Federal Register / Vol. 75, No. 250 / Thursday, December 30, 2010 / Notices 82417 

1 See Release No. 34–62919 (September 15, 2010) 

[75 FR 59332 (September 27, 2010)]. The notice 

included a 21-day comment period. The comment 

period closed on October 18, 2010. 

the information to monitor principal 

trades in their accounts. 

The Commission staff estimates that 

approximately 380 investment advisers 

make use of rule 206(3)–3T, including 

an estimated 24 advisers (on an annual 

basis) also registered as broker-dealers 

who do not offer non-discretionary 

services, but whom the Commission 

staff estimates will choose to do so and 

rely on rule 206(3)–3T. The Commission 

staff estimates that these advisers spend, 

in the aggregate, approximately 378,992 

hours annually in complying with the 

requirements of the rule, including both 

initial and annual burdens. The 

aggregate hour burden, expressed on a 

per-eligible-adviser basis, is therefore 

approximately 997 hours per eligible 

adviser (378,992 hours divided by the 

estimated 380 advisers that will rely on 

rule 206(3)–3T). 

Written comments are invited on: 

(a) Whether the collections of 

information are necessary for the proper 

performance of the functions of the 

Commission, including whether the 

information has practical utility; (b) the 

accuracy of the Commission’s estimate 

of the burdens of the collections of 

information; (c) ways to enhance the 

quality, utility, and clarity of the 

information collected; and (d) ways to 

minimize the burdens of the collections 

of information on respondents, 

including through the use of automated 

collection techniques or other forms of 

information technology. Consideration 

will be given to comments and 

suggestions submitted in writing within 

60 days of this publication. 

Please direct your written comments 

to Thomas Bayer, Director/CIO, 

Securities and Exchange Commission, 

C/O Remi Pavlik-Simon, 6432 General 

Green Way, Alexandria, VA 22312; or 

send an e-mail to: 

PRA_Mailbox@sec.gov. 

Dated: December 27, 2010. 

Florence E. Harmon, 

Deputy Secretary. 

[FR Doc. 2010–32941 Filed 12–29–10; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–63606; File No. PCAOB 

2010–01] 

Public Company Accounting Oversight 

Board; Order Approving Proposed 

Rules on Auditing Standards Related 

to the Auditor’s Assessment of and 

Response to Risk and Related 

Amendments to PCAOB Standards 

December 23, 2010. 

I. Introduction 

On September 15, 2010, the Public 

Company Accounting Oversight Board 

(the ‘‘Board’’ or the ‘‘PCAOB’’) filed with 

the Securities and Exchange 

Commission (the ‘‘Commission’’) a 

notice (the ‘‘Notice’’) of proposed rules 

(File No. PCAOB 2010–01) on Auditing 

Standards Related to the Auditor’s 

Assessment of and Response to Risk and 

Related Amendments to PCAOB 

Standards. Those eight auditing 

standards (hereinafter referred to as 

‘‘Risk Assessment Standards’’), which 

will supersede six of the Board’s interim 

auditing standards, are: 

• Auditing Standard (‘‘AS’’) No. 8, 

Audit Risk; 

• AS No. 9, Audit Planning; 

• AS No. 10, Supervision of the Audit 

Engagement; 

• AS No. 11, Consideration of 

Materiality in Planning and Performing 

an Audit; 

• AS No. 12, Identifying and 

Assessing Risks of Material 

Misstatement; 

• AS No. 13, The Auditor’s Responses 

to the Risks of Material Misstatement; 

• AS No. 14, Evaluating Audit 

Results; and 

• AS No. 15, Audit Evidence. 

Notice of the proposed rules was 

published in the Federal Register on 

September 27, 2010.1 The Commission 

received two comment letters relating to 

the proposed rules. For the reasons 

discussed below, the Commission is 

granting approval of the proposed rules. 

As specified by the Board, the rules are 

effective for audits of fiscal years 

beginning on or after December 15, 

2010. 

