implementation of the HFCAA and achieving the statute’s intended objectives. These are the primary benefits of the proposed rule. Several commenters agreed that a Board rule governing HFCAA determinations can improve regulatory transparency and consistency and reduce regulatory uncertainty. The Board believes that the proposed rule’s jurisdiction-wide determinations would yield additional benefits. In the Board’s experience, when foreign authorities take a position that impairs the Board’s oversight access, the position applies generally to all firms within the jurisdiction. Consequently, jurisdiction-wide determinations would provide an efficient, effective means of making Board determinations under the HFCAA. Jurisdiction-wide determinations would be beneficial even when a foreign authority limits the Board’s ability to inspect or investigate certain types of issuer audit engagements. Typically, the foreign authority’s position applies to any firm in the jurisdiction that performs that type of engagement. If the Board were unable to make jurisdictionwide determinations and instead were required to single out for determination only the specific audit firms handling those issuer engagements at a particular time, those issuers potentially could evade the consequences of the HFCAA by routinely changing audit firms in response to each successive firmspecific determination issued by the Board.120 Beyond that, issuing a 120 If the Board were to make only firm-by-firm determinations based on each firm’s then-current client portfolio, the Board might need to establish a process requiring all registered firms to report auditor changes to the Board in real time so that the Board could monitor such changes and promptly make new determinations in response. Presently, the Board’s rules require firms to report their issuer clients to the Board only after the firm’s audit report on the issuer has been issued. See PCAOB Rule 3211(b), Auditor Reporting of Certain Audit VerDate Sep<11>2014 16:35 Sep 27, 2021 Jkt 253001 jurisdiction-wide determination in such a scenario would help ensure that foreign authorities cannot, in essence, choose which firms within their jurisdiction the Board may inspect or investigate. Limiting jurisdiction-wide determinations to firms headquartered in the jurisdiction would generate its own benefits. It would reduce the risk that a jurisdiction-wide determination sweeps too broadly by encompassing firms that merely have a physical presence or personnel in the jurisdiction but are headquartered elsewhere. Although a position taken by a foreign authority can naturally be understood to impact registered firms headquartered in the jurisdiction, its impact on firms that are headquartered elsewhere can turn on many factors, including the extent of the firm’s presence in the jurisdiction and the nature and extent of the audit work it performs there. With that in mind, the proposed rule provides that the Board could choose to make individualized determinations with respect to firms that are headquartered elsewhere but have an office in such a jurisdiction. Determinations as to a particular registered firm would complement the Board’s jurisdiction-wide determinations by providing an additional option when the Board concludes that an across-the-board jurisdiction-wide determination is not appropriate. Such a provision recognizes that although the Board generally expects to make jurisdictionwide determinations, it cannot anticipate every scenario it might encounter in the future. If a position taken by a foreign authority applies solely to one firm, which is expected to happen infrequently, the Board’s ability to make a determination as to that firm would be a critical tool for fulfilling the HFCAA’s objectives. Additionally, by providing an avenue for the Board to make determinations as to registered firms that are headquartered in a cooperating jurisdiction but have an office in a noncooperating jurisdiction, this provision would help ensure that the Board’s flexibility under the proposed rule matches its mandate under the HFCAA. The Board has also considered the potential benefits of making Board Participants (Form AP must be filed within 35 days after the audit report is first included in a filing with the Commission, except that Form AP must be filed within 10 days if the audit report is included in a registration statement under the Securities Act). One commenter noted that jurisdiction-wide determinations would appear to be more efficient for the PCAOB’s operations than determinations as to particular registered firms. PO 00000 Frm 00089 Fmt 4703 Sfmt 4703 determinations public on its website. Such publication would inform investors, registered firms, issuers, audit committees, foreign authorities, and the public regarding Board determinations, thus promoting transparency and reducing regulatory uncertainty. Market participants may benefit from being informed of Board determinations promptly, rather than waiting for the Commission’s identification of covered issuers. Costs and Unintended Consequences The Board has also considered the potential costs and unintended consequences of the proposed rule. The Board expects any such costs and consequences to be limited, as the proposed rule merely establishes a framework for the Board to perform the responsibilities imposed upon it by the HFCAA. The Board has evaluated the potential costs and unintended consequences of making jurisdiction-wide determinations. As explained in Section C above, such determinations treat all registered firms headquartered in the jurisdiction alike when the positions taken by authorities in the jurisdiction apply equally to any firm performing the same audit work for issuers, whether or not a particular registered firm happens to be doing such work when the Board makes a determination. To mitigate any perceived overinclusiveness or underinclusiveness of a jurisdiction-wide determination, the proposed rule limits those determinations to registered firms headquartered in the jurisdiction, while also permitting the Board, when appropriate, to supplement a jurisdiction-wide determination with a determination as to a particular firm that has an office in the jurisdiction but is not headquartered there.121 This approach, in the Board’s view, would be unlikely to impose incremental additional costs or lead to unintended consequences relative to the baseline, which consists of, among other things, the historical practice of identifying publicly the jurisdictions where there are unresolved obstacles to Board inspections and investigations. The Board does not expect that the second central feature of the proposed rule—limiting jurisdiction-wide determinations to firms headquartered in the jurisdiction—would lead to 121 Additionally, the Board has general residual exemption authority, subject to Commission approval, under Section 106(c) of the Act, and such authority could be used to address any potential overinclusiveness of a jurisdiction-wide determination. E:\FR\FM\28SEN1.SGM 28SEN1 Federal Register / Vol. 86, No. 185 / Tuesday, September 28, 2021 / Notices additional costs or unintended consequences. Related to the third central feature of the proposed rule—the Board’s ability to make determinations as to particular firms with an office in a foreign jurisdiction—one commenter encouraged the Board to consider the potential adverse impact on competition when assessing a potential future determination, and further encouraged the Board to provide equivalent treatment to similarly-situated firms. While any future determinations under the proposed rule as to particular registered firms may potentially have an impact on competition, such determinations, as noted in Section C above, are expected to be infrequent. Moreover, the magnitude of any impact would depend on many factors, such as the number of firms within the jurisdiction, the size of the firm as to which the determination is made, and how the foreign authority’s obstruction of the Board’s inspections or investigations has already affected competition in the jurisdiction. Separately, the Board has evaluated the potential costs and unintended consequences of making its determinations public. The Board believes that the incremental costs of such publication will likely be minimal because similar information has historically been available on the Board’s website for approximately a decade.122 Moreover, many issuers currently disclose in their annual reports the PCAOB’s inability to inspect their auditor, as the Commission recently observed.123 Alternatives Considered As an alternative to a rulemaking, the Board considered issuing guidance related to its process or establishing a non-public process for making its determinations. The Board has determined, however, that a rule would reduce regulatory uncertainty for market participants by providing transparency and promoting consistency as to how the Board would perform its functions under the statute. Commenters generally agreed that a rule governing the Board’s determination process would promote 122 See, e.g., Audit Reports Issued by PCAOBRegistered Firms in Jurisdictions where Authorities Deny Access to Conduct Inspections, available at https://pcaobus.org/over/international/deniedaccess-to-inspections. 123 See SEC Exchange Act Release No. 91364, at 26 (noting ‘‘a highly similar type and pattern of disclosure regarding the PCAOB’s inability to inspect those firms included in the majority of the potential Commission-Identified Issuers’ Item 3 (for Form 20–F filers) and Item 1A (for Form 10–K filers) discussion of risk factors’’). VerDate Sep<11>2014 16:35 Sep 27, 2021 Jkt 253001 transparency and consistency and reduce regulatory uncertainty. The Board also considered whether the proposed rule should be limited to determinations as to particular registered firms. Without jurisdictionwide determinations, however, the Board would have to make determinations only as to particular firms under subparagraph (a)(2) of the proposed rule, potentially based on the present composition of each firm’s client portfolio. The Board believes that such an approach would incentivize an issuer whose audit engagement cannot be inspected or investigated by the Board to switch audit firms frequently, possibly frustrating the intent of the HFCAA and potentially necessitating a new process for real-time reporting of auditor changes to the Board so that Board determinations could be made or reassessed on a timely basis. The Board also considered whether to extend its jurisdiction-wide determinations to all firms that have an office in the jurisdiction, rather than only those headquartered there. The Board elected not to do so, based on its oversight experience, because the impact of a position taken by a foreign authority on a firm headquartered elsewhere can vary based on the particulars of the firm’s presence, audit work, and issuer clients in the jurisdiction. When prescribing the grounds upon which a determination may rest, the Board considered whether the Board’s commencement and subsequent inability to finish an inspection or investigation should be a prerequisite to a determination. The Board has not adopted that approach because the position taken by a foreign authority can frustrate the initiation of, or the ability to complete, an inspection or investigation. Moreover, commencing inspections or investigations in the face of such obstacles would be costly and fruitless, not only for the Board, but also for registered firms. Lastly, although it can exercise exemption authority under Section 106(c) of the Act with the Commission’s approval,124 the Board considered whether the proposed rule should include a procedure for the Board to grant exceptions from a jurisdictionwide determination. The Board did not 124 See Section 106(c) of the Act (‘‘[T]he Board, subject to the approval of the Commission, may, by rule, regulation, or order, and as [the Board] determines necessary or appropriate in the public interest or for the protection of investors, either unconditionally or upon specified terms and conditions exempt any foreign public accounting firm, or any class of such firms, from any provision of this Act or the rules of the Board . . . issued under this Act.’’). PO 00000 Frm 00090 Fmt 4703 Sfmt 4703 53717 include such a mechanism in the proposed rule for five principal reasons: • An exception procedure would be inconsistent with the rationale for jurisdiction-wide determinations, namely, that the foreign authority has taken a position of such general scope and application that it obstructs the Board’s ability to complete inspections or investigations in that jurisdiction. • To the extent that exception arguments would be based on the composition of a firm’s client portfolio at a moment in time, entertaining such arguments would require speculation as to whether the foreign authority would impede the Board’s ability to inspect or investigate those audits and would create a moving target as the firm gains and loses clients over time. • Exceptions might increase the risk of a ‘‘shell game.’’ If a firm becomes subject to a Board determination because the Board cannot inspect certain types of issuer audit engagements it performed, those issuers might simply migrate to an excepted firm, triggering the need for the Board to monitor auditor changes constantly and then modify its determinations or revise its exceptions. • An exception procedure might encourage foreign authorities to manipulate the determination process by cherry-picking certain firms that the PCAOB can inspect, thereby casting doubt on the justification for the Board’s jurisdiction-wide determination. • Allowing firms to seek exceptions could effectively transform the Board’s jurisdiction-wide approach to a firm-byfirm approach that consumes substantial Board resources and fails to protect investors. One commenter indicated that the Board’s existing exemption authority is adequate and expressed concern that granting exceptions could transform the Board’s jurisdiction-wide approach into a firm-by-firm approach that consumes substantial resources and fails to protect investors. The Board agrees with this commenter and has not created a procedure for granting exceptions from a jurisdiction-wide determination. III. Date of Effectiveness of the Proposed Rule and Timing for Commission Action Within 45 days of the date of publication of this notice in the Federal Register or within such longer period (i) as 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: E:\FR\FM\28SEN1.SGM 28SEN1 53718 Federal Register / Vol. 86, No. 185 / Tuesday, September 28, 2021 / Notices (A) By order approve or disapprove such proposed rule; or (B) institute proceedings to determine whether the proposed rule should be disapproved. For the Commission, by the Office of the Chief Accountant, by delegated authority.125 Vanessa A. Countryman, Secretary. IV. Solicitation of Comments BILLING CODE 8011–01–P Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including whether the proposed rule is consistent with the requirements of Title I of the Act. Comments may be submitted by any of the following methods: Electronic Comments • Use the Commission’s internet comment form (https://www.sec.gov/ rules/pcaob.shtml); or • Send an email to rule-comments@ sec.gov. Please include File No. PCAOB–2021–01 on the subject line. Paper Comments • Send paper comments in triplicate to Vanessa Countryman, Secretary, U.S. Securities and Exchange Commission, 100 F Street NE, Washington, DC 20549–1090. All submissions should refer to File No. PCAOB–2021–01. This file number should be included on the subject line if email 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 website (https://www.sec.gov/rules/ pcaob.shtml). Copies of the submission, all subsequent amendments, all written statements with respect to the proposed rule that are filed with the Commission, and all written communications relating to the proposed rule 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 website viewing and printing in the Commission’s Public Reference Room, 100 F Street NE, Washington, DC 20549–1090, on official business days between the hours of 10:00 a.m. and 3:00 p.m. Copies of such filings will also be available for inspection and copying at the principal office of the PCAOB. All comments received will be posted without change. Persons submitting comments are cautioned that we do not redact or edit personal identifying information from comment submissions. All submissions should refer to File No. PCAOB–2021– 01 and should be submitted on or before October 19, 2021. 125 17 CFR 200.30–11(b)(1) and (3). VerDate Sep<11>2014 16:35 Sep 27, 2021 Jkt 253001 [FR Doc. 2021–21056 Filed 9–23–21; 4:15 pm] SECURITIES AND EXCHANGE COMMISSION [Release No. 34–93102; File No. SR–OCC– 2021–007] Self-Regulatory Organizations; the Options Clearing Corporation; Order Granting Approval of Proposed Rule Change Concerning the Options Clearing Corporation’s Governance Arrangements September 22, 2021. I. Introduction On July 30, 2021, the Options Clearing Corporation (‘‘OCC’’) filed with the Securities and Exchange Commission (‘‘Commission’’) the proposed rule change SR–OCC–2021– 007 (‘‘Proposed Rule Change’’) pursuant to Section 19(b) of the Securities Exchange Act of 1934 (‘‘Exchange Act’’) 1 and Rule 19b–4 2 thereunder to provide OCC’s Board of Directors (‘‘Board’’) with the discretion to elect either an Executive Chairman or a NonExecutive Chairman to preside over the Board, provide the Board and stockholders with the discretion to elect a Management Director, clarify the respective authority and responsibility of any Executive Chairman or NonExecutive Chairman, and make other clarifying, conforming, and administrative changes to OCC’s rules.3 The Proposed Rule Change was published for public comment in the Federal Register on August 11, 2021.4 The Commission has received no comments regarding the Proposed Rule Change. This order approves the Proposed Rule Change. Background 5 II. Article III, Section I of OCC’s By-Laws currently requires that the Board be composed of nine Member Directors,6 1 15 U.S.C. 78s(b)(1). CFR 240.19b–4. 3 See Notice of Filing infra note 4, 86 FR 44105. 4 Securities Exchange Act Release No. 92584 (Aug. 5, 2021), 86 FR 44105 (Aug. 11, 2021) (File No. SR–OCC–2021–007) (‘‘Notice of Filing’’). 5 Capitalized terms used but not defined herein have the meanings specified in OCC’s Rules and ByLaws, available at https://www.theocc.com/about/ publications/bylaws.jsp. 6 Member Directors include Clearing Members or representatives of a Clearing Member. OCC endeavors to achieve balanced representation among Clearing Members on the Board of Directors 2 17 PO 00000 Frm 00091 Fmt 4703 Sfmt 4703 five Exchange Directors,7 five Public Directors,8 and an Executive Chairman (who also serves as a Management Director 9). OCC’s Executive Chairman is responsible for managing the Board while also being involved with the ‘‘day-to-day’’ management decisions of OCC. By contrast, a ‘‘Non-Executive Chairman’’ is typically not an employee of the company and focuses solely on leading and supporting its board of directors. As described in more detail below, OCC proposes to revise its governing documents, including its By-Laws, Rules, Board of Directors Charter and Corporate Governance Principles (‘‘Board Charter’’), Audit Committee Charter, Compensation and Performance Committee Charter, Governance and Nominating Committee Charter, Risk Committee Charter, Technology Committee Charter (such committee charters collectively being the ‘‘Board Committee Charters’’), and Amended and Restated Stockholders Agreement (‘‘Stockholders Agreement’’), to give the Board discretion to elect either an Executive or Non-Executive Chairman to preside over the Board. The Proposed Rule Change would also provide the Board and stockholders with discretion to elect Management Directors from OCC’s management, which would be necessary if OCC does not have an Executive Chairman. OCC notes that the Proposed Rule Change would provide clarity around the authority and responsibilities of an Executive Chairman versus a Non-Executive Chairman.10 OCC also proposes to make additional clarifying, conforming, and administrative changes to the documents listed above. OCC believes that the Proposed Rule Change would provide appropriate flexibility to the Board to evaluate OCC’s governance arrangements, including whether OCC should have an Executive or Nonto assure that (i) not all Member Directors are representatives of the largest Clearing Member organizations based on the prior year’s volume, and (ii) the mix of Member Directors includes representatives of Clearing Member organizations that are primarily engaged in agency trading on behalf of retail customers or individual investors. See Article III, Section 5 of the OCC By-Laws. 7 Exchange Directors represent the equity exchanges that are holders of Class B Common Stock of the OCC. Exchange Directors need not be Clearing Members or be associated with a Clearing Member organization. See Article III, Section 6 of the OCC By-Laws. 8 Public Directors are independent directors who are not affiliated with any national securities exchange or national securities association or with any broker or dealer. See Article III, Section 6A of the OCC By-Laws. 9 Management Directors also serve as employees of OCC. See Article III, Section 7 of the OCC ByLaws. 10 See Notice of Filing supra note 4, 86 FR 44106. E:\FR\FM\28SEN1.SGM 28SEN1

Agencies

SECURITIES AND EXCHANGE COMMISSION

[Federal Register Volume 86, Number 185 (Tuesday, September 28, 2021)]
[Notices]
[Pages 53699-53718]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-21056]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-93112; File No. PCAOB-2021-01]

Public Company Accounting Oversight Board; Notice of Filing of
Proposed Rule on Board Determinations Under the Holding Foreign
Companies Accountable Act

September 23, 2021.
Pursuant to Section 107(b) of the Sarbanes-Oxley Act of 2002 (the
``Act''), notice is hereby given that on September 23, 2021, the Public
Company Accounting Oversight Board (the ``Board'' or ``PCAOB'') filed
with the Securities and Exchange Commission (the ``Commission'' or
``SEC'') the proposed rule described in items I and II 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 September 22, 2021, the Board adopted PCAOB Rule 6100, Board
Determinations Under the Holding Foreign Companies Accountable Act (the
``proposed rule''). The text of the proposed rule appears in Exhibit A
to the SEC Filing Form 19b-4 and is available on the Board's website at
https://pcaobus.org/about/rules-rulemaking/rulemaking-dockets/docket-048-proposed-rule-governing-board-determinations-under-holding-foreign-companies-accountable-act and at the Commission's Public Reference
Room.

