Federal Register / Vol. 89, No. 225 / Thursday, November 21, 2024 / Notices 92213 

give the Commission written notice of its intent to 

file the proposed rule change, along with a brief 

description and text of the proposed rule change, 

at least five business days prior to the date of filing 

of the proposed rule change, or such shorter time 

as designated by the Commission. The Exchange 

has satisfied this requirement. 19 17 CFR 200.30–3(a)(12). 

At any time within 60 days of the 

filing of the proposed rule change, the 

Commission summarily may 

temporarily suspend such rule change if 

it appears to the Commission that such 

action is necessary or appropriate in the 

public interest, for the protection of 

investors, or otherwise in furtherance of 

the purposes of the Act. If the 

Commission takes such action, the 

Commission will institute proceedings 

to determine whether the proposed rule 

change should be approved or 

disapproved. 

IV. Solicitation of Comments 

Interested persons are invited to 

submit written data, views and 

arguments concerning the foregoing, 

including whether the proposed rule 

change is consistent with 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/sro.shtml); or 

• Send an email to rule-comments@

sec.gov. Please include file number SR– 

NYSENAT–2024–31 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–NYSENAT–2024–31. 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/ 

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 

a.m. and 3 p.m. Copies of the filing also 

will be available for inspection and 

copying at the principal office of the 

Exchange. Do not include personal 

identifiable information in submissions; 

you should submit only information 

that you wish to make available 

publicly. We may redact in part or 

withhold entirely from publication 

submitted material that is obscene or 

subject to copyright protection. All 

submissions should refer to file number 

SR–NYSENAT–2024–31 and should be 

submitted on or before December 12, 

2024. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.19

Stephanie J. Fouse, 

Assistant Secretary. 

[FR Doc. 2024–27216 Filed 11–20–24; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–101644; File No. PCAOB– 

2024–05] 

Public Company Accounting Oversight 

Board; Notice of Filing of Proposed 

Rules on Constructive Requests To 

Withdraw From Registration 

November 15, 2024. 

Pursuant to Section 107(b) of the 

Sarbanes-Oxley Act of 2002 (‘‘SarbanesOxley,’’ or the ‘‘Act’’), notice is hereby 

given that on Thursday, November 14, 

2024, the Public Company Accounting 

Oversight Board (the ‘‘Board’’ or the 

‘‘PCAOB’’) filed with the Securities and 

Exchange Commission (the 

‘‘Commission’’ or the ‘‘SEC’’) the 

proposed rules 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 rules from 

interested persons. 

I. Board’s Statement of the Terms of 

Substance of the Proposed Rules 

On November 14, 2024, the Board 

adopted Constructive Requests to 

Withdraw from Registration (‘‘proposed 

rules’’). The text of the proposed rules 

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/rulemakingdockets/docket-054 and at the 

Commission’s Public Reference Room. 

II. Board’s Statement of the Purpose of, 

and Statutory Basis for, the Proposed 

Rules 

In its filing with the Commission, the 

Board included statements concerning 

the purpose of, and basis for, the 

proposed rules and discussed any 

comments it received on the proposed 

rules. The text of these statements may 

be examined at the places specified in 

Item IV below. The Board prepared 

summaries, set forth in sections A, B, 

and C below, of the most significant 

aspects of such statements. In addition, 

to the extent that Section 103(a)(3)(C) of 

the Act applies to the proposed rules, 

the Board is requesting that the 

Commission approve the proposed 

rules, pursuant to that provision, for 

application to audits of emerging growth 

companies (‘‘EGCs’’), as that term is 

defined in Section 3(a)(80) of the 

Securities Exchange Act of 1934 

(‘‘Exchange Act’’). The Board’s request 

is set forth in section D. 