II. Description 

The Board adopted eight auditing 

standards and related amendments that 

are designed to benefit investors by 

establishing requirements that enhance 

the effectiveness of the auditor’s 

assessment of and response to the risks 

of material misstatement in an audit. 

Assessing and responding to risks 

underlies the entire audit process. The 

risk assessment standards that the 

PCAOB is replacing were part of the 

Board’s interim standards and were in 

large part written twenty to thirty years 

ago. In adopting the new Risk 

Assessment Standards, the Board 

intended to build upon and improve the 

risk framework that was already 

established by the interim standards, 

rather than replacing that framework 

altogether. 

Changes that the Board made to the 

interim standards reflect: Improvements 

that the PCAOB has observed in the 

audit methodologies of many registered 

firms; recommendations from academia; 

recommendations from the Board’s 

Standing Advisory Group (‘‘SAG’’) and 

other groups; the adoption of AS No. 5, 

An Audit of Internal Control Over 

Financial Reporting That is Integrated 

with an Audit of Financial Statements; 

improvements made to similar risk 

assessment standards by other standard 

setters (e.g., the International Auditing 

and Assurance Standards Board 

(‘‘IAASB’’) and the Auditing Standards 

Board (‘‘ASB’’) of the American Institute 

of Certified Public Accountants); and 

observations from the Board’s oversight 

activities. 

Key changes made to the standards 

include an increased emphasis on fraud 

risks, an increased emphasis on 

disclosures, inclusion of multi-location 

audit requirements, an alignment of the 

standards with AS No. 5, and inclusion 

of a concept of materiality more 

specifically grounded to that used in the 

Federal securities laws. 

III. Discussion 

The Commission received two 

comment letters: One from Deloitte & 

Touche, LLP (‘‘Deloitte’’) and one from 

the Center for Capital Markets 

Competitiveness of the U.S. Chamber of 

Commerce (‘‘CMCC’’). Deloitte 

supported approval of the standards, 

while expressing certain concerns 

largely of a more general nature 

regarding the PCAOB’s approach to 

standard-setting. The CMCC believed 

that the Risk Assessment Standards 

should not be approved, but rather sent 

back to the PCAOB in order for the 

PCAOB to address certain concerns, 

most of which also related to the 

PCAOB’s overall approach to standardsetting as opposed to the particular 

standards at issue. 


jlentini on DSKJ8SOYB1PROD with NOTICES
82418 Federal Register / Vol. 75, No. 250 / Thursday, December 30, 2010 / Notices 

2PCAOB Release No. 2010–004, August 5, 2010, 

p. 3. 

3PCAOB Release No. 2010–004, August 5, 2010, 

p. 8. 

4See PCAOB Release No. 2010–004, August 5, 

2010, pp. A10–91—A10–92 (internal footnotes 

omitted). 

Integration of Fraud Risk Standard Into 

the Risk Assessment Standards 

One of the significant changes to the 

Risk Assessment Standards was the 

incorporation of aspects of AU sec. 316, 

Consideration of Fraud in a Financial 

Statement Audit, into the Risk 

Assessment Standards. In explaining 

why the PCAOB incorporated portions 

of the fraud standard into the Risk 

Assessment Standards, it stated that: 

Incorporating these requirements makes 

clear that the auditor’s responsibilities for 

assessing and responding to fraud risks are 

an integral part of the audit process rather 

than a separate, parallel process. It also 

benefits investors by prompting auditors to 

make a more thoughtful and thorough 

assessment of fraud risks and to develop 

appropriate audit responses.2

The CCMC did not agree with the 

level of integration. The CCMC made a 

similar comment during the PCAOB’s 

due process stage, which the Board 

addressed in its adopting release. This 

comment largely relates to a 

disagreement as to the manner in which 

the standards are constructed, as 

compared to the performance required 

of auditors. The Commission believes 

that the PCAOB has given due 

consideration to the comments received 

about this matter. 