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 and
discussed comments it received on 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, C, and D
below, of the most significant aspects of such statements. In addition,
the Board is requesting that the Commission determine that Section
103(a)(3)(C) of the Act does not apply to the proposed rule. The
Board's conclusion in this regard is set forth in Section D.

A. Board's Statement of the Purpose of, and Statutory Basis for, the
Proposed Rule

(a) Purpose
The Act mandates that the Board inspect registered public
accounting firms and investigate possible statutory, rule, and
professional standards violations committed by those firms and their
associated persons. That mandate applies with equal force to the
Board's oversight of registered firms in the United States and in
foreign jurisdictions.
Over the course of more than a decade, the Board has worked
effectively with authorities in foreign jurisdictions to fulfill its
mandate to oversee registered firms located outside the United States.
With rare exceptions, foreign audit regulators have cooperated with the
Board and allowed it to exercise its oversight authority as it relates
to registered firms located within

[[Page 53700]]

their respective jurisdictions. The norms of international comity have
guided those efforts and allowed the Board to work cooperatively across
borders, to resolve conflicts of law, and to overcome other potential
obstacles. The Board benefits greatly from cross-border cooperation
with its international counterparts and has built constructive
relationships that facilitate meaningful oversight. Authorities in a
limited number of foreign jurisdictions, however, have taken positions
that deny the Board the access it needs to conduct its mandated
oversight activities.
Recognizing the ongoing obstacles to Board inspections and
investigations in certain foreign jurisdictions, Congress enacted the
Holding Foreign Companies Accountable Act (``HFCAA'').\1\ The HFCAA
requires that the Board determine whether it is unable to inspect or
investigate completely registered public accounting firms located in a
foreign jurisdiction because of a position taken by one or more
authorities in that jurisdiction. The HFCAA, among other things, also
mandates that, after the Board makes such a determination, the
Commission shall require covered issuers \2\ who retain such firms to
make certain disclosures in their annual reports and, eventually, if
certain conditions persist, shall prohibit trading in those issuers'
securities.\3\
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\1\ Public Law 116-222, 134 Stat. 1063 (Dec. 18, 2020).
\2\ See HFCAA Sec. 2(i)(1)(A), 15 U.S.C. 7214(i)(1)(A)
(defining ``covered issuer''). An ``issuer,'' as that term is used
here, is distinct from a ``covered issuer,'' and is defined in
Section 2(a)(7) of the Act.
\3\ See generally Holding Foreign Companies Accountable Act
Disclosure, SEC Exchange Act Release No. 91364 (Mar. 18, 2021).
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Following public comment, the Board adopted the proposed rule, with
some modifications after consideration of comments, to establish a
framework for the Board to make its determinations under the HFCAA. The
proposed rule establishes the manner of the Board's determinations; the
factors the Board will evaluate and the documents and information it
will consider when assessing whether a determination is warranted; the
form, public availability, effective date, and duration of such
determinations; and the process by which the Board will reaffirm,
modify, or vacate any such determinations.
(b) Statutory Basis
The statutory basis for the proposed rule is Title I of the Act.

B. Board's Statement on Burden on Competition

Not applicable. The Board's consideration of the economic impacts
of the proposed rule is discussed in Section D below.

C. Board's Statement on Comments on the Proposed Rule Received From
Members, Participants or Others

Rulemaking History
On May 13, 2021, the Board proposed a new rule that would establish
a framework for the Board's determinations under the HFCAA.\4\ The
Board received eight comments on the proposal from commenters across a
range of affiliations.\5\ Commenters generally noted that the Board's
statutorily mandated oversight activities--including the Board
inspections and investigations referenced in the HFCAA--promote audit
quality and enhance the quality of financial reporting, which serve to
protect investors and further the public interest. The proposed rule is
informed by the comments received. The proposed rule also takes into
account observations based on PCAOB oversight activities.
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\4\ See PCAOB Rel. No. 2021-001, Proposed Rule Governing Board
Determinations Under the Holding Foreign Companies Accountable Act
(May 13, 2021).
\5\ The comment letters on the proposal are available on the
Board's website in Rulemaking Docket No. 048, available at https://pcaobus.org/about/rules-rulemaking/rulemaking-dockets/docket-048-proposed-rule-governing-board-determinations-under-holding-foreign-companies-accountable-act. During the comment period, Board members
and staff discussed the proposal during a webinar for investors on
international issues, a transcript of which also is available in
Rulemaking Docket No. 048.
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Background
The Board's Oversight of Non-U.S. Registered Public Accounting Firms
Through Board Inspections and Investigations
Section 102 of the Act prohibits public accounting firms that are
not registered with the Board from preparing or issuing, or from
participating in the preparation or issuance of, audit reports with
respect to issuers, brokers, or dealers.\6\ Implementing this
prohibition, PCAOB Rule 2100, Registration Requirements for Public
Accounting Firms, provides that each public accounting firm that
prepares or issues an audit report with respect to an issuer, broker,
or dealer, or plays a substantial role in the preparation or furnishing
of such a report, must be registered with the Board.\7\
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\6\ See Section 102(a) of the Act; see also Section 2(a)(7) of
the Act & PCAOB Rule 1001(i)(iii) (defining ``issuer''); Section
110(3) of the Act & PCAOB Rule 1001(b)(iii) (defining ``broker'');
Section 110(4) of the Act & PCAOB Rule 1001(d)(iii) (defining
``dealer'').
\7\ See PCAOB Rule 2100; see also PCAOB Rule 1001(p)(ii)
(defining ``play a substantial role in the preparation or furnishing
of an audit report'').
---------------------------------------------------------------------------

These provisions apply equally to U.S. and non-U.S. public
accounting firms. Section 106 of the Act provides that any non-U.S.
public accounting firm that prepares or furnishes an audit report with
respect to an issuer, broker, or dealer is subject to the Act and to
the Board's rules ``in the same manner and to the same extent'' as a
U.S. public accounting firm.\8\ Therefore, non-U.S. firms issuing such
reports must register with the Board. Section 106 of the Act further
authorizes the Board to require non-U.S. firms that do not issue such
reports but that play a substantial role in the preparation or
furnishing of such reports to register with the Board,\9\ and the Board
exercised that authority when it adopted Rule 2100.\10\
---------------------------------------------------------------------------

\8\ Section 106(a)(1) of the Act.
\9\ See Section 106(a)(2) of the Act.
\10\ See PCAOB Rule 2100. Section 106(c) of the Act allows the
Board, subject to Commission approval, to exempt a non-U.S. firm or
any class of such firms from any provision of the Act or the Board's
rules, upon a determination that doing so is necessary or
appropriate in the public interest or for the protection of
investors. In connection with the launch of its oversight system in
2003, the Board received numerous requests that non-U.S. firms be
exempted from the Board's oversight requirements, but the Board
declined to adopt any such exemptions, finding such exemptions to be
inconsistent with its mandate to protect investors. See, e.g.,
Registration System for Public Accounting Firms, PCAOB Rel. No.
2003-007, at 13, 17-20 (May 6, 2003); see also, e.g., Final Rule
Concerning the Timing of Certain Inspections of Non-U.S. Firms, and
Other Issues Relating to Inspections of Non-U.S. Firms, PCAOB Rel.
No. 2009-003, at 9 n.23 (June 25, 2009).
---------------------------------------------------------------------------

Thus, by virtue of Section 106 of the Act and Rule 2100, non-U.S.
firms are subject to the same registration requirements as U.S. firms,
and, once registered, they are subject to the same oversight as U.S.
firms. This oversight includes Board inspections at mandated regular
intervals and Board investigations.
The Board's Inspection Mandate
The Act mandates that the Board administer a continuing program of
inspections that assesses registered firms' and their associated
persons' compliance with the Act, the rules of the Board, the rules of
the Commission, and professional standards in connection with the
performance of audits, the issuance of audit reports, and related
matters involving issuers.\11\

[[Page 53701]]

Board inspections are the Board's ``primary tool of oversight.'' \12\
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\11\ See Section 104(a)(1) of the Act; see also Section
101(c)(3) of the Act; PCAOB Rule 4000(a), General. The Act also
permits the Board to establish, by rule, a program of inspection
with respect to registered firms that provide one or more audit
reports for a broker or dealer. See Section 104(a)(2) of the Act.
The Board's rules provide for an interim inspection program related
to audits of brokers and dealers. See PCAOB Rule 4020T, Interim
Inspection Program Related to Audits of Brokers and Dealers.
\12\ PCAOB Rel. No. 2009-003, at 8-9; see also Order Approving
Proposed Amendment to Board Rules Relating to Inspections, SEC
Exchange Act Release No. 61649, at 5 (Mar. 4, 2010) (observing that
inspections are ``the cornerstone of the Board's regulatory
oversight of audit firms'').
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In accordance with the Act, and as set forth in the Board's rules,
the Board periodically inspects the audits of registered public
accounting firms.\13\ Board inspections must be performed annually with
respect to each registered firm that regularly provides audit reports
for more than 100 issuers, and at least triennially with respect to
each registered firm that regularly provides audit reports for 100 or
fewer issuers.\14\ The Board also may conduct special inspections on
its own initiative or at the Commission's request.\15\
---------------------------------------------------------------------------

\13\ See Section 104(a)(1) of the Act. Generally, a registered
firm's issuance of an audit report triggers a PCAOB inspection,
subject to certain limited exceptions. See Section 104(b)(1) of the
Act; PCAOB Rules 4003(a)-(b), Frequency of Inspections; see also
PCAOB Rules 4003(c) & (e) (identifying certain circumstances in
which the Board has discretion to forgo an inspection of a firm).
Additionally, the Board conducts inspections of firms that have not
issued an audit report with respect to an issuer but have played a
substantial role in the preparation or furnishing of such a report.
See PCAOB Rule 4003(h).
\14\ See Section 104(b)(1) of the Act; see also PCAOB Rules
4003(a)-(b). The Act provides that the Board, by rule, may adjust
the annual and triennial inspection schedules if the Board finds
that different schedules are consistent with the purposes of the
Act, the public interest, and the protection of investors. See
Section 104(b)(2) of the Act; see also PCAOB Rules 4003(d)-(g)
(adjusting the inspection schedule in certain circumstances).
\15\ See Section 104(b)(2) of the Act.
---------------------------------------------------------------------------

During an inspection, the Board reviews audit engagements
``selected by the Board.'' \16\ The Board also evaluates the
sufficiency of the firm's quality control system (and the documentation
and communication of that system), and may perform other testing of the
firm's audit, supervisory, and quality control procedures as deemed
necessary or appropriate in light of the purpose of the inspection and
the responsibilities of the Board.\17\
---------------------------------------------------------------------------

\16\ Section 104(d)(1) of the Act.
\17\ See Sections 104(d)(2) and 104(d)(3) of the Act.
---------------------------------------------------------------------------

To conduct an inspection, the Board must obtain documents and
information from the firm and its associated persons, and when the
Board requests such documents or information, registered firms and
their associated persons must comply. In this regard, the Act provides
that a firm's cooperation in and compliance with document requests made
in furtherance of the Board's authority and responsibilities under the
Act are a condition to the continuing effectiveness of the firm's
registration with the Board.\18\ Furthermore, PCAOB Rule 4006, Duty to
Cooperate With Inspectors, imposes on registered firms and their
associated persons a duty to cooperate with PCAOB inspectors, which
includes complying with requests for access to, and the ability to
copy, any record in their possession, custody, or control, and with
requests for information by oral interviews, written responses, or
otherwise.\19\
---------------------------------------------------------------------------

\18\ See Section 102(b)(3) of the Act. Section 102(b)(3)(A) of
the Act specifies that each registration application shall contain
``a consent executed by the . . . firm to cooperation in and
compliance with any request for . . . documents made by the Board in
the furtherance of its authority and responsibilities'' under the
Act. Section 102(b)(3)(B) of the Act, in turn, provides that each
registration application shall contain a statement that the firm
``understands and agrees that [such] cooperation and compliance . .
. shall be a condition to the continuing effectiveness of the
registration of the firm with the Board.''
\19\ See PCAOB Rule 4006; see also Gately & Assocs., LLC, SEC
Exchange Act Release No. 62656, at 9 (Aug. 5, 2010) (``The
obligations under Rule 4006 are unequivocal, and apply to `any
request[ ] made in furtherance of the Board's authority and
responsibilities. ' '' (quoting Rule 4006)). Documents and
information prepared or received by or specifically for the Board in
connection with an inspection are confidential and privileged as an
evidentiary matter, but the Board may share them with the Commission
and, under certain circumstances, with the Attorney General of the
United States, certain federal regulators, state attorneys general,
certain state regulators, and certain self-regulatory organizations.
See Section 105(b)(5)(B) of the Act.
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The Board's Investigation Mandate
The Act also authorizes the Board to conduct investigations (and,
relatedly, disciplinary proceedings) with respect to registered firms
and their associated persons.\20\ The Board may investigate any act,
practice, or omission to act by a registered firm or associated person
that may violate the Act, the rules of the Board, the provisions of the
securities laws relating to the preparation and issuance of audit
reports and the obligations and liabilities of accountants with respect
thereto, including the rules of the Commission issued under the Act, or
professional standards, regardless of how the act, practice, or
omission came to the Board's attention.\21\
---------------------------------------------------------------------------

\20\ See Section 101(c)(4) of the Act; see also Section 105(a)
of the Act.
\21\ See Section 105(b)(1) of the Act.
---------------------------------------------------------------------------

As with inspections, the Board's ability to conduct investigations
depends on the Board's ability to obtain documents and information from
registered firms and their associated persons. Pursuant to the Act,\22\
the Board has adopted rules under which the Board may (1) require
testimony of a registered firm or an associated person thereof with
respect to any matter that the Board considers relevant or material to
an investigation; \23\ (2) require production of audit work papers and
any other document or information possessed by a registered firm or
associated person, wherever domiciled, that the Board considers
relevant or material to an investigation; \24\ (3) inspect the books or
records of a registered firm or associated person to verify the
accuracy of any documents or information supplied; \25\ (4) request the
testimony of, or any document in the possession of, any other person
that the Board considers relevant or material to an investigation,
subject to certain limitations; \26\ and (5) seek issuance by the
Commission, in a manner established by the Commission, of a subpoena
requiring the testimony of, or the production of any document in the
possession of, any person that the Board considers relevant or material
to an investigation.\27\
---------------------------------------------------------------------------

\22\ See Section 105(b)(2) of the Act.
\23\ See PCAOB Rule 5102, Testimony of Registered Public
Accounting Firms and Associated Persons in Investigations.
\24\ See PCAOB Rule 5103, Demands for Production of Audit
Workpapers and Other Documents from Registered Public Accounting
Firms and Associated Persons.
\25\ See PCAOB Rule 5104, Examination of Books and Records in
Aid of Investigations.
\26\ See PCAOB Rule 5105, Requests for Testimony or Production
of Documents from Persons Not Associated with Registered Public
Accounting Firms.
\27\ See PCAOB Rule 5111, Requests for Issuance of Commission
Subpoenas in Aid of an Investigation.
---------------------------------------------------------------------------

Pursuant to the Act, a firm's cooperation in and compliance with
requests for testimony and for the production of documents made in
furtherance of the Board's authority and responsibilities are a
condition to the continuing effectiveness of the firm's registration
with the Board.\28\ Moreover, if a registered firm or associated person
refuses to testify, produce documents, or otherwise cooperate with a
Board investigation, the Board can impose sanctions, which may include
suspending or revoking a firm's registration and suspending or barring
an individual from associating with a registered firm.\29\ As the
Commission has observed, failing to cooperate in a

[[Page 53702]]

Board investigation is ``very serious misconduct.'' \30\
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\28\ See Section 102(b)(3) of the Act.
\29\ See Section 105(b)(3) of the Act; PCAOB Rule 5110,
Noncooperation with an Investigation.
\30\ R.E. Bassie & Co., SEC Accounting and Auditing Enforcement
Release No. 3354, at 11 (Jan. 10, 2012).
---------------------------------------------------------------------------

