|
Sarbanes-Oxley Act of 2002
Click to download a One-Page Summary (PDF 19k) of the United States Public Company Accounting Reform and Investor Protection Act of 2002 — also called the Sarbanes-Oxley Act of 2002 (named after its Congressional cosponsors, Senator Sarbanes and Congressman Oxley).
Or you can Download the Full Text of the Sarbanes-Oxley Act of 2002 (PDF 230k).
PCAOB Rulemaking
The PCAOB's rulemaking process results in the adoption of rules that are then submitted to the Securities and Exchange Commission for approval. PCAOB rules do not take effect unless approved by the Commission. Click here for a detailed description of the PCAOB rulemaking process, as set out in the Bylaws and Rules of the Public Company Accounting Oversight Board (link to PCAOB website).
Click here for a List of the Various Rules that have been proposed and finalised by the PCAOB, with links to the underlying documents and letters of comment. (This is a link to the PCAOB website.)
Registration of Foreign Public Accounting Firms
Proposed Rules
In March 2003, the PCAOB voted unanimously (4-0) to issue Proposed Registration Rules (PDF 294k) that would require both US and foreign auditing firms to register with the Board if they perform audits of companies registered with the SEC. Comments are due by 31 March 2003. The rules are consistent with Section 102 of the Sarbanes-Oxley Act, which requires that all auditors of public companies must register with the PCAOB, identify public audit clients, identify all accountants associated with those clients, list fees earned for audit and non-audit services, explain their audit quality control procedures, and identify all criminal, civil, administrative, and disciplinary proceedings against the firm or any of its associated persons in connection with an audit. The Act also requires the PCAOB to inspect all CPA firms that audit public companies to assess compliance with the law, SEC regulations, rules established by the PCAOB, and professional standards. Following consideration of the comments on its proposed rules, the PCAOB will adopt final rules that also must be approved by the Securities and Exchange Commission.
Public Roundtable
The PCAOB convened a roundtable meeting on 31 March 2003 at which interested persons presented their views on the effect and operation of PCAOB registration and oversight of foreign public accounting firms. Among the questions discussed at the roundtable were these:
- Should foreign firms be given an extended deadline for their initial registration?
- Are there any portions of PCAOB's draft registration form that are inapplicable, or that should be modified or supplemented, for non-US applicants?
- Do any of the PCAOB's registration requirements conflict with national laws?
- In the case of non-US firms that must register because they play a 'substantial role' in the audit of a US issuer, how should 'substantial role' be defined?
- Should registered foreign public accounting firms be subject to PCAOB inspection, or could the PCAOB, in some cases, rely on home-country regulation in lieu of inspection?
Final Rules
On 6 May 2003, the PCAOB adopted Final Auditor Registration Rules (PDF 393k). All US public accounting firms must be registered with the Board if they wish to prepare or issue audit reports on US public companies, or to play a substantial role in the preparation or issuance of such reports, after 22 October 2003. Non-US public accounting firms that wish to prepare or issue audit reports on US public companies, or to play a substantial role in the preparation or issuance of such reports, must be registered by 19 April 2004. Registration will be via an on-line form on the PCAOB's Website. The form is currently being developed, with availability expected late June or early July 2003. Applicants must pay a registration fee. Registered firms will be required to file annual reports with the PCAOB and perhaps other periodic reports.
On-Line Registration System Activated
In July 2003, the PCAOB activated its On-Line Registration System for firms that audit US listed companies.
Briefing Paper on the PCAOB's Plans for Overseeing Non-US Auditing Firms
On 29 October 2003, the PCAOB published a briefing paper that describes the PCAOB's approach to oversight of non-US accounting firms. The approach envisions cooperation with appropriate non-US auditor oversight authorities. The plans described in the briefing paper include:
- A framework to permit varying degrees of reliance on a firm's home country system of inspections, based on a sliding scale: the more independent and robust a home country system, the higher the reliance on that system.
- A modification to the PCAOB's registration form to permit, where applicable, the inclusion of certain information about a non-US firm's home country oversight system, to facilitate coordination between the PCAOB and non-US oversight systems.
- A 90-day extension of the Board's deadline for non-U.S. firm registration, which will give non-US firms a reasonable amount of time to understand and prepare for registration.
Click to Download the Briefing Paper (PDF 49k).
PCAOB Registration of Non-US Accounting Firms
On 11 March 2004 the PCAOB published Frequently Asked Questions
Regarding Issues Relating to Non-US Accounting Firms (PDF 37k).
The PCAOB also the initial registration deadline for non-US auditing firms from 19 April 2004 to 19 July 2004. The Board also approved an auditing standard for audits of internal control over financial reporting. The PCAOB will submit both decisions to the Securities and Exchange Commission for approval.