Effective Date 

The effective date of the standards 

will be for audits of fiscal years 

beginning on or after December 15, 

2010. The CMCC expressed concern 

about the effective date, stating that the 

effective date ‘‘would not allow 

adequate time for audit firms to revise 

their audit methodologies and train 

their audit staffs around the world for 

audits in 2011.’’ In response to similar 

concerns raised in its comment letter 

process, including from the CCMC, the 

PCAOB stated in its release that the 

underlying concepts of risk-based 

auditing have not changed, and 

therefore, while there are many 

incremental requirements in the 

updated standards, these standards 

should not require wholesale changes to 

audit methodologies.3 Any delay in the 

effective date of these standards would 

likely delay the implementation for 

most issuers for at least one year (e.g., 

the standards would not be applicable 

generally until calendar year 2012 

audits related to audit reports to be 

issued in 2013). 

After considering the nature of the 

changes in the Risk Assessment 

Standards, the timing of Commission 

approval, and the fact that the standards 

will not be applicable to audits for 

which audit reports will be issued in 

2011 (i.e., the first audit reports issued 

for which audits would be required to 

be conducted using the new standards 

would not be issued until 2012) we 

believe the PCAOB’s approach for 

implementation is not unreasonable. 

PCAOB Standard-Setting Process 

Both commenters noted various 

concerns about the PCAOB’s standardsetting process. The concerns identified 

included divergence from other 

standard-setters, what the commenters 

viewed as a ‘‘prescriptive’’ nature of the 

standards, the lack of a codification of 

PCAOB standards, the usefulness of the 

appendix that compares the PCAOB 

proposed standard to the similar 

standards of other standard-setters, and 

the use of certain terms in the standards. 

These comments all relate more to the 

PCAOB’s overall approach to standardsetting than particular concerns with 

respect to the individual Risk 

Assessment Standards. 

All of these comments are similar to 

those received by the PCAOB during its 

standard-setting process, which the 

Board addressed. For example with 

respect to divergence from other 

standard-setters, the Board noted the 

following: 

In previous releases on its proposed risk 

assessment standards, the Board has stated 

that it has sought to eliminate unnecessary 

differences with the risk assessment 

standards and those of other standardssetters. However, because the Board’s 

standards must be consistent with the 

Board’s statutory mandate, differences will 

continue to exist between the Board’s 

standards and the standards of the IAASB 

and ASB, e.g., when the Board decides to 

retain an existing requirement in PCAOB 

standards that is not included in IAASB or 

ASB standards. Also, certain differences are 

often necessary for the Board’s standards to 

be consistent with relevant provisions of the 

federal securities laws or other existing 

standards or rules of the Board.4

The Board also noted that it 

‘‘continually endeavors to improve its 

processes’’ and explained other 

initiatives it uses in both gaining input 

on its standard-setting activities (e.g., 

through its SAG and by releasing 

multiple exposure documents) and 

providing additional transparency of its 

standards-setting process (e.g., through 

posting its standards-setting agenda and 

enhanced discussions in its releases on 

the Board’s conclusions). The 

Commission notes and encourages the 

Board’s efforts to consider standards 

issued by the IAASB and the ASB, and 

appreciates the reasons why it is 

reasonable to expect that the Board’s 

standards may appropriately differ from 

such standards. The Commission and its 

staff will continue to provide oversight 

of the Board and its staff’s ongoing 

endeavor to improve its processes. 

Regarding the ‘‘prescriptive’’ nature of 

the standards, we recognize that there 

should be an appropriate balance in 

auditing standards between providing 

necessary minimum requirements and 

allowing auditors to apply judgment in 

determining the nature and extent of 

audit procedures given the particular 

circumstances of an individual 

engagement. PCAOB standards 

recognize that the auditor uses judgment 

in planning and performing audit 

procedures and evaluating the evidence 

obtained from those procedures. We 

recognize, however, that overly broad 

standards without an appropriate 

balance of necessary requirements could 

lead to a level of discretion in the nature 

and extent of audit procedures that may 

limit the effectiveness of audits. The 

Commission believes the PCAOB’s 

approach in the Risk Assessment 

Standards is not unreasonable and 

encourages the PCAOB to monitor 

implementation and evaluate the input 

received during the development of 

future standards to continue to strive to 

achieve an optimal balance. 