The Act requires the Board to coordinate its investigations with
the Commission. The Board must notify the Commission of any pending
Board investigation that involves a potential violation of the
securities laws, and must thereafter coordinate its work with the
Commission's Division of Enforcement as necessary to protect any
ongoing Commission investigation.\31\ The Act also authorizes the Board
to refer an investigation to the Commission, a self-regulatory
organization, certain other federal regulators, and, at the
Commission's direction, certain attorneys general and state
regulators.\32\
---------------------------------------------------------------------------

\31\ See Section 105(b)(4)(A) of the Act; see also PCAOB Rule
5112(a), Commission Notification of Order of Formal Investigation.
Documents and information prepared or received by or specifically
for the Board in connection with an investigation are confidential
and privileged as an evidentiary matter, but the Board may share
them with the Commission and, under certain circumstances, with the
Attorney General of the United States, certain federal regulators,
state attorneys general, certain state regulators, and certain self-
regulatory organizations. See Section 105(b)(5)(B) of the Act.
\32\ See Section 105(b)(4)(B) of the Act; see also PCAOB Rule
5112(b), Board Referrals of Investigations; PCAOB Rule 5112(c),
Commission-directed Referrals of Investigations.
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The Board's Cooperative Framework for International Oversight
The Board has long observed that certain aspects of its inspection
and investigation mandates raise special concerns for non-U.S. firms,
including potential conflicts with non-U.S. law.\33\ Acknowledging
these challenges early on, the Board affirmed its commitment ``to
finding ways to accomplish the goals of the Act without subjecting non-
U.S. firms to conflicting requirements.'' \34\ The Board then worked
with its international counterparts where necessary or appropriate,
based on norms of international comity, to develop arrangements and
working practices to enable the Board and other audit regulators to
achieve their respective mandates in a manner responsive to the
potential conflicts of law that non-U.S. firms might confront.\35\ The
Board's cooperative approach to oversight of registered firms located
outside the United States did not, however, entail any abandonment of
the Board's inspection or investigation mandates or any relinquishment
of the Board's statutory authority to obtain the documents and
information it needs from non-U.S. firms in order to execute those
mandates.\36\
---------------------------------------------------------------------------

\33\ See, e.g., Proposed Rules Relating to the Oversight of Non-
U.S. Public Accounting Firms, PCAOB Rel. No. 2003-024, at 3 (Dec.
10, 2003).
\34\ Inspection of Registered Public Accounting Firms, PCAOB
Rel. No. 2003-019, at 5, A2-15-A2-16 (Oct. 7, 2003).
\35\ See, e.g., Briefing Paper, Oversight of Non-U.S. Public
Accounting Firms, PCAOB Rel. No. 2003-020, at 1-2 (Oct. 28, 2003)
(``[T]he PCAOB seeks to become partners with its international
counterparts in the oversight of the audit firms that operate in the
global capital markets. . . . [A]n arrangement based on mutual
cooperation with other high quality regulatory systems respects the
cultural and legal differences of the regulatory regimes that exist
around the world.''); PCAOB Rel. No. 2003-024, at 8 (``The Board
also believes its [cooperative] arrangements may reduce potential
conflicts of law . . . .'').
\36\ PCAOB Rel. No. 2003-020, at 5 (``The Board believes that it
is appropriate that a cooperative approach respect the laws of other
jurisdictions, to the extent possible. At the same time, every
jurisdiction must be able to protect the participants in, and the
integrity of, its capital markets as it deems necessary and
appropriate.''); accord Final Rules Relating to Oversight of Non-
U.S. Firms, PCAOB Rel. No. 2004-005, at 3, A2-17 (June 9, 2004).
---------------------------------------------------------------------------

When the Board adopted its cooperative framework for overseeing
non-U.S. registered firms,\37\ it rejected calls to afford non-U.S.
firms that elected to register with the Board a legal-conflict
accommodation during inspections and investigations.\38\ In so doing,
the Board reiterated that ``[p]reserving the Board's ability to access
audit work papers and other documents or information maintained by
registered public accounting firms, including non-U.S. registered
public accounting firms, is critical to the Board carrying out its
obligations under the Act.'' \39\ For that reason, the Board did not
believe that it would be ``in the interests of U.S. investors or the
public for the Board to adopt a rule of general application that would
limit its ability to access such documents or information regardless of
the circumstances or need for those documents or information.'' \40\
---------------------------------------------------------------------------

\37\ See generally PCAOB Rel. No. 2004-005.
\38\ See id. at A2-15-A2-16.
\39\ Id. at A2-16.
\40\ Id. at A2-16-A2-17.
---------------------------------------------------------------------------

The Commission approved the Board's rules regarding oversight of
non-U.S. firms, which embody the cooperative approach described
above.\41\ The Commission observed that the PCAOB was discussing
potential conflicts of law with foreign audit oversight bodies and
encouraged the PCAOB to continue those discussions and to consider ways
to work cooperatively with its international counterparts.\42\
---------------------------------------------------------------------------

\41\ See Order Approving Proposed Rules Relating to Oversight of
Non-U.S. Registered Public Accounting Firms, SEC Exchange Act
Release No. 34-50291, at 3 (Aug. 30, 2004).
\42\ See id. at 3.
---------------------------------------------------------------------------

Those discussions have continued, and nearly all have been
fruitful. The Board's oversight programs take into account the
possibility that a non-U.S. firm's obligations under the Act or the
Board's rules might conflict with non-U.S. law. The Board has
established procedures that enable non-U.S. firms to assert legal
conflicts during the registration and periodic reporting processes so
that such firms are not prevented from completing a registration
application or complying with periodic reporting requirements.\43\ The
Board also seeks to coordinate and cooperate with its international
counterparts when conducting inspections or investigations in other
countries.\44\ Nevertheless, in all respects, the Board has made clear
that its statutory authority to obtain the documents and information it
needs to conduct inspections and investigations has not been
relinquished, surrendered, forfeited, or otherwise vitiated.\45\
---------------------------------------------------------------------------

\43\ PCAOB Rule 2105, Conflicting Non-U.S. Laws, permits a non-
U.S. firm to withhold required information from its registration
application based on an asserted conflict with non-U.S. law. That
rule allows the Board to treat a registration application as
complete if the firm, among other things, submits a copy of the
purportedly conflicting non-U.S. law and an accompanying legal
opinion. But Rule 2105 does not provide a vehicle for resolving
conflicts of law during registration, nor does it apply ``to
potential conflicts of law that may arise subsequent to
registration.'' PCAOB Rel. No. 2004-005, at A2-16-A2-18; see also
PCAOB Rule 2207, Assertions of Conflicts with Non-U.S. Laws
(establishing a similar process for registered firms' annual and
special reports to the Board).
\44\ See, e.g., Rules on Periodic Reporting by Registered Public
Accounting Firms, PCAOB Rel. No. 2008-004, at 32 (June 10, 2008).
\45\ See, e.g., id. at 41 (``The Board has consistently
maintained that, although it will seek to work cooperatively with
and through non-U.S. regulators, and although it is willing to
accommodate a non-U.S. firm's reluctance (rooted in an asserted
conflict of law) to provide the required written consent to
cooperate, each firm ultimately has an obligation to cooperate with
the Board to the extent that the Board requires cooperation. The
Board does not view this statutory obligation as limited or
qualified by non-U.S. legal restrictions.'').
---------------------------------------------------------------------------

Resolution of Obstacles to Inspections and Investigations in Non-U.S.
Jurisdictions
The practices and approaches the Board has successfully developed
with foreign regulators to resolve conflicts and to complete
inspections and investigations under the Act can differ from
jurisdiction to jurisdiction, but they all implement three core
principles:

[[Page 53703]]

(1) The Board must be able to conduct inspections and
investigations consistent with its mandate; \46\
---------------------------------------------------------------------------

\46\ See, e.g., Section 104(a)(1) of the Act (requiring a
``continuing program of inspections''); Section 104(b)(1) of the Act
(establishing inspection frequency requirements); Section 104(c) of
the Act (requiring identification of non-compliant acts, practices,
or omissions to act, and providing for reporting of such conduct to
the Commission and appropriate state regulatory authorities, when
appropriate); Section 105(b)(1) of the Act (authorizing Board
investigations); Section 105(b)(3) of the Act (authorizing the
imposition of sanctions for noncooperation with an investigation);
Section 105(b)(4) of the Act (requiring coordination with the
Commission's Division of Enforcement and authorizing referrals of
investigations in certain circumstances); Section 105(b)(5)(B)(i) of
the Act (authorizing the Board to share with the Commission
documents received in connection with an inspection or
investigation).
---------------------------------------------------------------------------

(2) The Board must be able to select the audit work and potential
violations to be examined; \47\ and
---------------------------------------------------------------------------

\47\ See, e.g., Section 104(d)(1) of the Act (directing the
Board to inspect and review audit and review engagements ``as
selected by the Board''); Section 104(d)(3) of the Act (authorizing
the Board to perform other testing of audit, supervisory, and
quality control procedures as are necessary or appropriate in light
of the purpose of the inspection and the responsibilities of the
Board); Section 105(b)(1) of the Act (authorizing the Board to
conduct an investigation of ``any'' act, practice, or omission to
act by a registered firm or an associated person thereof that may
violate ``any'' provision of the Act, the rules of the Board, the
provisions of the securities laws relating to the preparation and
issuance of audit reports and the obligations and liabilities of
accountants with respect thereto, including the rules of the
Commission under the Act, or professional standards).
---------------------------------------------------------------------------

(3) The Board must have access to firm personnel, audit work
papers, and other information and documents deemed relevant by Board
staff.\48\
---------------------------------------------------------------------------

\48\ See, e.g., Section 104(d)(1) of the Act (directing the
Board to inspect and review audit and review engagements); Section
104(d)(2) of the Act (directing the Board to evaluate the
sufficiency of a registered firm's quality control system, including
the manner of the documentation and communication of that system);
Section 105(b)(2)(A)-(B) of the Act (authorizing the Board to
require the testimony of, and the production of audit work papers
and any other documents or information from, registered firms and
their associated persons, wherever domiciled, and to inspect the
books and records of such firm or associated person to verify the
accuracy of any documents or information supplied).
---------------------------------------------------------------------------

The Board has been able to accommodate the legal requirements of
most non-U.S. jurisdictions without compromising on these three core
principles, which the Board considers to be fundamental to its ability
to inspect and investigate non-U.S. firms completely.
Building collaborative working relationships with international
counterparts based on these principles has taken considerable time and
substantial effort, but 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.'' \49\ The Board now has extensive experience with
cooperative arrangements that successfully resolve conflicts and allow
the PCAOB and its international counterparts to satisfy their
respective oversight mandates.
---------------------------------------------------------------------------

\49\ PCAOB Rel. No. 2009-003, at 4-5.
---------------------------------------------------------------------------

Board Inspections of Non-U.S. Firms
Inspections of non-U.S. firms began in 2005,\50\ and the Board
quickly identified obstacles that required negotiation with its
international counterparts. When a registered firm issuing audit
reports for an issuer is located in a non-U.S. jurisdiction that has an
auditor oversight authority of its own, the Board seeks to engage with
that local regulator. The PCAOB conducts many inspections of non-U.S.
firms jointly with local authorities, using approaches that take into
consideration the laws and practices of the local jurisdiction. The
Board also developed a specific regulatory framework for assessing the
degree, if any, to which the Board may rely on the inspection work of
the local regulator in an effort to reduce redundancy.\51\ Even where
the Board conducts its own inspection rather than a joint inspection
with a local auditor oversight authority, the Board may communicate
with its international counterpart regarding the Board's inspections in
the jurisdiction.\52\
---------------------------------------------------------------------------

\50\ See Rule Amendments Concerning the Timing of Certain
Inspections of Non-U.S. Firms, and Other Issues Relating to
Inspections of Non-U.S. Firms, PCAOB Rel. No. 2008-007, at 4 (Dec.
4, 2008).
\51\ See PCAOB Rel. No. 2009-003, at 5-6. Non-U.S. firms may
formally request that the Board rely on a non-U.S. inspection to the
extent deemed appropriate by the Board, and the Board will examine
certain factors to determine the degree, if any, to which the Board
may rely on the non-U.S. inspection. See PCAOB Rule 4011, Statement
by Foreign Registered Public Accounting Firms; PCAOB Rule 4012,
Inspections of Foreign Registered Public Accounting Firms; PCAOB
Rel. No. 2009-003, at 5. In contrast to an exemption, reliance on a
non-U.S. inspection pursuant to Rule 4012 is a cooperative approach
that can be used when efficient and appropriate.
\52\ See PCAOB Rel. No. 2009-003, at 5.
---------------------------------------------------------------------------

By December 2008, the Board had inspected non-U.S. firms in 24
jurisdictions.\53\ But the Board also observed that home-country legal
obstacles and sovereignty concerns were impeding the Board's ability to
conduct inspections of some non-U.S. firms.\54\ Given these obstacles,
the Board, in 2009, adjusted the schedule for its first inspections of
non-U.S. firms in certain jurisdictions so that the Board could
continue its efforts to reach cooperative arrangements with those
firms' home-country regulators.\55\
---------------------------------------------------------------------------

\53\ See PCAOB Rel. No. 2008-007, at 4 & n.9 (inspections had
been conducted in Argentina, Australia, Bermuda, Brazil, Canada,
Chile, Colombia, Greece, Hong Kong, India, Indonesia, Ireland,
Israel, Japan, Kazakhstan, Mexico, New Zealand, Panama, Peru,
Singapore, South Africa, South Korea, Taiwan, and the United
Kingdom).
\54\ PCAOB Rel. No. 2009-003, at 5.
\55\ See id. at 9.
---------------------------------------------------------------------------

In so doing, however, the Board expressly rejected the suggestion
that it should exempt from inspection non-U.S. firms ``that cannot
cooperate with PCAOB inspections due to legal conflicts or sovereignty-
based opposition from their local governments,'' finding that exempting
such firms from inspections is not in the interests of investors or the
public.\56\ Instead, the Board reaffirmed the ultimate obligation of
all registered firms, including non-U.S. firms, to be subject to
inspection and to comply with the Board's inspection-related
requests.\57\
---------------------------------------------------------------------------

\56\ See id. at 8-9.
\57\ See id. at 13-14 (``[F]irms must register with the Board in
order to engage in certain professional activity directly related
to, and affecting, U.S. financial markets, and all registered firms
are subject to the Act and the rules of the Board irrespective of
their location. A registered firm is subject to various requirements
and conditions, including PCAOB Rule 4006's requirement to cooperate
in an inspection. In addition, as reflected in Section 102(b)(3) of
the Act, a firm's compliance with Board requests for information is
a condition of the continuing effectiveness of the firm's
registration with the Board.''). The Board also reiterated that it
``does not view non-U.S. legal restrictions or the sovereignty
concerns of local authorities as a sufficient defense in a Board
disciplinary proceeding . . . for failing or refusing to provide
information requested in an inspection.'' Id. at 14; accord PCAOB
Rel. No. 2008-007, at 16 n.35.
---------------------------------------------------------------------------

The Commission, in approving the Board's extension of the deadline
for the first inspections of certain non-U.S. firms, recognized that
``the adjustment would provide additional time [for the Board] to
continue discussions on outstanding matters and work towards
cooperation and coordination with authorities in all relevant
jurisdictions.'' \58\ And in connection with its approval of other
adjustments to the inspection schedule of non-U.S. firms, the
Commission stated that ``the PCAOB should continue to work toward
cooperative arrangements with the appropriate local auditor oversight
authorities where it is reasonably likely that appropriate cooperative
arrangements can be obtained.'' \59\
---------------------------------------------------------------------------

\58\ Order Approving Proposed Amendment to Board Rules Relating
to Inspections, SEC Exchange Act Release No. 34-59991, at 3 (May 28,
2009).
\59\ Id. at 5.
---------------------------------------------------------------------------

By the end of 2009, the Board had conducted inspections of non-U.S.
firms in an additional nine jurisdictions, bringing the cumulative
total to 33 jurisdictions.\60\ The Board, however,

[[Page 53704]]

was still prevented from inspecting registered firms in mainland China,
Hong Kong (to the extent an audit encompassed a company's operations in
mainland China), Switzerland, and the European countries required to
follow the European Union's Directive on Statutory Auditors.\61\
---------------------------------------------------------------------------

\60\ See Jurisdictions in Which the PCAOB Has Conducted
Inspections (as of Dec. 31, 2009) (Feb. 3, 2010), available at
https://pcaob-assets.azureedge.net/pcaob-dev/docs/default-source/inspections/documents/12-31_jurisdictions.pdf?sfvrsn=2c09bd73_0
(adding Belize, Bolivia, Cayman Islands, Norway, Papua New Guinea,
Philippines, Russia, Ukraine, and United Arab Emirates).
\61\ See PCAOB Publishes Updated Staff Guidance Related to
Registration Process for Applicants from Certain Non-U.S.
Jurisdictions (June 1, 2010), available at https://org/events/news-
releases/news-release-detail/pcaob-publishes-updated-staff-guidance-
related-to-registration-process-for-applicants-from-certain-non-u-s-
jurisdictions_289.
---------------------------------------------------------------------------