A. Board’s Statement of the Purpose of, 

and Statutory Basis for, the Proposed 

Rules 

(a) Purpose 

To further enhance the PCAOB’s 

registration program, the Board adopted 

an amendment to its rule regarding 

withdrawals from registration. The 

amendment establishes a new 

procedural mechanism that will enable 

the Board to address situations in which 

a registered firm has ceased to exist, is 

nonoperational, or no longer wishes to 

remain registered, as demonstrated by 

its failures to file annual reports 

(PCAOB Form 2, Annual Report) and 

pay annual fees for at least two 

consecutive reporting years. Until now, 

a firm could be removed from PCAOB 

registration only if the Board either (1) 

authorized a withdrawal from 

registration based on firm-initiated 

withdrawal request or (2) imposed a 

disciplinary sanction revoking the firm’s 

registration. The amendment the Board 

adopted introduces a third procedural 

mechanism for removing a firm from 

PCAOB registration. It builds on the 

existing framework of firm-initiated 

withdrawal requests under PCAOB Rule 

2107, Withdrawal from Registration, by 

creating a process that treats 

consecutive delinquencies as a 

constructive request from a firm for 

leave to withdraw from registration. 

New paragraph (h) (‘‘Constructive 

Withdrawal Requests’’) of Rule 2107 

will allow the Board, under certain 

conditions, to update its registration 

records by (1) treating a firm’s failure 

both to file annual reports and to pay 

annual fees for at least two consecutive 


lotter on DSK11XQN23PROD with NOTICES1
92214 Federal Register / Vol. 89, No. 225 / Thursday, November 21, 2024 / Notices 

1See Proposals Regarding False or Misleading 

Statements Concerning PCAOB Registration and 

Oversight and Constructive Requests to Withdraw 

from Registration, PCAOB Release No. 2024–001 

(Feb. 27, 2024) (‘‘Proposing Release’’). 

2See PCAOB Rule 2200, Annual Report; PCAOB 

Rule 2202, Annual Fee. 

3Figure 3 of the Proposing Release reflected 87 

registered firms, as of December 31, 2023, that did 

not file annual reports and did not pay annual fees 

for both the 2022 and 2023 reporting years. By 

August 31, 2024, this number decreased to 80 firms. 

Five of the original 87 firms withdrew from 

registration in 2024, removing them from PCAOB 

registration as of August 31, 2024. Based on the 

PCAOB staff’s analysis of data from Audit Analytics 

and PCAOB Form AP, Auditor Reporting of Certain 

Audit Participants, there is no indication that these 

five firms have performed any services for issuers 

requiring PCAOB registration between January 1, 

2021, and August 31, 2024. Additionally, two of the 

original 87 firms addressed their prior 

noncompliance by filing their annual reports and 

paying their annual fees for the 2022 and 2023 

reporting years after the due dates had passed, thus 

these firms are also no longer included in the 

analysis. Although five firms withdrew from 

registration and two firms are no longer delinquent, 

it is difficult to attribute this behavior directly to 

the Proposing Release. Moreover, this subset of 

firms is small compared to the 92 percent of firms 

(80 out of 87) that continue to exhibit a pattern of 

delinquency spanning at least two consecutive 

reporting years. 

4See Figure 1 for a breakdown by firm type of the 

80 firms that did not file annual reports and did not 

pay annual fees for the 2022 and 2023 reporting 

years. 

5Based on Audit Analytics data, PCAOB staff 

analyzed audit reports issued between January 1, 

2021, and August 31, 2024, which covers the 2022 

and 2023 reporting years. The terms ‘‘audit,’’ ‘‘audit 

report,’’ ‘‘issuer, ’’ ‘‘broker,’’ and ‘‘dealer’’ are used 

as defined in the Act and PCAOB Rule 1001, 

Definitions of Terms Employed in Rules. The term 

‘‘broker-dealer’’ refers to entities registered with the 

SEC as either a ‘‘broker’’ or a ‘‘dealer,’’ or both. 

6Without a firm’s own Form 2 reporting, it is 

challenging for the PCAOB staff to conclusively 

determine whether a firm has played a substantial 

role in preparing or furnishing an audit report for 

an issuer or broker-dealer. Based on a review of 

Form AP data, the PCAOB staff noted that one of 

the 80 firms that did not file annual reports and did 

not pay annual fees for both the 2022 and 2023 

reporting years was reported by another registered 

firm as potentially playing a substantial role in 

issuer audit reports issued in 2022, 2023, and 2024. 