Regarding a codification of the 

auditing standards, the Commission 

notes that the Board has recently added 

this project to its strategic plan and 

amended its performance measure on 

standard-setting activities to reflect this 

new initiative. 

IV. Conclusion 

On the basis of the foregoing, the 

Commission finds that the proposed 

PCAOB Rules on Auditing Standards 

Related to the Auditor’s Assessment of 

and Response to Risk and Related 

Amendments to PCAOB Standards (File 

No. PCAOB–2010–01) are consistent 

with the requirements of the SarbanesOxley Act of 2002, as amended (the 

‘‘Act’’) and the securities laws and are 

necessary or appropriate in the public 

interest or for the protection of 

investors. 

It is therefore ordered, pursuant to 

Section 107 of the Act and Section 

19(b)(2) of the Securities Exchange Act 

of 1934, that the proposed PCAOB Rules 

on Auditing Standards Related to the 

Auditor’s Assessment of and Response 

to Risk and Related Amendments to 

PCAOB Standards (File No. PCAOB– 

2010–01) be and hereby are approved. 


jlentini on DSKJ8SOYB1PROD with NOTICES
Federal Register / Vol. 75, No. 250 / Thursday, December 30, 2010 / Notices 82419 

1 15 U.S.C. 78s(b)(1). 

2 17 CFR 240.19b–4. 

3See Amendment No. 1. 

4See Rules 620(a) and 901(c). See also Rule 1061 

applicable to Floor Brokers. 

5Securities Exchange Act Release No. 33304 

(December 9, 1993), 58 FR 65613 (December 15, 

1993)(SR–Phlx–92–34). 

6For current requirements, see e.g., Rules 1080 

and 1082. 

7The Exchange intends to separately delete 

‘‘foreign currency options participant’’ and related 

terms from its rules. 

8See Securities Exchange Act Release No. 54989 

(December 21, 2006), 71 FR 78506 (December 29, 

2006)(SR–Phlx–2006–34). 

9 15 U.S.C. 78f(b). 

10 15 U.S.C. 78f(b)(5). 

11 15 U.S.C. 78f(c)(3)(B). 

By the Commission. 

Elizabeth M. Murphy, 

Secretary. 

[FR Doc. 2010–32885 Filed 12–29–10; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–63603; File No. SR–Phlx– 

2010–180] 

Self-Regulatory Organizations; 

NASDAQ OMX PHLX LLC; Notice of 

Filing and Immediate Effectiveness of 

Proposed Rule Change Revising Floor 

Qualification Examination 

December 22, 2010 

Pursuant to Section 19(b)(1) of the 

Securities Exchange Act of 1934 

(‘‘Act’’),1 and Rule 19b–4 2 thereunder, 

notice is hereby given that on December 

10, 2010, NASDAQ OMX PHLX LLC 

(‘‘Phlx’’ or ‘‘Exchange’’) filed with the 

Securities and Exchange Commission 

(‘‘SEC’’ or ‘‘Commission’’) the proposed 

rule change, and an amendment thereto 

on December 15, 2010, as described in 

Items I, II, and III, below, which Items 

have been prepared by the Exchange. 

The Commission is publishing this 

notice to solicit comments on the 

proposed rule change, as amended, from 

interested persons.3

I. Self-Regulatory Organization’s 

Statement of the Terms of Substance of 

the Proposed Rule Change 

The Exchange proposes to revise its 

floor qualification examination. 

Specifically, the Exchange proposes to 

delete obsolete questions, revise 

outdated questions and add several new 

questions, as described further below. 

II. Self-Regulatory Organization’s 

Statement of the Purpose of, and 

Statutory Basis for, the Proposed Rule 

Change 

In its filing with the Commission, the 

Exchange included statements 

concerning the purpose of and basis for 

the proposed rule change and discussed 

any comments it received on the 

proposed rule change. The text of these 

statements may be examined at the 

places specified in Item IV below. The 

Exchange has prepared summaries, set 

forth in sections A, B, and C below, of 

the most significant aspects of such 

statements. 