The Board responded to these obstacles in several ways \62\ and,
since 2010, the Board has inspected non-U.S. firms in an additional 20
jurisdictions, bringing the total number of non-U.S. jurisdictions in
which the PCAOB has conducted inspections to 53.\63\ Where needed, the
Board enters into formal bilateral cooperative agreements with non-U.S.
regulators, and has done so with authorities in 25 jurisdictions.\64\
The Board continues to publish its Denied Access List, which identifies
the jurisdictions where the PCAOB cannot conduct inspections because
foreign authorities have denied access, the auditors from those
jurisdictions that issued audit reports filed with the Commission, and
those auditors' non-U.S. public company clients.\65\ The Board also
still adheres to the registration approach it adopted in 2010 and
maintains a public list of the jurisdictions whose applicants are
subject to that approach.\66\
---------------------------------------------------------------------------

\62\ In 2009, the Board began publishing a list of registered
firms whose first inspections were overdue, which identified the
jurisdiction in which each firm was located. See PCAOB Rel. No.
2009-003, at 10-11. In 2010, the Board expanded the publication to
include a list of non-U.S. public companies with securities traded
in U.S. markets that had retained a registered firm the Board could
not inspect because of asserted restrictions based on non-U.S. law
or objections on grounds of national sovereignty (the ``Denied
Access List''). See PCAOB Publishes List of Issuer Audit Clients of
Non-U.S. Registered Firms in Jurisdictions where the PCAOB is Denied
Access To Conduct Inspections (May 18, 2010), available at https://pcaobus.org/news-events/news-releases/news-release-detail/pcaob-publishes-list-of-issuer-audit-clients-of-non-u-s-registered-firms-in-jurisdictions-where-the-pcaob-is-denied-access-to-conduct-inspections_284 (``The auditors of the issuers appearing on this
list are located in [mainland] China, Hong Kong, Switzerland, and 18
European Union countries. The PCAOB continues to work to eliminate
obstacles to inspections in these jurisdictions.'').
Also, in October 2010, the Board modified its approach to
registration applications from firms in jurisdictions where there
were unresolved obstacles to inspections, stating that ``its
consideration of new applications from firms in those jurisdictions
will no longer be premised on an expectation that those obstacles
will be resolved without undue delay to any necessary PCAOB
inspection of the firm.'' Consideration of Registration Applications
From Public Accounting Firms in Non-U.S. Jurisdictions Where There
Are Unresolved Obstacles to PCAOB Inspections, PCAOB Rel. No. 2010-
007, at 2-3 (Oct. 7, 2010). A list of those jurisdictions is
maintained on the PCAOB's website. See Frequently Asked Questions
Regarding Issues Relating to Non-U.S. Accounting Firms (Apr. 20,
2021), available at https://pcaobus.org/oversight/registration/non_us_registration_faq (FAQ 6).
\63\ See Non-U.S. Jurisdictions Where the PCAOB has Conducted
Oversight, available at https://pcaobus.org/oversight/international/international/pcaob-inspections-of-registered-non-u-s--firms (adding
Austria, Bahamas, Denmark, Finland, France, Germany, Hungary, Italy,
Jamaica, Luxembourg, Malaysia, Netherlands, Nicaragua, Nigeria,
Pakistan, Spain, Sweden, Switzerland, Thailand, and Turkey).
\64\ See PCAOB Cooperative Arrangements with Non-U.S.
Regulators, available at https://pcaobus.org//international/regulatorycooperation. Although a formal bilateral agreement is not
necessarily a prerequisite to a PCAOB inspection in a non-U.S.
jurisdiction, the PCAOB often enters into such agreements with
foreign audit regulators to minimize administrative burdens and
potential legal or other conflicts that non-U.S. firms might face in
their home countries.
\65\ See Audit Reports Issued by PCAOB-Registered Firms in
Jurisdictions where Authorities Deny Access to Conduct Inspections,
available at https://pcaobus.org/oversight/international/denied-access-to-inspections (identifying jurisdictions where the Board has
been denied access to conduct inspections).
\66\ See Frequently Asked Questions Regarding Issues Relating to
Non-U.S. Accounting Firms (Apr. 20, 2021), available at https://pcaobus.org/oversight/registration/non_us_registration_faq (FAQ 6,
identifying jurisdictions where obstacles to inspection exist). This
list of jurisdictions is broader than the Denied Access List,
because this list includes certain European jurisdictions where the
Board presently does not need to conduct inspections because no
registered firms in the jurisdiction are issuing audit reports, but
where an agreement regarding inspections would need to be reached
before any future inspections could take place.
---------------------------------------------------------------------------

All told, more than 840 non-U.S. firms from more than 80
jurisdictions are registered with the Board. Over 200 of those firms,
from more than 40 jurisdictions, are presently subject to PCAOB
inspection on a triennial basis because they have chosen to audit
issuers.\67\ As of the date of this release, as reflected on the
Board's website,\68\ the Board can conduct inspections everywhere it
needs to do so except in mainland China and Hong Kong.
---------------------------------------------------------------------------

\67\ Currently, there are no non-U.S. firms that the PCAOB is
required by the Act to inspect on an annual basis.
\68\ See International, available at https://pcaobus.org/oversight/international (providing a map showing where the Board
currently is able to conduct oversight of registered firms and where
the Board currently is denied the necessary access to conduct
oversight activities).
---------------------------------------------------------------------------

Board Investigations of Non-U.S. Firms
The Board has conducted numerous investigations in which it
appeared that an act, practice, or omission to act by a non-U.S. firm
or its associated persons might have violated an applicable law, rule,
or standard. In the course of those investigations, the Board has used
a variety of tools, provided for in the Act and the Board's rules, to
access relevant documents and information. Using those tools, the Board
has requested and obtained audit work papers and other documents and
information from non-U.S. firms and associated persons, and has
conducted interviews and testimony of non-U.S. firm personnel.
In many of those instances, the Board coordinated its investigation
with a non-U.S. regulator with which it had entered a bilateral
cooperative arrangement. Those cooperative arrangements have allowed
the Board and its international counterpart to communicate and share
information, facilitating the Board's access to the documents and
information it needed to conduct the investigation. In some but not all
circumstances, in parallel with the Board's investigation, a non-U.S.
regulator may conduct its own investigation of the same firm or
associated persons for possible violations under the regulator's laws
and standards.
Many of the Board's investigations of non-U.S. firms or their
associated persons remain confidential, because Board investigations
are non-public and cannot be disclosed unless they have resulted in the
imposition of disciplinary sanctions.\69\ The Board does, however,
disclose its settled and adjudicated disciplinary orders imposing
sanctions.\70\ To date, the Board has sanctioned more than 50 non-U.S.
registered firms and more than 60 associated persons of such firms,
from 24 non-U.S. jurisdictions.\71\ In addition to the investigations
that resulted in the imposition of sanctions, the Board also has
conducted investigations that did not result in sanctions in numerous
other non-U.S. jurisdictions. Yet despite these results, the Board has
been unable to complete some investigations of non-U.S. firms or their
personnel because they refused to cooperate with an investigation based
on a position taken

[[Page 53705]]

by non-U.S. authorities in their jurisdiction.\72\
---------------------------------------------------------------------------

\69\ See Section 105(b)(5)(A) of the Act.
\70\ When the Board imposes sanctions, the Board's disciplinary
action is stayed if the respondent applies for Commission review of
the Board's order or if the Commission initiates such review on its
own. In either situation, the Board's sanctions remain stayed (and
non-public) unless and until the Commission lifts the stay. See
Section 105(e)(1) of the Act. After the stay is lifted, the Board's
order may be made public. See Section 105(d)(1)(C) of the Act.
\71\ See Enforcement Actions, available at https://pcaobus.org/oversight/enforcement/enforcement-actions.
\72\ See, e.g., Crowe Horwath (HK) CPA Limited, PCAOB Rel. No.
105-2017-031 (July 25, 2017) (noncooperation with a Board
investigation based on positions taken by Chinese authorities); Kim
Wilfred Ti, PCAOB Rel. No. 105-2016-004 (Jan. 12, 2016) (same);
Derek Wan Tak Shing, PCAOB Rel. No. 105-2016-003 (Jan. 12, 2016)
(same); Edith Lam Kar Bo, PCAOB Rel. No. 105-2016-002 (Jan. 12,
2016) (same); PKF [Hong Kong], PCAOB Rel. No. 105-2016-001 (Jan. 12,
2016) (same).
---------------------------------------------------------------------------

The Holding Foreign Companies Accountable Act
Against this backdrop, Congress enacted the HFCAA. The HFCAA, which
amends Section 104 of the Act, calls for the Board to determine whether
it is unable to inspect or investigate completely registered firms
located in a foreign jurisdiction because of a position taken by an
authority in that jurisdiction.\73\ The HFCAA, among other things, also
mandates that after the Board makes such a determination, the
Commission shall require covered issuers that retain firms subject to
the Board's determination to make certain disclosures in their annual
reports and, eventually, if certain conditions persist, shall prohibit
trading in those issuers' securities.\74\
---------------------------------------------------------------------------

\73\ See HFCAA Sec. 2(i)(2)(A), 15 U.S.C. 7214(i)(2)(A)
(requiring that the Commission identify certain issuers that
``retain[ ] a registered public accounting firm that has a branch or
office that . . . is located in a foreign jurisdiction . . . and . .
. the Board is unable to inspect or investigate completely because
of a position taken by an authority in [that] foreign jurisdiction .
. . , as determined by the Board'').
\74\ See HFCAA Sec. Sec. 2(i)(2)(B), 2(i)(3), 3(b), 15 U.S.C.
7214(i)(2)(B), 7214(i)(3), 7214a(b).
---------------------------------------------------------------------------

The Board's determinations under the HFCAA supplement, rather than
supplant, the Board's other authorities under the Act. A registered
firm's cooperation in and compliance with Board requests during
inspections and investigations continues to be a condition to the
continuing effectiveness of its registration with the Board. Failure to
cooperate with a Board inspection or investigation still can result in
the imposition of disciplinary sanctions, including civil money
penalties and revocation of the firm's registration. Therefore, firms
must consider their obligations to comply with PCAOB inspection and
investigation demands when they choose to become and remain registered
with the Board and when they accept or continue client engagements.
Discussion of the Proposed Rule
The HFCAA does not specify the procedure the Board should follow
when making determinations. Nor does the HFCAA specify the content of
the Board's determinations; the manner in which any such determination
should be shared with the Commission; how, and in what format, any such
determination should be made publicly available; the effective date or
duration of any such determination; or the manner in which any such
determination can be reaffirmed, modified, or vacated. The proposed
rule establishes those facets of the Board's determination process.
Although the HFCAA does not expressly require the Board to adopt a
rule governing the determinations it makes under the statute, the Board
believes that a rule will inform investors, registered firms, issuers,
audit committees, foreign authorities, and the public at large as to
how the Board will perform its functions under the statute.
Furthermore, a Board rule will promote consistency in the Board's
processes regarding determinations under the HFCAA.\75\ Commenters
generally agreed that a rule governing the Board's determination
process would promote transparency and consistency and reduce
regulatory uncertainty.
---------------------------------------------------------------------------

\75\ The Act states that ``[t]he rules of the Board shall,
subject to the approval of the Commission[,] . . . provide for the
operation and administration of the Board, the exercise of its
authority, and the performance of its responsibilities under this
Act.'' Section 101(g)(1) of the Act.
---------------------------------------------------------------------------

Two Types of Board Determinations Under the HFCAA
The HFCAA requires that the Board determine whether it is unable to
inspect or investigate completely registered public accounting firms
that have a branch or office that is located in a foreign jurisdiction
because of a position taken by one or more authorities in that
jurisdiction. The proposed rule provides that the Board may make two
types of determinations: Determinations as to a particular foreign
jurisdiction and determinations as to a particular registered firm.
Those two types of determinations are addressed in subparagraphs (a)(1)
and (a)(2) of proposed Rule 6100.
Determinations as to Registered Firms Headquartered in a Particular
Foreign Jurisdiction
The Board believes that firms headquartered in a foreign
jurisdiction necessarily have a branch or office that is located in
that jurisdiction. Taking that into account, subparagraph (a)(1) of the
proposed rule provides that the Board may determine that it is unable
to inspect or investigate completely registered firms \76\
headquartered in a foreign jurisdiction because of a position taken by
one or more authorities in that jurisdiction. In other words, a
jurisdiction-wide determination under subparagraph (a)(1) would apply
to all firms headquartered in that jurisdiction.
---------------------------------------------------------------------------

\76\ The HFCAA refers to a firm's ``branch or office'' that the
Board is unable to inspect or investigate completely. HFCAA Sec.
2(i)(2)(A)(i), 15 U.S.C. 7214(i)(2)(A)(i). The Board does not
inspect or investigate branches or offices. Rather, the Board
inspects registered firms and investigates potential violations by
registered firms or their associated persons. Accordingly, the
proposed rule refers to the Board's inability to inspect or
investigate registered firms.
---------------------------------------------------------------------------

The Board adopted subparagraph (a)(1) as proposed. Commenters
generally supported the Board's proposed approach to jurisdiction-wide
determinations. Several commenters noted that jurisdiction-wide
determinations would be consistent with the HFCAA or otherwise
appropriate, and several other commenters stated that having such
determinations apply to firms that are headquartered in the
jurisdiction would likewise be appropriate. No commenter asserted that
jurisdiction-wide determinations would be inconsistent with the HFCAA
or otherwise inappropriate.
The Board believes that a jurisdiction-wide approach to its
determinations under the HFCAA is consistent with the structure of the
statute. The statute requires the Board's determinations to be based on
``a position taken by an authority in the foreign jurisdiction.'' It
follows that if a foreign authority articulates or maintains a position
that applies generally to PCAOB inspections or investigations in a
foreign jurisdiction, that position could provide the basis for a
jurisdiction-wide determination. Hence, the statute, in the Board's
view, can reasonably be interpreted to allow the Board to make
jurisdiction-wide determinations.\77\
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\77\ See, e.g., 166 Cong. Rec. H6033 (daily ed. Dec. 2, 2020)
(statement of Rep. Gonzalez) (``[T]he act should be read to apply to
companies where the auditor that signs the audit report is located
in a jurisdiction that does not permit PCAOB inspection access.'').
---------------------------------------------------------------------------

Having a jurisdiction-wide approach at the Board's disposal is
important for consistency and efficiency. When the obstacles to
completing inspections and investigations are not specific to
individual registered firms, but instead reflect threshold or general
positions taken by a foreign authority, the Board believes that it
should be able to address those obstacles on a jurisdiction-wide basis
in a consistent manner and in a single determination. Under those
circumstances, separate determinations as to each registered firm in
the jurisdiction should not be required.
The proposed rule provides that jurisdiction-wide determinations
would be limited to registered firms that are

[[Page 53706]]

``headquartered'' in the jurisdiction. The Board believes that a
position taken by a foreign authority will impact registered firms
headquartered in the jurisdiction, but its impact on firms that are
headquartered elsewhere can turn on multiple factors, including the
extent of a firm's presence in the jurisdiction and the nature and
extent of the audit work it performs in that jurisdiction. Limiting
jurisdiction-wide determinations to firms that are headquartered in the
jurisdiction is intended to ensure that these determinations are
appropriately tailored and do not encompass firms that have a physical
presence of any kind, or personnel of any number, in the jurisdiction.
Consistent with the scope of the HFCAA, however, the proposed rule
provides that the Board may make individualized determinations as to
firms that have an ``office'' in a noncooperative jurisdiction but are
headquartered elsewhere, as discussed below.
A firm is ``headquartered,'' as that term is used in the proposed
rule, at its principal place of business (i.e., where the firm's
management directs, controls, and coordinates the firm's
activities).\78\ The Board would presume that a firm is headquartered
at the physical address reported by the firm as its headquarters to the
Board in the firm's required filings.\79\ Absent an indication that the
headquarters address reported by a firm may not be its principal place
of business, the Board would use that address to determine where the
firm is ``headquartered'' for purposes of the proposed rule. If
questions arise as to whether a firm's reported headquarters address is
the firm's principal place of business, however, the Board may consider
other relevant and reliable information regarding the firm and may
request additional information from the firm pursuant to the Board's
rules when determining where a firm is headquartered.\80\
---------------------------------------------------------------------------

\78\ See, e.g., Hertz Corp. v. Friend, 559 U.S. 77, 92-93 (2010)
(defining ``principal place of business'' in the context of federal
diversity jurisdiction, and further explaining that ``in practice it
should normally be the place where the corporation maintains its
headquarters--provided that the headquarters is the actual center of
direction, control, and coordination, i.e., the `nerve center,' and
not simply an office where the corporation holds its board
meetings'').
\79\ When registering with the Board, an applicant must provide
its ``HEADQUARTERS PHYSICAL ADDRESS'' in Item 1.2.1 of its
application for registration on Form 1. Each year thereafter, in
Item 1.2.a of its annual report on Form 2, a firm must provide the
``Physical address of the Firm's headquarters office.''
\80\ See PCAOB Rule 4000(b) (``In furtherance of the Board's
inspection process, the Board may at any time request that a
registered public accounting firm provide to the Board additional
information or documents relating to information provided by the
firm in any report filed pursuant to Section 2 of these Rules, or
relating to information that has otherwise come to the Board's
attention.''). This approach aligns with the Board's decade-long
practice when assessing registration applications from firms located
in non-U.S. jurisdictions where there are obstacles to PCAOB
inspections. This approach has been applied to applicants that are
headquartered in such jurisdictions, and the Board has sought
additional information from applicants when necessary to assess
where they are headquartered.
---------------------------------------------------------------------------