However, the inferences that the PCAOB can draw 

from this are limited by the constraints inherent in 

Form AP reporting: (1) only the firm that issues the 

audit report to the issuer files Form AP, and it alone 

identifies ‘‘other accounting firm’’ participants and 

the audit hours attributable to those firms; and (2) 

for purposes of Form AP reporting, an ‘‘other 

accounting firm’’ is categorized as a participant in 

an issuer audit if any of its principals or 

professional employees performed work on the 

audit that was supervised by the firm that issues the 

audit report, irrespective of whether the ‘‘other 

accounting firm’’ itself participated in the audit. 

Therefore, after reviewing available data, the 

PCAOB staff has not found any indications that 79 

of the 80 firms have recently engaged in any 

services requiring PCAOB registration, and the 

participation of the remaining firm in such services 

remains uncertain due to the characteristics of Form 

AP reporting. 

7Pursuant to PCAOB rules, subject to certain 

limitations, a firm’s registration with the Board is 

deemed withdrawn if the firm requests leave to 

withdraw by filing Form 1–WD, Request for Leave 

to Withdraw from Registration, and (i) the Board 

grants leave to withdraw, or (ii) the Board does not, 

within 60 days of receipt of the request, order that 

reporting years as a constructive request 

by the firm for leave to withdraw from 

registration, and (2) deeming the firm’s 

registration withdrawn. 

If approved by the Commission, Rule 

2107(h) will take effect initially for 

annual reports and annual fees that are 

due in 2025, meaning that a registered 

firm that does not file an annual report 

and does not pay an annual fee for both 

the 2025 and 2026 reporting years could 

be deemed withdrawn from registration 

under Rule 2107(h) beginning in the fall 

of 2026. 

See Exhibit 3 for additional 

discussion of the purpose of this project. 

(b) Statutory Basis 

The statutory basis for Rule 2107(h) is 

Title I of the Act, and, specifically, 

Section 102 of the Act (registration) and 

Sections 101(c)(1), (c)(5), (f)(6), and 

(g)(1) of the Act (duties, powers, and 

rules of the Board). Rule 2107(h) 

directly relates to the Board’s statutory 

duties and the purposes for its 

establishment. 

B. Board’s Statement on Burden on 

Competition 

Not applicable. The Board’s 

consideration of the economic impacts 

of the proposed rules is discussed in 

section D below. 

C. Board’s Statement on Comments on 

the Proposed Rules Received From 

Members, Participants or Others 

The Board initially released the 

proposed rules for public comment in 

PCAOB Release No. 2024–001 (February 

27, 2024).1 The Board received 18 

written comment letters relating to its 

initial proposed rules. See Exhibits 

2(a)(B) and 2(a)(C). The Board adopted 

its proposed amendment to Rule 2107 

with modifications to address comments 

it received. The Board is continuing to 

consider next steps relating to other 

aspects of the initial proposed rules that 

the Board did not adopt on November 

14, 2024. The Board has carefully 

considered comments received on 

proposed Rule 2107(h). The Board’s 

response to the comments it received, 

and the changes it made to the initial 

proposed rules in response to the 

comments received, are discussed 

below. 

Background 

Each year, a registered firm must file 

an annual report with the Board and pay 

an annual fee to the Board.2 Despite 

repeated reminders, a consistent group 

of firms neither files annual reports nor 

pays annual fees each year. The 

PCAOB’s Registration staff devotes 

resources each year to sending multiple 

communications to these firms, but 

these efforts have repeatedly failed to 

yield the required annual reports and 

annual fees from this persistent group of 

delinquent firms. As of August 31, 2024, 

data show that 80 registered firms did 

not file annual reports and did not pay 

annual fees for both the 2022 and 2023 

reporting years.3

To be clear, the 80 registered firms in 

question were not merely late in filing 

their annual reports and paying their 

annual fees by the respective due dates. 