A. Self-Regulatory Organization’s 

Statement of the Purpose of, and 

Statutory Basis for, the Proposed Rule 

Change 

1. Purpose 

The purpose of the proposed rule 

change is to improve the Exchange’s 

program for qualification of members by 

updating its floor qualification 

examination. The Exchange has 

employed a written floor qualification 

examination, which is required for 

persons seeking to act as members on 

the trading floor,4 for many years. The 

examination, which has not been 

substantively amended for many years,5

covers many areas of the Exchange’s 

rules. 

At this time, the Exchange proposes to 

update the exam in a variety of ways. 

The exam would continue to be 

comprised of 100 questions, randomly 

and electronically selected from a 

question bank of approximately 148 

questions. The floor qualification 

examination is administered by the 

Exchange’s membership department, 

and requires a passing score of 70 

during a 75 minute testing period. 

In terms of outdated questions, the 

Exchange proposes to delete about 31 

obsolete questions, mostly pertaining to: 

(i) The ‘‘Wheel,’’ an obsolete method of 

allocating trades among specialist and 

Registered Options Traders (‘‘ROTs’’); 

(ii) ‘‘AUTO–X’’ functionality and 

specialists manually conducting an 

opening and executing trades, which 

have been replaced by the current 

trading system, Phlx XL II; and (iii) the 

‘‘ten-up’’ guarantees that preceded 

displayed size for options and the 

application of the Quote Rule to 

options.6

The Exchange also proposes to 

eliminate the foreign currency options 

qualification examination, because there 

have been no foreign currency options 

participants for many years.7 In 

addition, the Exchange no longer offers 

the foreign currency options products 

that were the subject of this 

examination, but rather now offers a 

U.S. dollar-settled foreign currency 

option,8 which trades pursuant to the 

Exchange’s options trading rules that are 

covered on the floor qualification exam. 

The Exchange proposes to modify 

approximately 17 questions pertaining 

to electronic quoting, various changes in 

priority rules and to reflect the existence 

of Options Exchange Officials (‘‘OEOs’’), 

who replaced Floor Officials, as well as 

make various minor corrections 

reflecting rule changes over time. 

Similarly, the Exchange proposes to add 

approximately 46 new questions 

reflecting trade reporting, disputes and 

OEO rulings, priority and trade 

allocation, spreads, openings, halts and 

reopening, quoting obligations, order 

types, Floor Broker obligations and Rule 

703. 

2. Statutory Basis 

The Exchange believes that its 

proposal is consistent with Section 6(b) 

of the Act 9 in general, and furthers the 

objectives of Section 6(b)(5) of the Act 10

in particular, in that it is designed to 

prevent fraudulent and manipulative 

acts and practices, promote just and 

equitable principles of trade, to remove 

impediments to and perfect the 

mechanism of a free and open market 

and a national market system, and, in 

general to protect investors and the 

public interest. In addition, the 

Exchange believes that the proposed 

rule change is consistent with Section 

6(c)(3)(B) of the Act,11 which authorizes 

exchanges to prescribe standards of 

training, experience and competence for 

persons associated with exchange 

members, and gives exchanges the 

authority to bar a natural person from 

becoming a member or a person 

associated with a member, if the person 

does not meet the standards of training, 

experience and competence prescribed 

in the rules of the exchange. The 

Exchange believes that revising its floor 

member qualification examination 

should better test the knowledge of its 

floor members, and thereby enhance the 

Exchange’s standards for training, 

experience and competence. 

B. Self-Regulatory Organization’s 

Statement on Burden on Competition 

The Exchange does not believe that 

the proposed rule change will impose 

any burden on competition not 

necessary or appropriate in furtherance 

of the purposes of the Act. 


jlentini on DSKJ8SOYB1PROD with NOTICES