Several commenters stated that it was appropriate for the Board to
look at a firm's required filings with the Board in the first instance
for information as to where the firm is headquartered. One commenter
suggested that the Board look beyond such filings and also consider a
firm's filings with its home-country regulator as well as other facts
and circumstances regarding the firm. As noted in the preceding
paragraph, the Board retains the ability to request and consider
additional information--including the information identified by the
commenter--if any questions arise regarding the location of a firm's
headquarters. Another commenter, contemplating that the Board might
look to filings of Form AP for information as to where a firm is
headquartered, cautioned that such forms may not be timely filed.\81\
The Board intends to rely on annual reports on Form 2 rather than Form
APs for such information, though the Board is not precluded from
considering information on Form APs or any other relevant and reliable
information.\82\
---------------------------------------------------------------------------

\81\ Item 3.1.7 of Form AP identifies the office (not the
headquarters) of the firm that issued the audit report for the
referenced audit engagement, but Item 4.1 of Form AP identifies the
headquarters' office location of the other accounting firms that
contributed 5% or more of the total audit hours.
\82\ In any event, PCAOB Rule 3211, Auditor Reporting of Certain
Audit Participants, already requires timely filing of accurate Form
APs, and the failure to comply with that rule can provide the basis
for inspection findings or disciplinary sanctions.
---------------------------------------------------------------------------

In some instances, a member firm of an international firm network
might be headquartered in a jurisdiction that becomes subject to a
jurisdiction-wide determination of the Board. In such a circumstance,
if that member firm is a separate legal entity from the other member
firms in the network and signs audit reports in its own name, the Board
would not treat other member firms in the network as being ``located''
or having an ``office'' in that jurisdiction merely because they are
part of the same network as a member firm subject to the jurisdiction-
wide determination.\83\ One commenter addressed this topic and agreed
with this approach.
---------------------------------------------------------------------------

\83\ See SEC Exchange Act Release No. 91364, at 4 n.8.
---------------------------------------------------------------------------

Based on its experience with inspections and investigations in
foreign jurisdictions, the Board anticipates that most determinations
made under proposed Rule 6100 would be jurisdiction-wide determinations
under subparagraph (a)(1). Historically, the positions taken by foreign
authorities have impaired the Board's ability to conduct inspections or
investigations in the jurisdiction generally.
Some of the positions taken by foreign authorities have been based
upon ``gatekeeper'' laws, which provide that a registered firm can
transfer its audit work papers to the Board only via a local non-U.S.
regulator. (By contrast, no audit oversight law in the U.S. requires
foreign auditor oversight authorities to involve the PCAOB when seeking
audit work papers from a U.S. firm.) As noted above, the Board has
considerable experience resolving conflicts that arise from gatekeeper
laws using bilateral arrangements, or statements of protocol, whereby
the non-U.S. regulator facilitates the PCAOB's access to audit work
papers and associated information that registered firms are obligated
to provide to the Board upon request. The Board's ability to conduct
inspections or investigations could become impaired in any of these
jurisdictions, however, if such an arrangement were terminated; if non-
performance under an arrangement were significant; or if, in the case
of countries within the European Economic Area, an arrangement were
rendered ineffective because the European Commission revoked or failed
to renew its ``adequacy decision'' regarding the PCAOB.\84\ The
resulting impairment would have jurisdiction-wide impact, and thus
could give rise to a jurisdiction-wide determination under subparagraph
(a)(1) of the proposed rule. The Board believes that a jurisdiction-
wide determination would be an efficient, appropriate response to such
an impairment.
---------------------------------------------------------------------------

\84\ Article 47 of the Directive 2014/56/EU of the European
Parliament and of the Council of 16 April 2014 amending Directive
2006/43/EC on statutory audits of annual accounts and consolidated
accounts requires that the European Commission issue an adequacy
decision regarding a third country audit regulator (such as the
PCAOB) and that regulator's ability to safeguard audit work papers
and related confidential information before a European Union member
state audit regulator can execute a working arrangement allowing
firms to provide access to such information. See Directive 2014/56/
EU, available at https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=celex%3A32014L0056. The European Commission's July 2016
adequacy decision with respect to the PCAOB is set to expire in July
2022.

---------------------------------------------------------------------------

[[Page 53707]]

Apart from gatekeeper laws, foreign authorities' positions also may
be based on other substantive laws (e.g., personal data protection
laws, state secrecy laws, banking secrecy laws, or commercial secrecy
laws) that impair the Board's ability to conduct inspections or
investigations by obstructing the Board's access to firm personnel,
audit work papers, or other documents or information relevant to an
inspection or investigation. The Board also has considerable experience
working collaboratively with non-U.S. regulators to employ working
practices that enable compliance with such non-U.S. laws without
impairing the Board's ability to complete inspections or
investigations. The proposed rule contemplates circumstances in which a
cooperative resolution to those legal conflicts might not be achieved.
In those circumstances, the Board believes that investors and the
public interest would be best served by making a jurisdiction-wide
determination under the HFCAA, even if the foreign jurisdiction's law
(or interpretation or application of that law) affects the Board's
ability to inspect or investigate only certain types of audit
engagements. For instance, a foreign jurisdiction might deny to the
PCAOB access to critical parts of the audit work papers for entities
operating in a particular business sector (e.g., financial services) or
with particular business models (e.g., state-owned enterprises). In
such a case, even if only a few registered firms in that jurisdiction
presently are auditing issuers in that sector or with that business
model, the Board would assess whether its access would be equally
impaired should any registered firm in the jurisdiction perform the
restricted engagements. If the foreign authority's position applies
generally to firms within the jurisdiction, then it impairs the Board's
ability to conduct inspections or investigations completely on a
jurisdiction-wide basis, regardless of the differences among registered
firms' client portfolios at the time of the Board's determination. No
commenter challenged this reasoning, nor did any commenter suggest that
investors or the public interest would be better served if the Board
were to make determinations as to particular firms, rather than
jurisdiction-wide determinations, in such circumstances.
In the situation described above, the Board does not believe that
firm-by-firm determinations would be appropriate. While the Board could
make a determination as to particular firms under subparagraph (a)(2)
of the proposed rule based, for instance, on the composition of each
firm's client portfolio at a moment in time, the Board believes that
such an approach may not effectively accomplish the HFCAA's objectives.
For instance, it might incentivize an issuer whose audit engagement
cannot be inspected or investigated by the Board (a financial
institution or state-owned enterprise in the example) to switch audit
firms frequently. Specifically, if the issuer's audit firm were made
subject to a Board determination under the HFCAA, the issuer could
switch to another audit firm in the jurisdiction that had not
previously handled a restricted engagement and, when the Board
subsequently issued a determination under the HFCAA as to the issuer's
new audit firm, the issuer could switch yet again. Such purposeful
migration by issuers could trigger a perpetual cycle of Board
determinations as to particular audit firms, while the issuers
potentially evade some or all of the intended consequences of the
HFCAA. A jurisdiction-wide determination, by contrast, would eliminate
these concerns. No commenter disagreed with this analysis or the
Board's rationale.
The jurisdiction-wide determinations contemplated by subparagraph
(a)(1) of the proposed rule also comport with the historical practice
of identifying publicly the jurisdictions where there are unresolved
obstacles to Board inspections or investigations. Since 2010,
information of this kind has been posted on the PCAOB's website, for
two purposes: To notify investors and potential investors of the public
companies whose audit reports were issued by firms from those
jurisdictions, and to notify firms considering potential registration
with the Board of the consequences of obstacles to inspections in their
jurisdictions.\85\
---------------------------------------------------------------------------

\85\ See Audit Reports Issued by PCAOB-Registered Firms in
Jurisdictions where Authorities Deny Access to Conduct Inspections,
available at https://pcaobus.org/oversight/international/denied-access-to-inspections; Frequently Asked Questions Regarding Issues
Relating to Non-U.S. Accounting Firms (Apr. 20, 2021), available at
https://pcaobus.org/oversight/registration/non_us_registration_faq
(FAQ 6); see also International, available at https://pcaobus.org/oversight/international/ (providing map showing where the Board
currently can and cannot conduct oversight activities).
---------------------------------------------------------------------------

Jurisdiction-wide determinations would rest, as the HFCAA directs,
on whether the Board is able ``to inspect or investigate completely''
firms in the jurisdiction. The HFCAA, however, does not define what it
means ``to inspect or investigate completely.'' The Board does not view
that phrase as limited to instances where the Board started, but was
unable to finish, an inspection or investigation of a registered firm,
because foreign authorities' positions also can make it impossible or
infeasible, as a practical matter, for the Board to attempt to commence
such inspections or investigations in the first place. In other words,
the Board may make a determination under the HFCAA under a range of
circumstances, including when it is not able to commence an inspection
or investigation or when, based on the Board's knowledge and
experience, it has concluded that commencing an inspection or
investigation would be futile as a result of the position taken by a
foreign authority.
With that in mind, the proposed rule ties the Board's ability to
``inspect or investigate completely'' to the three core principles that
guide the Board's framework for international cooperation.
Specifically, the Board will consider whether it (1) can select the
audits and audit areas it will review during inspections and the
potential violations it will investigate; (2) has timely access to firm
personnel, audit work papers, and other documents and information
relevant to its inspections and investigations, and the ability to
retain and use such documents and information; and (3) can otherwise
conduct its inspections and investigations in a manner consistent with
the Act and the Board's rules. For a further discussion of how these
three principles would inform the Board's assessment of whether it can
``inspect or investigate completely,'' see below.
The Board's jurisdiction-wide determinations under the proposed
rule would be based on ``a position taken by one or more authorities''
in the foreign jurisdiction. While the proposed rule refers to a
singular ``position,'' that term encompasses all of the various
positions taken by authorities in the jurisdiction that, when
aggregated together, collectively constitute the position of
authorities in the jurisdiction. In a similar vein, the proposed rule's
reference to ``one or more authorities'' acknowledges that, in some
jurisdictions, multiple authorities can take positions that impair the
Board's ability to conduct inspections or investigations. Those
``authorities'' are not limited to a ``foreign auditor oversight
authority,'' as that phrase is defined in the Act,\86\ but rather
include any authority whose position can obstruct the Board's
oversight. Such authorities may include, for example, securities
regulators, industry regulators, data protection authorities, national
security bodies, foreign

[[Page 53708]]

ministries, or authorities of political subdivisions (e.g., a
provincial authority).
---------------------------------------------------------------------------

\86\ See Section 2(a)(17) of the Act.
---------------------------------------------------------------------------

Determinations as to a Particular Registered Firm With an Office in a
Foreign Jurisdiction
Although the Board anticipates that most determinations under the
proposed rule would be jurisdiction-wide determinations, the Board
cannot anticipate every scenario that it might encounter when
conducting oversight of firms in foreign jurisdictions. In light of
that practical limitation, subparagraph (a)(2) of the proposed rule
provides that the Board may determine that it is unable to inspect or
investigate completely a particular registered firm that has an office
\87\ located in a foreign jurisdiction because of a position taken by
one or more authorities in that jurisdiction. This provision would
complement the Board's ability to make jurisdiction-wide determinations
in two important respects.
---------------------------------------------------------------------------

\87\ The HFCAA authorizes the Board to make determinations as to
firms having a ``branch'' or ``office'' in a foreign jurisdiction
where the Board is unable to inspect or investigate completely
because of a position taken by an authority in that jurisdiction.
HFCAA Sec. 2(i)(2)(A), 15 U.S.C. 7214(i)(2)(A). Unlike in other
contexts (such as banking), however, there is no commonly recognized
distinction between a ``branch'' and an ``office'' with respect to
accounting firms. Accordingly, the proposed rule refers only to an
``office,'' which is a term commonly used by the Board in connection
with its oversight programs. A majority of the commenters who
addressed this rationale agreed with it.
---------------------------------------------------------------------------

First, if a foreign authority obstructs a Board inspection or
investigation of a particular firm headquartered in the jurisdiction--
but does not obstruct inspections or investigations in a more general
manner that might apply to all firms in the jurisdiction--subparagraph
(a)(2) provides the Board with an avenue for making a more tailored
determination under the HFCAA when a jurisdiction-wide determination
might be inappropriately broad.
Second, subparagraph (a)(2) allows the Board to make determinations
under the HFCAA as to firms that are not headquartered in the foreign
authority's jurisdiction but have an office located there. In this
respect, a determination under subparagraph (a)(2) can supplement a
jurisdiction-wide determination under subparagraph (a)(1) that applies
to firms headquartered in the jurisdiction. Furthermore, the reach of
subparagraph (a)(2) ensures that the Board's determinations under the
proposed rule can match the scope of its mandate under the HFCAA.
The Board's approach to determining where a firm's offices are
located is similar to the Board's approach to determining where a firm
is headquartered. The Board will look principally to the firm's filings
with the Board,\88\ but if there is any uncertainty as to whether a
firm has an office in a jurisdiction, the Board may consider other
information regarding the firm and may request additional information
from the firm pursuant to Rule 4000(b).
---------------------------------------------------------------------------

\88\ Firms are required to identify all of their offices when
they first register with the Board (in Item 1.5 of the application
for registration on Form 1) and annually thereafter (in Item 5.1 of
the annual report on Form 2).
---------------------------------------------------------------------------

Apart from those two distinguishing features (namely, that
determinations are directed to a particular firm and can reach firms
that have an office in the foreign jurisdiction but are not
headquartered there), subparagraph (a)(2) mirrors the operation of
subparagraph (a)(1). The Board's inability ``to inspect or investigate
completely'' is tied to the three principles that guide the Board's
approach to international cooperation, as noted above and discussed
further below. The phrase ``position taken by one or more authorities''
has the same meaning as in subparagraph (a)(1). Finally, if a member
firm of an international firm network becomes subject to a Board
determination under subparagraph (a)(2), and is a separate legal entity
from the other member firms in the network and signs audit reports in
its own name, the Board would not treat it as an ``office'' of other
member firms within the network, and accordingly the other member firms
would not be subject to that Board determination under subparagraph
(a)(2).
The Board adopted subparagraph (a)(2) as proposed, except for one
addition to the subparagraph's title.\89\ Commenters generally
supported the Board's proposed approach to determinations as to a
particular registered firm and stated that the distinction between
those determinations and the jurisdiction-wide determinations
contemplated in subparagraph (a)(1) is clear. Several commenters also
stated that it is appropriate for the Board to look at a firm's
required filings with the Board in the first instance for information
as to where the firm's offices are located, though two commenters
suggested that the Board look beyond such filings to ascertain or
validate the location of a firm's offices. As previously noted, the
Board retains the ability to consider other relevant and reliable
information, including the information identified by the commenters,
when determining where a firm's offices are located.
---------------------------------------------------------------------------

\89\ The phrase ``Particular Registered Firm in a Foreign
Jurisdiction'' has been revised to ``Particular Registered Firm With
an Office in a Foreign Jurisdiction'' to mirror more closely the
text of subparagraph (a)(2), create a parallel structure between the
titles of subparagraphs (a)(1) and (a)(2), and provide a clearer
contrast between the scope of those two subparagraphs.
---------------------------------------------------------------------------

One commenter requested guidance about the application of the
proposed rule when a firm that is headquartered in a cooperative
jurisdiction uses local personnel in a noncooperative jurisdiction to
perform an audit for an issuer located in the noncooperative
jurisdiction. In such a circumstance, the firm could not be subject to
a jurisdiction-wide determination under subparagraph (a)(1) because it
is not headquartered in a noncooperative jurisdiction, but it could be
subject to a determination under subparagraph (a)(2) if it has an
office in the noncooperative jurisdiction.
Timing of Board Determinations
Subparagraph (a)(3) of the proposed rule addresses the timing of
the Board's determinations under the HFCAA. Promptly after the Board's
proposed rule becomes effective upon the Commission's approval, the
Board will make any determinations under subparagraph (a)(1) or (a)(2)
that are appropriate. Thereafter, the Board will consider, at least
annually, whether changes in facts and circumstances support any
additional determinations under subparagraph (a)(1) or (a)(2). If so,
the Board will make such additional determinations, as and when
appropriate, to allow the Commission on a timely basis to identify
covered issuers in accordance with the Commission's rules.
The Board is well positioned to assess the facts and circumstances
surrounding its inspections and investigations and gauge whether and
when a determination is appropriate under the proposed rule. The
relevant circumstances in a jurisdiction can change quickly and
unpredictably because foreign authorities can enact or amend laws,
issue or modify rules or regulations, change their interpretation or
application of those laws and rules, and otherwise take new positions
with limited or no notice. The proposed rule allows the Board to make
new determinations whenever appropriate, while acknowledging that the
Board's timing will be informed by the Commission's process for timely
identifying covered issuers and also establishing that the Board will
consider whether new determinations are warranted at least once each
year.
When considering whether changed facts or circumstances provide a
sufficient basis for a new Board

[[Page 53709]]

determination, the Board may confront a number of different scenarios.
It is not possible to identify with specificity all the developments
that might lead to a new determination, but they could include the
enactment of a new law or regulation, a change in the interpretation or
the application of an existing law or regulation, the termination of or
failure to perform under an existing cooperative arrangement, and the
failure to take or renew an administrative action necessary to
facilitate the Board's oversight. The Board's experience in a
particular inspection or investigation also could supply the grounds
for a new Board determination in accordance with the proposed rule.
The Board adopted subparagraph (a)(3) substantially as
proposed.\90\ The majority of commenters who addressed this issue
expressed support for the Board's approach to the timing of
determinations.
---------------------------------------------------------------------------