These firms have not filed annual 

reports and have not paid annual fees at 

all for both the 2022 and 2023 reporting 

years. It is possible that many of these 

firms either may no longer exist or may 

not understand that they remain 

registered with the PCAOB, given their 

consecutive failures to file annual 

reports and pay annual fees. The 

PCAOB staff believes that these firms 

include, for example, sole 

proprietorships that remain registered 

even though the sole proprietor has 

died; firms that registered with the 

Board years ago but now appear to be 

defunct; and small firms, often in 

foreign countries, that cannot be 

reached through the primary contact 

person designated by the firm.4

Additionally, the PCAOB staff believes 

that none of these 80 firms has recently 

issued an audit report for an issuer.5 For 

79 of these firms, there is no indication 

that they have recently played a 

substantial role in issuer audits.6 This 

suggests that, with respect to the vast 

majority of consecutively delinquent 

firms—79 of the 80 identified firms— 

there is no indication of recent 

engagement in services requiring 

PCAOB registration. 

The presence of consecutively 

delinquent firms on the Board’s list of 

registered firms hinders several 

regulatory objectives, including its 

ability to maintain an accurate public 

record of registered public accounting 

firms in operation that wish to remain 

registered; to ensure that the 

information required on annual reports 

is being reported to the public and the 

PCAOB; to collect mandatory annual 

fees; and to efficiently use PCAOB staff 

time and resources. Before now, the 

PCAOB has lacked an effective 

procedural mechanism to deal with 

such firms. The prior framework offered 

only two methods of removing a firm 

from PCAOB registration: (1) the Board 

authorizing a withdrawal based on a 

firm-initiated withdrawal request,7 and 


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withdrawal of the firm’s registration be delayed. See 

Rule 2107(a). 

8Under Section 105(c)(4) and (5) of the Act and 

PCAOB Rule 5300, Sanctions, the Board can revoke 

a firm’s registration as a sanction in a Board 

disciplinary proceeding under certain 

circumstances. See Rule 1001(r)(ii) (defining 

‘‘revocation’’ as ‘‘a permanent disciplinary sanction 

terminating a firm’s registration’’). 

9Rule 2107 provides that a registered firm may 

request leave to withdraw from registration at any 

time by filing Form 1–WD. Withdrawal, however, 

is not immediately effective; the Board may order 

that withdrawal be delayed while the Board carries 

out an inspection, investigation, or disciplinary 

proceeding. See Rule 2107(d). After a firm’s 

registration is withdrawn, the firm is permitted to 

participate in audits of issuers or broker-dealers and 

otherwise associate with registered firms only so 

long as the withdrawn firm’s participation falls 

below the ‘‘substantial role’’ threshold. See Rule 

1001(p)(iii). A firm that withdraws from registration 

and later decides that it wishes to re-register must 

reapply for registration by filing a new PCAOB 

Form 1, Application for Registration. 

10After the Board revokes a firm’s registration, 

the firm is not permitted to participate in audits 

involving issuers or broker-dealers or otherwise 

associate with a registered firm; even participation 

that falls below the ‘‘substantial role’’ threshold 

would violate the order revoking the firm’s 

registration. See Rules on Investigations and 

Adjudications, PCAOB Release No. 2003–015 (Sept. 

29, 2003), at A2–7 (a revocation ‘‘prohibit[s] the 

firm from preparing or issuing, or participating in 

the preparation or issuance of, audit reports’’). The 

revocation remains in operation unless and until 

the Board approves a new application for 

registration submitted by the firm. See generally 

paragraphs (a) and (c) of PCAOB Rule 5302, 

Applications for Relief From, or Modification of, 

Revocations and Bars. 

11See generally PCAOB Rule 5201, Notification of 

Commencement of Disciplinary Proceedings. 

12Cf. Section 105(d) of the Act. 

13See footnote 10. 