As of 4 April 2008, 1,850 public accounting firms have registered with the Board to be allowed to audit the financial statements of US public companies. Of those, approximately 850 (over 45%) are non-US audit firms from more than 86 jurisdictions. Click for List of Registered Firms (updated periodically by PCAOB).
Auditing and Ethics Standards
In April 2003, by unanimous vote, the PCAOB decided not to delegate responsibility for setting auditing standards to the accounting profession but, rather, to set the standards itself. Heretofore, the American Institute of CPAs has promulgated auditing standards in the United States. The Financial Accounting Standards Board will continue to set accounting standards. The PCAOB's auditing standards will include matters of quality control, professional ethics, and independence of auditors from companies whose financial statements they audit. Though the PCAOB has authority to regulate all auditors – American or foreign – of all public companies in the United States, the extent to which PCAOB auditing standards would apply to foreign auditors remains to be addressed. The PCAOB also voted to finance its operations by fees paid by publicly traded companies in proportion to their size. Auditing firms will also pay fees to fund the PCAOB's auditor registration system.
November 2005: PCAOB Report on Audits of Internal Controls
In November 2005, the PCAOB published a report summarising issues identified in implementing Auditing Standard No. 2 An Audit of Internal Control over Financial Reporting Performed in Conjunction with an Audit of Financial Statements (AS2). The PCAOB's monitoring revealed that some audits "were not as effective or efficient as Auditing Standard No. 2 intends and as the Board expects they can be in the future, given the benefits of experience, adequate time and resources." The report cites specific examples of inefficiency and ineffectiveness. It also explains and clarifies certain aspects of AS2 and amplifies certain guidance it has previously issued. Click for:
July 2007: New PCAOB Standard on Audits of Internal Controls
On 25 July 2007, the US Securities and Exchange Commission approved Auditing Standard No. 5 An Audit of Internal Control Over Financial Reporting That Is Integrated with An Audit of Financial Statements. AS 5 was adopted by the Public Company Accounting Oversight Board in May 2007. AS 5 replaces the PCAOB's previous internal control auditing standard, Auditing Standard No. 2. With SEC approval in place, audit firms registered with the PCAOB are required to use the new standard for all audits of internal control no later than for fiscal years ending on or after 15 November 2007. The PCAOB has announced that it intends to undertake several initiatives to support the successful implementation of the new standard. Click for:
December 2007: PCAOB proposes greater reliance on foreign auditor inspections
The PCAOB has issued for comment a proposed policy statement that identifies the factors relevant to 'full reliance' by the Board on the inspections programs systems of its non-US counterparts that are sufficiently rigorous to meet the level of protection for investors that is required by the Sarbanes-Oxley Act of 2002. The proposed policy statement provides guidance on the Board's Rule 4012 Inspections of Foreign Registered Public Accounting Firms, which permits the Board to adjust its reliance on the inspections of auditor oversight entities located in the home countries of registered non-US audit firms, based upon the level of independence and rigor of those entities. Under the proposed policy statement the PCAOB would increase its level of reliance on non-US oversight systems where possible, including in some cases full reliance, if certain essential criteria are met. The Board is seeking public comment by 4 March 2008 on the criteria and the approach described in the policy statement.
Five proposed broad principles that would guide the PCAOB in making a reliance determination:
- Adequacy and integrity of the oversight system: The Board would weigh whether the non-US system effectively works in the public interest to protect investors by seeking to improve audit quality.
- Independent operation of the oversight system: The Board would weigh whether the entity and the system within which it operates are free from interference or undue influence by the audit practitioners and/or audit firms under the entity's supervision.
- Independence of the system's source of funding: The Board would weigh whether the non-US system has the ability to obtain and deploy the financial resources necessary to carry out its mandate without interference or undue influence by the audit practitioners and/or audit firms under its supervision.
- Transparency of the system: The Board would weigh the extent to which the entity is accountable for the discharge of its duties through a transparent framework. The Board would review whether the entity publicly discloses information on its structure, governance, policies and operations.
- System's historical performance: The Board would weigh whether the non-US oversight entity or the system within which it operates has a record of adequate disciplinary proceedings and appropriate sanctions.
|
Click for:
January 2009: PCAOB staff guidance on internal control for SMEs
The US Public Company Accounting Oversight Board (PCAOB) has published a 62-page guidance publication Staff Views An Audit of Internal Control Over Financial Reporting That Is Integrated With An Audit of Financial Statements: Guidance For Auditors of Smaller Public Companies. The PCAOB's objective in issuing the Guidance is to help auditors apply the provisions of PCAOB Auditing Standard 5 An Audit of Internal Control Over Financial Reporting That Is Integrated with An Audit of Financial Statements to audits of smaller, less complex public companies. Click for:
| 
Print