\90\ For clarity, in the second sentence of the subparagraph,
``changes in the facts and circumstances'' has been changed to
``changes in facts and circumstances.''
---------------------------------------------------------------------------

One commenter emphasized that the Board's approach should be
sufficiently flexible so that Board determinations do not conflict with
the language and intent of the HFCAA. The Board believes that
subparagraph (a)(3) provides such flexibility, insofar as it provides
that the Board will make any appropriate determinations promptly after
the proposed rule becomes effective and thereafter will make additional
determinations as and when appropriate to allow the Commission to
identify covered issuers on a timely basis.
Another commenter suggested that the Board require firms to file
special reports on Form 3 to apprise the Board of headquarters or
office location changes. Such changes already are reported to the Board
annually on Form 2. The Board does not believe that a new Form 3
reporting obligation should be imposed. If a firm opts to expose its
issuer clients to the potential consequences of the HFCAA by moving the
firm's headquarters to a jurisdiction that is subject to a
jurisdiction-wide determination, such a change could be captured
through the Board's current reporting procedures.\91\ Moreover, if a
firm that is headquartered outside a noncooperative jurisdiction opens
an office in a noncooperative jurisdiction, the Board would not
anticipate making a determination as to that particular firm under
subparagraph (a)(2) without evidence that the Board's ability to
inspect and investigate the firm completely has become restricted as a
result of the opening of the new office. Lastly, if a firm that is
subject to a Board determination moves its headquarters out of or
closes all of its offices in a noncooperative jurisdiction, the firm is
required to notify the Board within five days of that development
pursuant to subparagraph (e)(4) of the proposed rule, discussed below.
---------------------------------------------------------------------------

\91\ For instance, whenever the business mailing address of a
firm's primary contact with the Board changes, the firm must file a
special report on Form 3 that supplies the new address in Item 7.2.
See PCAOB Rule 2203, Special Reports. Additionally, if a firm
obtains a new license or certification to engage in the business of
auditing or accounting from a governmental or regulatory authority,
the firm must file a special report on Form 3 that identifies, in
Item 6.2, the name of the state, agency, board, or other authority
that issued the new license or certification. See id. And if a firm
changes the jurisdiction under the law of which it is organized, the
firm may file a Form 4 to succeed to the registration status of its
predecessor. See PCAOB Rule 2109, Procedure for Succeeding to the
Registration Status of a Predecessor.
---------------------------------------------------------------------------

Factors for Board Determinations
Paragraph (b) provides factors for Board determinations under the
proposed rule. When determining whether it can ``inspect or investigate
completely'' under subparagraph (a)(1) as to a particular jurisdiction
or subparagraph (a)(2) as to a particular firm, the Board will assess
whether ``the position taken by the authority (or authorities)'' in the
jurisdiction ``impairs the Board's ability to execute its statutory
mandate with respect to inspections or investigations,'' as detailed
above.
To make this assessment, the Board will evaluate three factors,
which correlate to the three principles that guide the Board's approach
to international cooperation. These factors embody the access the Board
needs, and already experiences nearly worldwide, to fulfill its
inspection and investigation mandates. Conceding on these factors in
particular jurisdictions would dilute the Board's oversight in a
selective, unequal manner and would be detrimental to the PCAOB's
mission. In other words, this framework promotes a level playing field
for U.S. and non-U.S. registered firms, in accordance with the Act's
directive that non-U.S. registered firms are subject to the Act and the
Board's rules in the same manner and to the same extent as U.S.
registered firms.
No commenter suggested other benchmarks or factors that the Board
should employ when making determinations, and one commenter stated that
the factors set forth in paragraph (b) are appropriate and clear. The
Board adopted paragraph (b) as proposed, except for one addition to
subparagraph (b)(2)'s second factor, as discussed below.
The first factor is ``the Board's ability to select engagements,
audit areas, and potential violations to be reviewed or investigated.''
The ability to make such selections is critical to the Board's
oversight activities and is embedded in its statutory mandate.\92\ This
factor would encompass situations in which a foreign authority takes
the position that certain engagements, or certain parts of engagements,
cannot be reviewed during an inspection, or that the Board cannot
decide when (i.e., in which inspection year) certain engagements will
be reviewed. It also would encompass situations in which a foreign
authority takes the position that the Board cannot decide what
potential violations it will investigate. No commenter expressed the
view that this factor is unclear or inappropriate or sought further
guidance about it.
---------------------------------------------------------------------------

\92\ See, e.g., Sections 104(d) and 105(b)(1) of the Act.
---------------------------------------------------------------------------

The second factor is ``the Board's timely access, and the ability
to retain and use, any document or information (including through
conducting interviews and testimony) in the possession, custody, or
control of the firm(s) or any associated persons thereof that the Board
considers relevant to an inspection or investigation.'' The Board's
access to firm personnel, documents, and information is pivotal to its
inspections and investigations, and is built into its mandate to
oversee the audits of issuers that avail themselves of the U.S. capital
markets.\93\
---------------------------------------------------------------------------

\93\ See, e.g., Sections 104(d) and 105(b)(2) of the Act.
---------------------------------------------------------------------------

One commenter suggested that the Board add ``timely'' to this
factor so that it refers to ``timely access,'' and, after
consideration, the Board has made that revision. The Board agrees with
the commenter that the Board cannot inspect or investigate completely
if its access to documents or information is not timely. Unreasonable
delays in obtaining documents or information hinder the Board's ability
to execute its statutory mandate \94\ and therefore its ability to
protect the interests of investors and further the public interest. No
other commenter made any suggestions regarding this factor, and no
commenter asserted that this factor is

[[Page 53710]]

unclear or inappropriate or sought further guidance about it.
---------------------------------------------------------------------------

\94\ See, e.g., Section 104(b) of the Act (specifying inspection
frequency requirements); Section 105(b)(2)(B) of the Act
(authorizing the Board to require production of audit work papers
and other documents or information); PCAOB Rule 5103(b) (providing
that requests for documents or information shall set forth ``a
reasonable time . . . for production'').
---------------------------------------------------------------------------

The third factor is ``the Board's ability to conduct inspections
and investigations in a manner consistent with the provisions of the
Act and the Rules of the Board, as interpreted and applied by the
Board.'' This provision captures all of the other aspects of the
Board's inspection and investigation mandates not already subsumed in
the first and second factors. That includes the Board's ability to
satisfy inspection frequency requirements,\95\ to identify potentially
violative acts during inspections,\96\ to impose sanctions for
noncooperation with an investigation,\97\ and to share information with
the Commission and other regulators.\98\ No commenter indicated that
this factor is unclear or inappropriate or sought further guidance
about it.
---------------------------------------------------------------------------

\95\ See Section 104(b) of the Act.
\96\ See Section 104(c)(1) of the Act.
\97\ See Section 105(b)(3)(A) of the Act.
\98\ See Sections 104(c)(2) and 105(b)(4)-(5) of the Act.
---------------------------------------------------------------------------

Importantly, these three factors do not function as separate
prerequisites for a Board determination. Instead, impairment in any one
respect may be sufficient under the circumstances to support a Board
determination. To underscore the disjunctive nature of this three-
factor analysis, the proposed rule provides that the Board will assess
whether its ability to execute its mandate has been impaired in ``one
or more'' of these three respects. No commenter objected to, or
expressed concerns about, this approach.
Additionally, to make a determination under the proposed rule, the
Board does not need to conclude that it has been impaired as to both
its inspections and its investigations. The HFCAA authorizes the Board
to make a determination if the Board is unable to inspect ``or''
investigate completely, and the proposed rule uses ``or'' in similar
fashion: It is enough that the Board is impaired in its ability to
execute its mandate with respect to either inspections or
investigations. This approach is consistent with the HFCAA, and no
commenter suggested otherwise.
Basis for Board Determinations
Paragraph (c) of the proposed rule addresses the basis for a Board
determination. This provision establishes, first and foremost, that
when assessing whether its ability to execute its mandate has been
impaired, the Board may consider ``any documents or information it
deems relevant.'' From there, the proposed rule specifies, for the
avoidance of doubt, three non-exclusive categories of documents and
information that the Board can rely upon when making a determination.
No commenter objected to this approach or expressed concern about the
three non-exclusive categories identified in the proposed rule, and one
commenter stated that paragraph (c) provides adequate and substantive
guidance. The Board adopted paragraph (c) as proposed.
Subparagraph (c)(1) states that the Board may consider a foreign
jurisdiction's laws, statutes, regulations, rules, and other legal
authorities; in other words, the black-letter law of the foreign
jurisdiction (and any political subdivisions thereof) in all of its
varying forms. The Board also may consider relevant interpretations of
those laws, whether by the promulgating authority or others, as well as
real-world applications of those laws.
Subparagraph (c)(2) provides that the Board may consider the
entirety of its efforts to reach and secure compliance with agreements
with foreign authorities in the jurisdiction. In so doing, the Board
can take into account whether an agreement was reached, the terms of
any such agreement, and the foreign authorities' interpretation of and
performance under any such agreement.
Subparagraph (c)(3) recognizes that the Board may consider its
experience with foreign authorities' other conduct and positions
relative to Board inspections or investigations. This allows the Board
to consider the totality of a foreign authority's prior conduct and
positions in all contexts, including public and private statements
made, positions asserted, and actions taken. This provision also may
encompass circumstances where a foreign authority precipitously changes
its position regarding PCAOB access without making any change to its
laws or demanding any form of cooperative agreement.
Together, these provisions establish that the Board can consider
any relevant information (including, but not limited to, the three
categories of information discussed above) when making a determination.
As a corollary, paragraph (d) of the proposed rule establishes that the
Board's determination need not depend on the Board's ``commencement of,
but inability to complete, an inspection or investigation.'' The Board
should not be expected to attempt to initiate inspections or
investigations in a foreign jurisdiction that rejects the guiding
principles for international cooperation, because such futile efforts
would not advance the Board's mission of protecting investors and
furthering the public interest in the preparation of informative,
accurate, and independent audit reports. No commenter challenged the
Board's reasoning or expressed the view that the Board must initiate an
inspection or investigation as a prerequisite to making a determination
under the HFCAA. Nor did any commenter indicate that the approach
described in paragraph (d) is inappropriate. The Board adopted
paragraph (d) as proposed.
Form and Publication of Board Determinations
Board Reports to the Commission
The HFCAA does not specify how the Board should communicate its
determinations to the Commission. Subparagraph (e)(1) of the proposed
rule establishes that process.
When the Board makes a determination, whether as to a particular
jurisdiction under subparagraph (a)(1) or a particular firm under
subparagraph (a)(2), the Board's determination will be issued in the
form of a report to the Commission.\99\ Such a reporting process is
authorized under Sections 101(c)(5), 101(g)(1), and 101(f)(6) of the
Act.\100\
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\99\ The Board will decide whether to conduct a public or non-
public meeting to consider a potential determination under the HFCAA
in accordance with the PCAOB bylaws. See Bylaw 5.1, Governing Board
Meetings.
\100\ See Section 101(c)(5) of the Act (the Board shall
``perform such other duties or functions as the Board . . .
determines are necessary or appropriate . . . to carry out this
Act''); Section 101(g)(1) of the Act (the Board's rules ``shall . .
. provide for . . . the performance of its responsibilities under
this Act''); Section 101(f)(6) of the Act (the Board is authorized
to ``do any and all . . . acts and things necessary, appropriate, or
incidental to . . . the exercise of its obligations . . . imposed''
by the Act).
---------------------------------------------------------------------------

The Board's report will describe its assessment of whether the
position taken by the foreign authority (or authorities) impairs the
Board's ability to execute its mandate with respect to inspections or
investigations. The report will analyze the relevant factor(s) set
forth in paragraph (b) and describe the basis for the Board's
conclusions. The Board will identify the firm(s) subject to the Board's
determination in two ways: by the name under which the firm is
registered with the Board, and by the firm's identification number with
the Board. No commenter identified any additional information that
should be included in the Board's reports to the Commission.
The Board adopted subparagraph (e)(1) as proposed but with one
modification: The Board will identify the firm(s) to which a
determination applies in an appendix to the Board's report. Identifying
such firms in a

[[Page 53711]]

separate appendix will facilitate the Board's efforts to keep the list
of firms subject to the determination current, as discussed below.
Publication of Board Reports
Promptly after the Board issues a report to the Commission, a copy
of the report will be made publicly available on the PCAOB's website.
The Board expects that a copy of the report ordinarily will be
prominently featured on the Board's website on or about the same day
the Board issues its report to the Commission.
Subparagraph (e)(2) of the proposed rule specifies, however, that
the content of the Board's publicly available report will be subject to
two limitations. First, the Board will be bound by Section 105 of the
Act, which provides, in pertinent part, that ``all documents and
information prepared or received by or specifically for the Board . . .
in connection with an inspection . . . or with an investigation . . .
shall be confidential . . . , unless and until presented in connection
with a public proceeding or released'' in accordance with Section
105(c) of the Act.\101\ If the Board's report contains material
encompassed by Section 105(b)(5)(A) of the Act, such material will be
redacted from the publicly available version of the report posted on
the PCAOB's website, in accordance with the Act.
---------------------------------------------------------------------------

\101\ Section 105(b)(5)(A) of the Act.
---------------------------------------------------------------------------

Second, while the Board does not anticipate that such situations
will frequently arise, the version of the Board's report posted on the
PCAOB's website will be redacted if it contains proprietary, personal,
or other information protected by applicable confidentiality laws. In
this respect, the proposed rule aligns with the Act's treatment of
registration applications and annual reports filed with the Board,
which the Board may make publicly available subject to ``applicable
laws relating to the confidentiality of proprietary, personal, or other
information.'' \102\
---------------------------------------------------------------------------

\102\ Section 102(e) of the Act.
---------------------------------------------------------------------------

Commenters generally supported redacting from the Board's publicly
available reports any information that is subject to applicable
confidentiality laws. One commenter suggested that redaction should not
be limited to information covered by applicable confidentiality laws,
but rather should be based on broader concepts of confidentiality. That
commenter offered one example of such a concept, but that example--
accountants' professional responsibilities of confidentiality--does not
apply to the Board's performance of its oversight functions. Another
commenter similarly suggested that redaction should extend to all
confidential information whether explicitly covered by confidentiality
laws or not, but that commenter did not suggest how to define this
broader concept of confidential information or what categories of
information it would encompass. Neither of these commenters identified
any specific type of relevant information that is not subject to a
confidentiality law but is nevertheless worthy of protection under a
broader view of confidential information.
Besides one minor revision unrelated to redaction,\103\ the Board
adopted subparagraph (e)(2) as proposed. The Board believes that it is
appropriate to limit redaction to confidential information protected by
law. That approach comports with the Board's congressionally mandated
treatment of registration applications and annual reports, which the
Board also has extended to other reports filed with the Board. This
approach also is more readily administrable than one that relies
instead on broader, undefined concepts of confidentiality.
---------------------------------------------------------------------------

\103\ For simplicity, the phrase ``Board report containing a
determination pursuant to subparagraph (a)(1) or (a)(2)'' has been
changed to ``Board report pursuant to subparagraph (e)(1).''
---------------------------------------------------------------------------

Transmittal of Board Reports to Subject Firms
The Board revised the proposed rule to add a new provision
regarding the transmittal of reports to firms that are subject to a
determination. While some commenters stated that posting Board reports
on the Board's website would give sufficient notice of Board
determinations to such firms, other commenters disagreed, and the Board
has concluded that it would be prudent to transmit reports to those
firms.
Subparagraph (e)(3) provides that promptly after the Board issues a
report to the Commission under subparagraph (e)(1), a copy of the
report will be sent by electronic mail to each registered public
accounting firm that is listed in the appendix to that report (i.e.,
each firm as to which the determination applies). The Board expects
that the report will be transmitted to the subject firm(s) by
electronic mail after it has been posted on the Board's website, though
both actions will take place promptly after the issuance of the report.
Such reports will be redacted to the extent required by confidentiality
laws, and the electronic mail will be directed to the electronic mail
address of the firm's primary contact with the Board.\104\
---------------------------------------------------------------------------

\104\ When applying to register with the Board, firms provide an
electronic mail address for their primary contact with the Board in
Item 1.3.7 of Form 1. Thereafter, firms confirm the electronic mail
address for their primary contact with the Board annually in Item
1.3 of Form 2. If that electronic mail address changes, the firm
must notify the Board within 30 days of the new electronic mail
address for its primary contact with the Board in Item 7.2 of Form
3.
---------------------------------------------------------------------------

Two commenters suggested that the Board provide non-public advance
notice of a forthcoming determination to firms that would be subject to
that determination. One of those commenters indicated that firms could
use this advance notice to initiate discussions with their issuer audit
clients about the Board's forthcoming determination.
The Board does not believe that it is appropriate to provide non-
public advance notice to firms. A firm headquartered in a
noncooperative jurisdiction and performing audit work that subjects the
firm to the PCAOB inspection requirement should know if it has not been
inspected due to the PCAOB's inability to inspect such firm or firms in
that jurisdiction.\105\ Furthermore, as described above, the Board has
long taken efforts to make known the access challenges it faces in
certain jurisdictions. Although those disclosures are distinct from
determinations under the proposed rule and predate the HFCAA's
enactment, they underscore the Board's commitment to transparency about
its oversight access. And if a firm-specific obstacle to Board
inspections or investigations were to arise that might warrant a
determination as to a particular registered firm pursuant to
subparagraph (a)(2), the Board expects that it would have engaged with
that firm about the Board's inability to inspect or investigate the
firm completely before such a determination would be made.
---------------------------------------------------------------------------