(2) the Board instituting formal 

disciplinary proceedings that could lead 

to the revocation of the firm’s 

registration due to violations of laws, 

rules, or standards that the Board is 

charged with enforcing.8

As discussed below, the Board 

believes a ‘‘constructive withdrawal 

request’’ mechanism will provide the 

PCAOB with a reasonable, efficient, and 

equitable way of identifying and 

removing from registration firms that 

have ceased to exist, are nonoperational, 

or no longer wish to remain registered. 

After furnishing a consecutively 

delinquent firm with written notice and 

60 days to contact the Registration staff, 

the new provision of the PCAOB’s rule 

relating to withdrawal from registration 

permits the Board to treat a firm’s 

failure both to file annual reports and to 

pay annual fees for at least two 

consecutive reporting years as a 

constructive request by the firm for 

leave to withdraw from registration, and 

to deem the firm’s registration 

withdrawn. As indicated above, 

updating the PCAOB’s registration 

records through this process will 

promote the quality of information by 

removing from registration firms that 

have ceased to exist, are nonoperational, 

or no longer wish to remain registered. 

Discussion 

The PCAOB added a provision to an 

existing rule to advance the PCAOB’s 

investor protection mission and to 

enhance the Board’s registration 

program by creating a more accurate 

public record of registered public 

accounting firms in operation that wish 

to remain registered. 

Specifically, the PCAOB adopted an 

amendment to an existing rule to add a 

new provision that will permit the 

Board to deem a firm’s registration 

withdrawn—under specified conditions 

and subject to enumerated safeguards— 

if the firm fails to file its annual reports 

and to pay its annual fees for at least 

two consecutive reporting years. This 

dual condition, involving the lack of 

both annual report submission and 

annual fee payment over two 

consecutive reporting years, is designed 

to identify and remove from registration 

firms that have ceased to exist, are 

nonoperational, or no longer wish to 

remain registered. 

Until now, the PCAOB has had no 

effective and efficient procedural 

mechanism to withdraw consecutively 

delinquent firms from registration. As 

noted above, under the Board’s current 

rules, there are only two ways for a 

registered firm to depart from PCAOB 

registration. One is a firm-initiated 

withdrawal: a firm seeking to withdraw 

from registration can file a form 

requesting leave to withdraw.9 The 

other is revocation: when appropriate, a 

firm’s registration can be revoked as a 

sanction in a Board disciplinary 

proceeding upon a finding of 

intentional, reckless, or repeatedly 

negligent conduct.10

Withdrawal and revocation often 

suffice as methods for managing the 

PCAOB’s registration records, but each 

of these paths depends on some form of 

active engagement with the registered 

firm. They begin either with the firm 

filing a withdrawal request or with the 

PCAOB’s Office of the Secretary 

providing notice of an Order Instituting 

Disciplinary Proceedings (‘‘OIP’’) to the 

firm.11 In some circumstances, however, 

such as when a firm that has ceased to 

exist or is nonoperational or for some 

other reason consecutively fails to file 

its annual reports and pay its annual 

fees, it may not be possible to actively 

engage with that registered firm. To 

account for such situations, the Board 

believes there should be a procedural 

mechanism for the Board to update the 

PCAOB’s registration records. 

Building on the Board’s current 

withdrawal framework in Rule 2107, the 

core premise of Rule 2107(h) is that a 

two-year period of noncompliance with 

the PCAOB’s annual reporting and 

annual payment requirements, 

following warnings of these omissions, 

can reasonably be interpreted as a 

constructive request by the firm for 

leave to withdraw from registration, 

provided that appropriate procedural 

safeguards are in place. Often, a firm’s 

failure to file an annual report and pay 

an annual fee is the first indication that 

the firm may be defunct or no longer 

wishes to remain registered. Therefore, 

the Board believes that, when a firm 

fails to submit annual reports and to pay 

annual fees for at least two consecutive 

reporting years, it is reasonable to infer 

that the firm has ceased to exist, is no 

longer operational, or no longer wishes 

to remain registered with the PCAOB. 

As a withdrawal-based mechanism, 

Rule 2107(h) is not a disciplinary 

proceeding or disciplinary process. 