\105\ See also, e.g., SEC Exchange Act Release No. 91364, at 26
(noting ``a highly similar type and pattern of disclosure regarding
the PCAOB's inability to inspect those firms'' in Item 3 of Form 20-
F and in Item 1A of Form 10-K).
---------------------------------------------------------------------------

In addition, providing non-public advance notice of a Board
determination to firms would create information asymmetry in the
marketplace: A forthcoming Board determination would be known to firms
and to anyone with whom the firm elects to share that information
(including not only the firm's issuer clients' management, but also
potentially the issuers' directors, the issuers' outside counsel and
other professional advisors, foreign government officials, and others),
while

[[Page 53712]]

the investing public would not be privy to the same information. The
Board does not believe it would be in the public interest or the
interests of investors to selectively preview its determinations in
such a manner.
Several commenters also suggested that the Board establish a rule-
based mechanism that would allow firms to submit information to the
Board regarding a determination. Some of those commenters recommended
that the Board provide by rule for such a submission process before a
Board determination takes effect, while others expressed concern that
such an approach could delay the timely implementation of the HFCAA. No
commenter, however, identified any type of information that a firm
might have that would be both relevant to a Board determination and
previously unknown to the Board.
Because the Board believes that firms are unlikely to have new and
relevant information regarding a determination, the Board is not
establishing a rule-based process for firms to make such submissions.
Board determinations turn on positions taken by authorities in foreign
jurisdictions, and such positions, by virtue of having previously been
``taken'' by a foreign authority, necessarily will be known to the
Board already. Indeed, the Board has extensive experience in this area
and, over more than a decade, has engaged significantly with foreign
authorities and registered firms regarding inspections and
investigations of non-U.S. firms. Therefore, the Board knows, and will
timely learn, relevant information about its ability to conduct
inspections and investigations abroad. The Board's history of
engagement and negotiations regarding such inspections and
investigations is detailed above, and no commenter disputed the Board's
description of that history.
By the same token, any Board determination would be based on the
Board's judgment as to whether the extent of access available to it
impairs its ability to conduct oversight in any of the three respects
identified in paragraph (b). Consequently, the Board does not believe
that firms will be able to contribute meaningfully to the mix of
information available to the Board regarding foreign authorities'
positions or the Board's experience-driven assessment of paragraph
(b)'s three factors. Should a firm wish to communicate with the Board
about its inspection or investigation experience, however, it can do so
through existing channels for communicating with the Board's inspection
and enforcement staff.
Updating the Appendix to a Board Report
Subparagraph (e)(4) addresses the Board's process for determining
that the list of firms subject to a determination remains accurate. A
few commenters expressed concern about potential developments that
could render such a list inaccurate, and the Board believes that it is
prudent to establish a process in the proposed rule to ensure the list
is appropriately updated and accurate.
As provided in subparagraph (e)(1), the list of firms subject to a
determination will be contained in an appendix to the Board's report.
For a jurisdiction-wide determination under subparagraph (a)(1), the
appendix will provide, for each firm, the name under which it is
registered with the Board, its identification number with the Board,
and the jurisdiction in which its headquarters is located. For a
determination as to a particular firm under subparagraph (a)(2), the
appendix will provide the name under which the firm is registered with
the Board, its identification number with the Board, and the location
of the office(s) the firm maintains in the foreign jurisdiction whose
authorities have taken a position that results in the Board being
unable to inspect or investigate the firm completely.
Subparagraph (e)(4) requires firms identified in an appendix to
notify the PCAOB Secretary of any changes to the firm's information in
the appendix within five days of such a change.\106\ Firm names,
identification numbers, headquarters locations, and office locations
can change, and this requirement ensures that the Board will be alerted
promptly to updated information.\107\ Instructions regarding how to
notify the Secretary of such a change will be provided in the appendix.
---------------------------------------------------------------------------

\106\ In practice, this five-day period would span at least
seven calendar days. See PCAOB Rule 1002, Time Computation
(providing that Saturdays, Sundays, and federal legal holidays are
excluded from the computation of time when a prescribed period of
time in a Board rule is seven days or less).
\107\ For example, if a firm changes its name while remaining
the same legal entity, the firm has 30 days to notify the Board of
its name change in Item 7.1 of Form 3. But if a firm changes its
name while also changing its legal entity due to a change to its
legal form of organization or as the result of a business
combination, the firm may (but is not required to) file a Form 4
that, among other things, would notify the Board of the name change
in Item 1.1, and that filing would be due 14 days after the change
or business combination, unless the Board permits the firm to file
its form out of time.
---------------------------------------------------------------------------

Subparagraph (e)(4) provides that the Board may issue an updated
appendix at any time. This allows the Board to update its appendix to
reflect changes reported by firms as required by subparagraph (e)(4).
It also enables the Board to correct discrepancies or reflect changes
identified by the Board or its staff through other means.\108\ An
updated appendix will bear the date on which it was issued by the
Board.
---------------------------------------------------------------------------

\108\ For instance, the list of firms in the appendix could be
reduced if a firm withdraws from registration or has its
registration revoked, and could be expanded if a registered firm
moves its headquarters to a jurisdiction that is the subject of a
jurisdiction-wide determination.
---------------------------------------------------------------------------

The Board's issuance of an updated appendix would not constitute a
reassessment of the Board's underlying determination. In other words,
the Board can update an appendix without reanalyzing the three factors
identified in paragraph (b). Whenever the Board issues an updated
appendix, it will transmit that appendix to the Commission, make it
publicly available in accordance with subparagraph (e)(2), and send it
to firms that are identified in the appendix in accordance with
subparagraph (e)(3).
Effective Date and Duration of Board Determinations
Paragraph (f) provides that a Board determination becomes effective
on the date the Board issues its report to the Commission. Most
commenters expressed support for this timing, though one commenter
suggested that this timing would be appropriate only if firms received
advance notice of a determination, and another commenter suggested that
the Board delay the effectiveness of its determinations (e.g., for 120
days) so that issuers have time to understand and plan for them.
The Board adopted paragraph (f) substantially as proposed.\109\ For
many of the same reasons that the Board does not believe that firms
should receive advance notice of Board determinations (as discussed
above), the Board does not believe that the effectiveness of its
determinations should be delayed. Furthermore, delaying the
effectiveness of a determination could frustrate the objectives of the
HFCAA and, in the Board's view, impair the Commission's ability to
identify covered issuers on a timely basis pursuant to its rules.
---------------------------------------------------------------------------

\109\ For simplicity, at the beginning of the paragraph, ``When
the Board makes a determination pursuant to subparagraph (a)(1) or
(a)(2), the Board's determination becomes effective'' has been
replaced by ``A determination pursuant to subparagraph (a)(1) or
(a)(2) becomes effective.''
---------------------------------------------------------------------------

One commenter requested clarification regarding the date of
issuance of a Board report. The date of issuance will be the date that
appears on the report, which will correspond to the date upon which the
Board's report is transmitted to the Commission.

[[Page 53713]]

Paragraph (g) addresses the duration of Board determinations. The
Board adopted paragraph (g) substantially as proposed,\110\ save for
one conforming change. As first proposed, the proposed rule provided
that a Board determination would remain in effect ``unless and until''
it was modified or vacated. As discussed below, however, the Board has
elected to reassess at least annually each determination that is in
effect and to issue, at the conclusion of each reassessment, a report
reaffirming, modifying, or vacating the determination. To conform to
that approach, paragraph (g) has been revised to provide that a Board
determination will remain in effect until it is reaffirmed, modified,
or vacated by the Board.
---------------------------------------------------------------------------

\110\ For simplicity, at the beginning of the paragraph, ``A
determination made by the Board'' has been changed to ``A
determination.''
---------------------------------------------------------------------------

Reassessment of Board Determinations
As first proposed, paragraph (h) created a two-step process through
which the Board would annually monitor the continued justification for
a Board determination. First, the Board would consider whether changes
in facts and circumstances warrant a reassessment of a determination
that is in effect. Then, if the Board concludes that a reassessment is
warranted, the Board would analyze the three factors identified in
paragraph (b) and decide whether to leave its determination undisturbed
or issue a new report modifying or vacating the determination. Apart
from that annual process, the Board also could reassess a determination
on its own initiative or at the Commission's request at any time.
Commenters generally supported that proposed two-step annual
process. A few commenters suggested that the result of a reassessment
should be made public in all circumstances, even when a determination
is left undisturbed, and one commenter indicated that such public
reporting could provide audit firms and issuers with more detailed
guidance and transparent information. Some commenters suggested that
firms should be able to request reevaluation of a determination outside
of the annual cycle, with one commenter asking the Board to confirm
that it would reassess a determination anytime there was a potentially
material development in the facts and circumstances.
The Board has revised paragraph (h) to reduce the two-step process
to a one-step process by eliminating the ``annual consideration of
changed facts and circumstances'' contemplated in the proposed rule.
Instead of requiring the Board to conduct a threshold inquiry each year
to decide whether changes in facts and circumstances merit reassessment
of a determination, the proposed rule requires the Board to annually
reassess each determination that is in effect. The Board believes that
annual reassessment best aligns with the HFCAA's annual cycle, which
includes the Commission's identification of covered issuers based on
the filing of annual reports and its designation of non-inspection
years.\111\
---------------------------------------------------------------------------

\111\ HFCAA Sec. 2(i)(1)-(2), 15 U.S.C. 7214(i)(1)-(2).
---------------------------------------------------------------------------

Apart from its mandatory annual reassessments, the Board, on its
own initiative or at the Commission's request, may reassess a
determination at any time. It is not possible to specify every
development that might prompt the Board to reassess a determination
outside of the annual reassessment cycle. In certain circumstances, the
withdrawal of a law or the execution of a cooperative agreement might
suffice, if, for example, the law or the absence of an agreement were
the sole reason why the Board's access was impaired in one or more of
the respects identified in paragraph (b). However, as a general matter,
when a determination derives from the Board's prolonged inability to
complete inspections or investigations in a particular jurisdiction or
of a particular firm, the Board does not anticipate modifying or
vacating such a determination--even if a cooperative agreement is in
place--until it has concluded that the foreign authority has taken, and
the Board can reasonably conclude that the authority will maintain, new
positions that respond satisfactorily to the Board's access needs with
respect to each of the factors identified in paragraph (b). In such
instances of prolonged lack of access, the Board would expect to
conclude inspections or investigations in that jurisdiction or of that
firm before modifying or vacating a determination. The conclusion of an
inspection or investigation, however, is not necessarily conclusive
evidence that the conditions preventing the Board from inspecting or
investigating completely firms located in the foreign jurisdiction have
been resolved.
Together, the proposed rule's framework of mandatory annual
reassessment and discretionary off-cycle reassessment gives the Board
the opportunity to reassess a determination whenever facts and
circumstances warrant, and will help ensure that the Commission's
actions under the HFCAA are based on Board determinations that reflect
the current status of the Board's ability to inspect and investigate
firms completely. When conducting a reassessment, whether annual or
off-cycle, the Board will reanalyze the three factors identified in
paragraph (b), and at the conclusion of that reassessment, the Board
will reaffirm, modify, or vacate its determination.
Two commenters suggested that the Board allow firms to request
reevaluation of a determination outside of the Board's annual
reassessment process. One commenter further suggested that reevaluation
requests could be based on a triggering event, but did not provide any
examples of such an event or explain how a firm would have knowledge of
such an event that the Board would lack. As explained above, the Board
believes that firms are unlikely to have new, relevant information
about positions taken by foreign authorities vis-[agrave]-vis the
Board, and firms already have other channels through which they can
communicate with the Board's staff about inspection- and investigation-
related developments. Furthermore, even without a rule-based mechanism
through which firms could request reevaluation, the Board will reassess
determinations to which any firm is subject at least once a year.
One commenter suggested that the Board allow ``jurisdictions'' to
request reevaluation of determinations at any time. That commenter was
not a foreign authority; indeed, no foreign authority submitted a
comment asking for the ability to request reevaluation. Nor did the
commenter explain why foreign authorities cannot communicate with the
Board through existing channels. The Board believes that those
customary channels for communication with foreign authorities, together
with the Board's annual mandatory reassessments and discretionary off-
cycle reassessments, suffice to provide the Board appropriate
information to reexamine determinations as and when appropriate.
Reaffirmed, Modified, and Vacated Board Determinations
Paragraph (i) addresses reaffirmed, modified, and vacated Board
determinations. The Board adopted paragraph (i) with several conforming
changes that align paragraph (i) with other revisions to the proposed
rule, including revisions regarding appendices to Board reports, the
transmittal of Board reports by electronic mail, and annual
reassessment of determinations that are in effect.
When the Board reaffirms, modifies, or vacates a determination, it
will issue a report to the Commission describing its assessment and the
basis for

[[Page 53714]]

reaffirming, modifying, or vacating the determination. In the case of a
reaffirmed or modified determination, the Board will update the
appendix to the report that identifies the firm(s) to which the
determination applies. A copy of the report will be posted on the
PCAOB's website and sent by electronic mail to each firm's primary
contact with the Board, subject to the confidentiality limitations
described above in connection with subparagraphs (e)(2) and (e)(3).
A reaffirmed or modified determination, or the vacatur of a
determination, will become effective on the date that the Board issues
its report to the Commission. A reaffirmed or modified determination
will be subject to reassessment under paragraph (h): It must be
reassessed at least annually; it may be reassessed at any time; and the
Board's reassessment will consider the three factors identified in
paragraph (b) and result in reaffirmation, modification, or vacatur. A
reaffirmed or modified determination will remain in effect until it is
reaffirmed, modified, or vacated.

D. Economic Considerations

The Board is mindful of the economic impacts of its rulemaking.
This section discusses economic considerations related to the proposed
rule, including the need for the rulemaking; a description of the
baseline for evaluating the economic impacts of the proposed rule;
consideration of the benefits, costs, and unintended consequences of
the proposed rule; and alternatives considered by the Board.
The proposed rule does not require ``mandatory audit firm rotation
or a supplement to the auditor's report in which the auditor would be
required to provide additional information about the audit and the
financial statements'' of issuers, nor does it impose any ``additional
requirements'' on auditors.\112\ Accordingly, the Board has concluded
that Section 103(a)(3)(C) of the Act does not apply to this rulemaking,
and no commenter suggested otherwise.
---------------------------------------------------------------------------

\112\ Section 103(a)(3)(C) of the Act.
---------------------------------------------------------------------------

Need for Rulemaking
As discussed in Section C above, the HFCAA does not expressly
require the Board to adopt a rule governing the determinations it makes
under the statute. Rather, the HFCAA gives the Board discretion
regarding the procedure for making those determinations and the content
and format of the Board's reporting to the Commission. The Board
elected to pursue a rulemaking to bring transparency and consistency to
its determinations. Specifically, the Board believes that a rule would
inform investors, registered firms, issuers, audit committees, foreign
authorities, and the public at large as to how the Board will perform
its functions to satisfy its obligations under the statute. It also
would promote consistency in the Board's process regarding
determinations.
Baseline
The Board has evaluated the potential benefits, costs, and
unintended consequences of the proposed rule relative to a baseline
that consists of the current regulatory framework and current market
practices. Although the HFCAA requires the Board to make a
determination about which audit firms located in a foreign jurisdiction
it is unable to inspect or investigate completely because of a position
taken by one or more authorities in that jurisdiction, the HFCAA does
not expressly require the Board to adopt a rule governing the
determinations it makes under the statute. Moreover, the PCAOB website
has long identified the jurisdictions in which the Board lacks
inspection access, as well as the registered firms located in those
jurisdictions.\113\ Measured against this baseline, the proposed rule
builds on existing PCAOB practices and provides a framework for the
Board's determinations under the HFCAA and, hence, should have limited
economic impacts incremental to the impacts of the HFCAA and the
Commission's actions to implement the HFCAA.
---------------------------------------------------------------------------

\113\ For an overview of this historical practice, see, for
example, footnote 62.
---------------------------------------------------------------------------

Under the HFCAA, issuers that retain firms that are subject to a
Board determination to issue audit reports on their financial
statements must make certain disclosures and submissions and,
eventually, if certain conditions persist, the securities of those
issuers may be subject to a prohibition on trading. The Commission has
adopted interim final amendments to Forms 20-F, 40-F, 10-K, and N-CSR
to implement the disclosure and submission requirements of the
HFCAA.\114\ Other aspects of the HFCAA, including the trading
prohibition, will be addressed in subsequent Commission actions.\115\
The economic impact of these aspects of the HFCAA, while tied to the
Board's determinations about which audit firms it is unable to inspect
or investigate completely, will depend on the implementation choices
made by the Commission in carrying out its mandate under the HFCAA and
thus are not considered as part of the economic analysis with respect
to this rulemaking.
---------------------------------------------------------------------------

\114\ See SEC Exchange Act Release No. 91364. The interim final
rule amendments became effective on May 5, 2021.
\115\ See id.
---------------------------------------------------------------------------

The baseline also takes into consideration the current
international reach of the Board's oversight mandate. As of June 30,
2021, 851 non-U.S. firms, headquartered in 90 foreign jurisdictions,
were registered with the Board.\116\ Out of those 851 non-U.S.
registered firms, 202 issued at least one audit report on financial
statements filed by an issuer with the Commission in the 12-month
period ended June 30, 2021, and, altogether, they issued 1,260 audit
reports during that 12-month period.\117\
---------------------------------------------------------------------------

\116\ Source: PCAOB Registration, Annual, and Special Reporting
(``RASR'') System and Audit Analytics.
\117\ If a firm issued more than one audit report on financial
statements filed by the same issuer during the 12-month period ended
June 30, 2021, then only the most recent audit report is counted.
---------------------------------------------------------------------------

Exhibit 1 reports the jurisdictions with the highest number of
audit reports issued by non-U.S. registered firms on financial
statements filed by issuers with the Commission during the 12-month
period ended June 30, 2021. The top 15 jurisdictions account for 84% of
all audit reports issued by non-U.S. registered firms on financial
statements filed by issuers during the 12-month period ended June 30,
2021.