Instead of resulting in a disciplinary 

sanction (like a revocation), Rule 

2107(h) would result in withdrawal of 

the firm from registration. Unlike a 

revocation, a withdrawal under Rule 

2107(h) would not be reported as a 

disciplinary sanction to the 

Commission, state regulatory 

authorities, foreign accountancy 

licensing boards, or the public.12 A 

withdrawal under Rule 2107(h) would, 

instead, be reflected on the PCAOB’s 

website as a withdrawal from 

registration. Should the firm seek reregistration, it would be required to file 

a Form 1 like other firms that were 

previously registered but withdrew from 

registration, without the need to adhere 

to the requirements of Rule 5302(a) or 

(c), which relate to the termination of 

revocation sanctions. Under Rule 

2107(h), a firm whose registration is 

withdrawn, in contrast to a firm whose 

registration is revoked,13 would retain 

eligibility to perform work on audits of 

issuers or broker-dealers, provided that 

work remains below the substantial role 

threshold established by Rule 

1001(p)(ii) and PCAOB Rule 2100, 

Registration Requirements for Public 

Accounting Firms. In accordance with 

Rule 2107(b)(1), a firm that has 

withdrawn from registration is 

permitted to reissue or give consent to 

the use of a prior audit report issued by 

the firm while registered with the 

Board; however, the firm is not allowed 

to update or dual-date any previously 

issued audit report once the firm is no 

longer registered. 


lotter on DSK11XQN23PROD with NOTICES1
92216 Federal Register / Vol. 89, No. 225 / Thursday, November 21, 2024 / Notices 

14See Rule 2200 and PCAOB Rule 2201, Time for 

Filing of Annual Report. 15See Form 2, Item 10.1. 16See Rule 2202. 

Consecutively Delinquent Firms and 

Current Responses 

Section 102(d) of the Act requires 

each registered firm to submit an annual 

report to the PCAOB. The PCAOB’s 

annual reporting framework implements 

Section 102(d) by requiring each 

registered firm to report, on an annual 

basis, general information about the firm 

and its audit practice over the most 

recent 12-month reporting period. 

Annual reports must be filed on Form 

2 and must be filed no later than June 

30 of each year.14

Annual reporting is an important part 

of the investor protection framework 

prescribed by the Act and PCAOB rules. 

Information provided by registered 

firms in their annual reports informs the 

PCAOB’s oversight activities and 

provides information to the public 

regarding the nature and extent of each 

registered firm’s audit practice with 

respect to issuers and broker-dealers. 

Annual reporting also keeps the 

PCAOB’s records current on such basic 

information as the firm’s name, location, 

and contact information, and provides 

assurance, through a firm certification,15

that the firm has reported the 

occurrence of various significant events 

during the reporting period on PCAOB 

Form 3, Special Report. When a firm 

does not comply with the reporting 

requirements, it deprives the public of 

valuable information and impacts the 

PCAOB’s analysis and planning for 

inspections and other Board 

responsibilities. 

Each registered firm must also pay an 

annual fee. Section 102(f) of the Act 

directs the Board, in relevant part, to 

assess and collect annual fees from each 

registered firm in amounts that, together 

with registration fees, are sufficient to 

recover the costs of processing and 

reviewing registration applications and 

annual reports. Annual fees are due on 

or before July 31 of each year.16

Since the Board’s annual reporting 

and annual fee requirements became 

effective in 2010, a number of registered 

firms have continuously failed both to 

file annual reports and to pay annual 

fees, in violation of PCAOB rules. While 

some firms have belatedly made their 

required filings and payments, others 

remain persistently noncompliant. 


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Federal Register / Vol. 89, No. 225 / Thursday, November 21, 2024 / Notices 92217 

17The PCAOB staff’s analysis ends with the 2023 

reporting year. Although annual reports and annual 

fees for the 2024 reporting year were due several 

months ago, in the PCAOB’s experience some firms 

eventually file their annual reports and pay their 

annual fees many months after these deadlines. 

Including those firms in the analysis could 

potentially prevent an accurate count of delinquent 

firms for the 2024 reporting year and skew the 

assessment of the number of firms that might be 

subject to withdrawal from registration under Rule 

2107(h). However, the PCAOB believes this 

decision does not affect the PCAOB’s inferences, as 

a preliminary review of reporting year 2024 data 

through August 31, 2024, shows no significant 

deviations from the patterns observed through 

reporting year 2023. 

18The term ‘‘RASR’’ refers to the PCAOB’s webbased Registration, Annual, and Special Reporting 

System, which provides access to publicly available 

PCAOB information about registered public 

accounting firms, and is available at https://

rasr.pcaobus.org/Search/Search.aspx. 

19The number of delinquent firms depicted in the 

graph does not account for firms’ filing and 

payment activities after August 31, 2024. Therefore, 

for example, if a firm was delinquent for reporting 

year 2023 but subsequently filed an annual report 

or paid an annual fee after August 31, 2024, it 

would still be considered delinquent in the graph. 

Figure A. Cumulative Number of 

Registered Firms With Continuous 

Noncompliance From the Indicated 

Reporting Year Through the 2023 

Reporting Year 17

BILLING CODE 8011–01–P 

BILLING CODE 8011–01–C 

Note: Reporting years are based on the 

PCAOB’s reporting year-end of March 31 

(e.g., the 2023 reporting year covers April 1, 

2022, to March 31, 2023). Registered firms 

must submit an annual report by June 30 and 

pay an annual fee by July 31 each year, 

covering the 12-month period from April 1 to 

March 31. 

Figure A is based on data available as 

of August 31, 2024. Each bar in Figure 

A illustrates the cumulative number of 

firms registered with the PCAOB as of 

August 31, 2024, that have continuously 

failed both to file annual reports and to 

pay annual fees from each reporting 

year listed on the x-axis through August 

31, 2024. These data exclude firms that 

were previously noncompliant but 

subsequently either withdrew from 

registration or belatedly made their 

required filings and payments before 

August 31, 2024.19

For example, the bar for the 2010 

reporting year shows that 13 firms failed 

both to file annual reports and pay 

annual fees starting in reporting year 

2010, and those firms have remained 

consistently noncompliant every 

subsequent reporting year through 2023. 

By the 2011 reporting year, the 

cumulative total increases to 18 firms, 


lotter on DSK11XQN23PROD with NOTICES1EN21NO24.001</GPH>

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Source: RASR. 18 
92218 Federal Register / Vol. 89, No. 225 / Thursday, November 21, 2024 / Notices 

20Section III.B.1 of the Proposing Release 

provided similar data as depicted in Figure A, but 

with a cutoff date of December 31, 2023, instead of 

August 31, 2024. As a result, the number of firms 

that both did not file an annual report and did not 

pay an annual fee for reporting years 2022 and 2023 

decreased. Specifically, the number of 

noncompliant firms for the 2022 and 2023 reporting 

years decreased from 87 and 108 as of December 31, 

2023, to 80 and 90 firms, respectively, as of August 

31, 2024. The number decreased because some of 

the initially noncompliant firms either (1) withdrew 

from registration in 2024 or (2) filed annual reports 

and/or paid annual fees for the corresponding 

reporting year in 2024. See footnote 3 for a similar 

discussion of the reasons why the number of firms 

that did not file annual reports and did not pay 

annual fees for both the 2022 and 2023 reporting 

years changed. 

21This figure represents OIPs that solely relate to 

delinquent annual reports or annual fees, or both. 

See, e.g., R.A. Bianchi & Associates, An 

Accountancy Corporation, PCAOB Release No. 

105–2015–003 (Jan. 22, 2015); Baumgarten & 

Company LLP, PCAOB Release No. 105–2013–001 

(Feb. 21, 2013); Reuben E. Price & Co., Public 

Accountancy Corp., PCAOB Release No. 105–2011– 

008 (Dec. 20, 2011); GLO CPAs, LLLP, PCAOB 

Release No. 105–2011–006 (Nov. 30, 2011). 