[[Page 53715]]

[GRAPHIC] [TIFF OMITTED] TN28SE21.001

As discussed in Section C above, over the years, the Board has been
able to work effectively with authorities in foreign jurisdictions to
fulfill its mandate to oversee registered firms located outside the
United States. With rare exceptions, foreign audit regulators have
cooperated with the Board and allowed it to exercise its oversight
authority as it relates to registered firms located within their
respective jurisdictions. Authorities in a limited number of foreign
jurisdictions, however, have taken positions that deny the Board access
for oversight activities. The PCAOB's website identifies the
jurisdictions that currently deny the Board such access.\119\
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\118\ For purposes of Exhibit 1, a firm's jurisdiction is the
jurisdiction where it is headquartered. The number of audit reports
issued on the financial statements of issuers and the number of
registered firms that issued those reports are based on issuer
filings during the 12-month period ended June 30, 2021. The market
capitalization of those issuers and the number of registered firms
in each jurisdiction are as of June 30, 2021. Due to a lack of data
on the number of shareholders, some audit reports included in
Exhibit 1 may have been issued on the financial statements of
entities with fewer than 300 shareholders. If a firm issued more
than one audit report on financial statements filed by the same
issuer during the 12-month period ended June 30, 2021, then only the
most recent audit report is counted.
\119\ See Audit Reports Issued by PCAOB-Registered Firms in
Jurisdictions where Authorities Deny Access to Conduct Inspections,
available at https://pcaobus.org/oversight/ational/denied-access-to-inspections. The information contained on this web page does not
constitute a Board determination under the HFCAA. The Board has not
yet made any determinations under the HFCAA.
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Considerations of the Benefits, Costs, and Unintended Consequences
Compared to the baseline of no PCAOB rulemaking, the proposed rule
would have incremental benefits and costs. The proposed rule's scope is
confined to establishing a framework for determinations that the Board
is called upon by the HFCAA to make even absent a rulemaking.
Additionally, neither the HFCAA nor the proposed rule gives the Board
additional authority to take any action of legal consequence directly
against a registered firm. Instead, the HFCAA contemplates that the
Board would notify the Commission of its determinations, which may
provide the predicate for other regulatory actions to be taken by the
Commission if other conditions set forth in the HFCAA and the
Commission's rules are met. This situation is in contrast to the direct
impact of the Board's statutory mandate to register, set professional
standards for, inspect, investigate, and discipline registered firms.
One commenter stated that economic benefits and costs arise from the
HFCAA, which the PCAOB cannot change and must implement.
The Board's analysis of the potential benefits, costs, and
unintended consequences of the proposed rule does not presuppose any
determination that the Board may make under the proposed rule, because
the Board would determine whether to make any future determimations
based on the facts and circumstances at that time. The Board's analysis
discusses the economic impacts of four central features of the proposed
rule: (1) The Board's ability to make determinations as to a particular
foreign jurisdiction; (2) limiting those jurisdiction-wide
determinations to firms headquartered in the jurisdiction; (3) the
Board's complementary ability to make determinations as to a particular
registered firm; and (4) the Board's publication of its determinations
on its website. The analysis is qualitative in nature because of a lack
of information and data necessary to provide reasonable quantitative
estimates. Overall, the Board expects that the benefits of the proposed
rule will justify

[[Page 53716]]

any costs and unintended negative effects.
Benefits
The Board believes that the proposed rule would inform investors,
registered firms, issuers, audit committees, foreign authorities, and
the public at large as to how the Board will perform its functions
under the HFCAA. The improved transparency and reduced regulatory
uncertainty might help market participants make more efficient
investment decisions and, hence, enhance capital formation.
Furthermore, the proposed rule will promote consistency in the Board's
processes regarding determinations. It will also assist the Commission
in its consistent implementation of the HFCAA and achieving the
statute's intended objectives. These are the primary benefits of the
proposed rule. Several commenters agreed that a Board rule governing
HFCAA determinations can improve regulatory transparency and
consistency and reduce regulatory uncertainty.
The Board believes that the proposed rule's jurisdiction-wide
determinations would yield additional benefits. In the Board's
experience, when foreign authorities take a position that impairs the
Board's oversight access, the position applies generally to all firms
within the jurisdiction. Consequently, jurisdiction-wide determinations
would provide an efficient, effective means of making Board
determinations under the HFCAA.
Jurisdiction-wide determinations would be beneficial even when a
foreign authority limits the Board's ability to inspect or investigate
certain types of issuer audit engagements. Typically, the foreign
authority's position applies to any firm in the jurisdiction that
performs that type of engagement. If the Board were unable to make
jurisdiction-wide determinations and instead were required to single
out for determination only the specific audit firms handling those
issuer engagements at a particular time, those issuers potentially
could evade the consequences of the HFCAA by routinely changing audit
firms in response to each successive firm-specific determination issued
by the Board.\120\ Beyond that, issuing a jurisdiction-wide
determination in such a scenario would help ensure that foreign
authorities cannot, in essence, choose which firms within their
jurisdiction the Board may inspect or investigate.
---------------------------------------------------------------------------

\120\ If the Board were to make only firm-by-firm determinations
based on each firm's then-current client portfolio, the Board might
need to establish a process requiring all registered firms to report
auditor changes to the Board in real time so that the Board could
monitor such changes and promptly make new determinations in
response. Presently, the Board's rules require firms to report their
issuer clients to the Board only after the firm's audit report on
the issuer has been issued. See PCAOB Rule 3211(b), Auditor
Reporting of Certain Audit Participants (Form AP must be filed
within 35 days after the audit report is first included in a filing
with the Commission, except that Form AP must be filed within 10
days if the audit report is included in a registration statement
under the Securities Act). One commenter noted that jurisdiction-
wide determinations would appear to be more efficient for the
PCAOB's operations than determinations as to particular registered
firms.
---------------------------------------------------------------------------

Limiting jurisdiction-wide determinations to firms headquartered in
the jurisdiction would generate its own benefits. It would reduce the
risk that a jurisdiction-wide determination sweeps too broadly by
encompassing firms that merely have a physical presence or personnel in
the jurisdiction but are headquartered elsewhere. Although a position
taken by a foreign authority can naturally be understood to impact
registered firms headquartered in the jurisdiction, its impact on firms
that are headquartered elsewhere can turn on many factors, including
the extent of the firm's presence in the jurisdiction and the nature
and extent of the audit work it performs there. With that in mind, the
proposed rule provides that the Board could choose to make
individualized determinations with respect to firms that are
headquartered elsewhere but have an office in such a jurisdiction.
Determinations as to a particular registered firm would complement
the Board's jurisdiction-wide determinations by providing an additional
option when the Board concludes that an across-the-board jurisdiction-
wide determination is not appropriate. Such a provision recognizes that
although the Board generally expects to make jurisdiction-wide
determinations, it cannot anticipate every scenario it might encounter
in the future. If a position taken by a foreign authority applies
solely to one firm, which is expected to happen infrequently, the
Board's ability to make a determination as to that firm would be a
critical tool for fulfilling the HFCAA's objectives. Additionally, by
providing an avenue for the Board to make determinations as to
registered firms that are headquartered in a cooperating jurisdiction
but have an office in a noncooperating jurisdiction, this provision
would help ensure that the Board's flexibility under the proposed rule
matches its mandate under the HFCAA.
The Board has also considered the potential benefits of making
Board determinations public on its website. Such publication would
inform investors, registered firms, issuers, audit committees, foreign
authorities, and the public regarding Board determinations, thus
promoting transparency and reducing regulatory uncertainty. Market
participants may benefit from being informed of Board determinations
promptly, rather than waiting for the Commission's identification of
covered issuers.
Costs and Unintended Consequences
The Board has also considered the potential costs and unintended
consequences of the proposed rule. The Board expects any such costs and
consequences to be limited, as the proposed rule merely establishes a
framework for the Board to perform the responsibilities imposed upon it
by the HFCAA.
The Board has evaluated the potential costs and unintended
consequences of making jurisdiction-wide determinations. As explained
in Section C above, such determinations treat all registered firms
headquartered in the jurisdiction alike when the positions taken by
authorities in the jurisdiction apply equally to any firm performing
the same audit work for issuers, whether or not a particular registered
firm happens to be doing such work when the Board makes a
determination. To mitigate any perceived overinclusiveness or
underinclusiveness of a jurisdiction-wide determination, the proposed
rule limits those determinations to registered firms headquartered in
the jurisdiction, while also permitting the Board, when appropriate, to
supplement a jurisdiction-wide determination with a determination as to
a particular firm that has an office in the jurisdiction but is not
headquartered there.\121\ This approach, in the Board's view, would be
unlikely to impose incremental additional costs or lead to unintended
consequences relative to the baseline, which consists of, among other
things, the historical practice of identifying publicly the
jurisdictions where there are unresolved obstacles to Board inspections
and investigations.
---------------------------------------------------------------------------

\121\ Additionally, the Board has general residual exemption
authority, subject to Commission approval, under Section 106(c) of
the Act, and such authority could be used to address any potential
overinclusiveness of a jurisdiction-wide determination.
---------------------------------------------------------------------------

The Board does not expect that the second central feature of the
proposed rule--limiting jurisdiction-wide determinations to firms
headquartered in the jurisdiction--would lead to

[[Page 53717]]

additional costs or unintended consequences.
Related to the third central feature of the proposed rule--the
Board's ability to make determinations as to particular firms with an
office in a foreign jurisdiction--one commenter encouraged the Board to
consider the potential adverse impact on competition when assessing a
potential future determination, and further encouraged the Board to
provide equivalent treatment to similarly-situated firms. While any
future determinations under the proposed rule as to particular
registered firms may potentially have an impact on competition, such
determinations, as noted in Section C above, are expected to be
infrequent. Moreover, the magnitude of any impact would depend on many
factors, such as the number of firms within the jurisdiction, the size
of the firm as to which the determination is made, and how the foreign
authority's obstruction of the Board's inspections or investigations
has already affected competition in the jurisdiction.
Separately, the Board has evaluated the potential costs and
unintended consequences of making its determinations public. The Board
believes that the incremental costs of such publication will likely be
minimal because similar information has historically been available on
the Board's website for approximately a decade.\122\ Moreover, many
issuers currently disclose in their annual reports the PCAOB's
inability to inspect their auditor, as the Commission recently
observed.\123\
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\122\ See, e.g., Audit Reports Issued by PCAOB-Registered Firms
in Jurisdictions where Authorities Deny Access to Conduct
Inspections, available at https://pcaobus.org/over/international/denied-access-to-inspections.
\123\ See SEC Exchange Act Release No. 91364, at 26 (noting ``a
highly similar type and pattern of disclosure regarding the PCAOB's
inability to inspect those firms included in the majority of the
potential Commission-Identified Issuers' Item 3 (for Form 20-F
filers) and Item 1A (for Form 10-K filers) discussion of risk
factors'').
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Alternatives Considered
As an alternative to a rulemaking, the Board considered issuing
guidance related to its process or establishing a non-public process
for making its determinations. The Board has determined, however, that
a rule would reduce regulatory uncertainty for market participants by
providing transparency and promoting consistency as to how the Board
would perform its functions under the statute. Commenters generally
agreed that a rule governing the Board's determination process would
promote transparency and consistency and reduce regulatory uncertainty.
The Board also considered whether the proposed rule should be
limited to determinations as to particular registered firms. Without
jurisdiction-wide determinations, however, the Board would have to make
determinations only as to particular firms under subparagraph (a)(2) of
the proposed rule, potentially based on the present composition of each
firm's client portfolio. The Board believes that such an approach would
incentivize an issuer whose audit engagement cannot be inspected or
investigated by the Board to switch audit firms frequently, possibly
frustrating the intent of the HFCAA and potentially necessitating a new
process for real-time reporting of auditor changes to the Board so that
Board determinations could be made or reassessed on a timely basis.
The Board also considered whether to extend its jurisdiction-wide
determinations to all firms that have an office in the jurisdiction,
rather than only those headquartered there. The Board elected not to do
so, based on its oversight experience, because the impact of a position
taken by a foreign authority on a firm headquartered elsewhere can vary
based on the particulars of the firm's presence, audit work, and issuer
clients in the jurisdiction.
When prescribing the grounds upon which a determination may rest,
the Board considered whether the Board's commencement and subsequent
inability to finish an inspection or investigation should be a
prerequisite to a determination. The Board has not adopted that
approach because the position taken by a foreign authority can
frustrate the initiation of, or the ability to complete, an inspection
or investigation. Moreover, commencing inspections or investigations in
the face of such obstacles would be costly and fruitless, not only for
the Board, but also for registered firms.
Lastly, although it can exercise exemption authority under Section
106(c) of the Act with the Commission's approval,\124\ the Board
considered whether the proposed rule should include a procedure for the
Board to grant exceptions from a jurisdiction-wide determination. The
Board did not include such a mechanism in the proposed rule for five
principal reasons:
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\124\ See Section 106(c) of the Act (``[T]he Board, subject to
the approval of the Commission, may, by rule, regulation, or order,
and as [the Board] determines necessary or appropriate in the public
interest or for the protection of investors, either unconditionally
or upon specified terms and conditions exempt any foreign public
accounting firm, or any class of such firms, from any provision of
this Act or the rules of the Board . . . issued under this Act.'').
---------------------------------------------------------------------------

An exception procedure would be inconsistent with the
rationale for jurisdiction-wide determinations, namely, that the
foreign authority has taken a position of such general scope and
application that it obstructs the Board's ability to complete
inspections or investigations in that jurisdiction.
To the extent that exception arguments would be based on
the composition of a firm's client portfolio at a moment in time,
entertaining such arguments would require speculation as to whether the
foreign authority would impede the Board's ability to inspect or
investigate those audits and would create a moving target as the firm
gains and loses clients over time.
Exceptions might increase the risk of a ``shell game.'' If
a firm becomes subject to a Board determination because the Board
cannot inspect certain types of issuer audit engagements it performed,
those issuers might simply migrate to an excepted firm, triggering the
need for the Board to monitor auditor changes constantly and then
modify its determinations or revise its exceptions.
An exception procedure might encourage foreign authorities
to manipulate the determination process by cherry-picking certain firms
that the PCAOB can inspect, thereby casting doubt on the justification
for the Board's jurisdiction-wide determination.
Allowing firms to seek exceptions could effectively
transform the Board's jurisdiction-wide approach to a firm-by-firm
approach that consumes substantial Board resources and fails to protect
investors.
One commenter indicated that the Board's existing exemption
authority is adequate and expressed concern that granting exceptions
could transform the Board's jurisdiction-wide approach into a firm-by-
firm approach that consumes substantial resources and fails to protect
investors. The Board agrees with this commenter and has not created a
procedure for granting exceptions from a jurisdiction-wide
determination.

III. Date of Effectiveness of the Proposed Rule and Timing for
Commission Action

Within 45 days of the date of publication of this notice in the
Federal Register or within such longer period (i) as 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:

[[Page 53718]]

(A) By order approve or disapprove such proposed rule; or
(B) institute proceedings to determine whether the proposed rule
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
is consistent with the requirements of Title I of the Act. Comments may
be submitted by any of the following methods:

Electronic Comments

Use the Commission's internet comment form (https://www.sec.gov/rules/pcaob.shtml); or
Send an email to [email protected]. Please include
File No. PCAOB-2021-01 on the subject line.

Paper Comments

Send paper comments in triplicate to Vanessa Countryman,
Secretary, U.S. Securities and Exchange Commission, 100 F Street NE,
Washington, DC 20549-1090.

All submissions should refer to File No. PCAOB-2021-01. This file
number should be included on the subject line if email 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 website (https://www.sec.gov/rules/pcaob.shtml). Copies
of the submission, all subsequent amendments, all written statements
with respect to the proposed rule that are filed with the Commission,
and all written communications relating to the proposed rule 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 website viewing and printing in the Commission's
Public Reference Room, 100 F Street NE, Washington, DC 20549-1090, on
official business days between the hours of 10:00 a.m. and 3:00 p.m.
Copies of such filings will also be available for inspection and
copying at the principal office of the PCAOB. All comments received
will be posted without change. Persons submitting comments are
cautioned that we do not redact or edit personal identifying
information from comment submissions. All submissions should refer to
File No. PCAOB-2021-01 and should be submitted on or before October 19,
2021.
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\125\ 17 CFR 200.30-11(b)(1) and (3).

For the Commission, by the Office of the Chief Accountant, by
delegated authority.\125\
Vanessa A. Countryman,
Secretary.
[FR Doc. 2021-21056 Filed 9-23-21; 4:15 pm]
BILLING CODE 8011-01-P

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