22See Monte C. Waldman CPA, PCAOB File No. 

105–2015–013 (Aug. 4, 2016); Chr. Mortensen 

Revisionsfirma, statsautoriseret 

revisionsinteressentskab, PCAOB File No. 105– 

2015–008 (Jan. 12, 2016); David W. Dube, PCAOB 

File No. 105–2014–005 (Nov. 30, 2015); Joseph 

Troche, CPA, PCAOB File No. 105–2014–007 (Mar. 

6, 2015); P.S. Yap & Associates, PCAOB File No. 

105–2013–006 (May 8, 2014); Kenneth J. McBride, 

PCAOB File No. 105–2012–007 (May 7, 2013); Eric 

C. Yartz, P.C., PCAOB File No. 105–2012–006 (May 

7, 2013); Buckno Lisicky & Company, P.C., PCAOB 

File No. 105–2011–004 (Jan. 9, 2012); Paul Gaynes, 

PCAOB File No. 105–2011–006 (Jan. 3, 2012). 

representing an additional five firms 

that first failed to meet both annual 

obligations in 2011 and continued their 

noncompliance through the end of this 

period. This cumulative count grows 

progressively with each subsequent 

reporting year as more firms fall into 

continuous noncompliance through the 

end of this period, reaching a total of 90 

firms by the 2023 reporting year. This 

represents just under six percent of the 

total population of 1,554 PCAOBregistered firms as of August 31, 2024.20

These data indicate that, over time, a 

number of firms have persistently failed 

to fulfill both annual obligations, with 

more than 50 firms in noncompliance 

for at least six consecutive years and 13 

firms in noncompliance for 14 

consecutive reporting years. Based on 

the PCAOB staff’s experience, the Board 

believes that many of these 

continuously delinquent firms may be 

defunct. Consequently, it is unlikely 

that these firms will either (1) 

voluntarily request leave to withdraw 

from registration or (2) assert to the 

PCAOB that their registration was 

withdrawn under Rule 2107(h) when 

they needed to remain registered in 

order to perform audit work for issuers 

or broker-dealers. 

In each reporting year, the 

Registration staff contacted all registered 

firms to remind them of their 

obligations to file annual reports and to 

pay annual fees prior to their respective 

due dates. After the relevant due dates 

passed, the Registration staff followed 

up by sending at least one warning letter 

to each delinquent firm, specifically 

highlighting its failure to meet the 

annual filing and annual payment 

requirements. These warning letters 

have been effective in spurring most 

delinquent firms to act. 

But each year, a recurring set of firms 

does not cure delinquencies and yet 

remains registered. Without Rule 

2107(h), the PCAOB would have no 

effective and efficient procedural 

mechanism to withdraw these 

consecutively delinquent firms from 

registration. 

Relying on firm-initiated withdrawals 

is not currently a viable avenue, as these 

consecutively delinquent firms have not 

requested leave to withdraw from 

PCAOB registration and, given their 

extended unresponsiveness and 

repeated noncompliance, are unlikely to 

do so in the future. Moreover, existing 

Board rules do not permit PCAOB staff 

to file a request for leave to withdraw 

from registration on a firm’s behalf, even 

upon information and belief that the 

firm no longer exists or has ceased 

operations. 

Nor have enforcement efforts proven 

to be a desirable approach—or even a 

viable option—in certain circumstances. 

Historically, the PCAOB’s Division of 

Enforcement and Investigations (‘‘DEI’’) 

has allocated its resources toward 

higher risk delinquencies, prioritizing 

enforcement action with respect to 

delinquent firms that continue to issue 

audit reports or play a substantial role 

in the preparation or furnishing of audit 

reports. Since 2011, the Board has 

issued more than three dozen OIPs 

against delinquent firms,21 and while 

most of those cases settled (or were 

dismissed in connection with the 

delinquent firm’s withdrawal from 

registration), nine of those cases 

proceeded to an initial decision by a 

hearing officer.22 Although the facts and 

legal issues in these proceedings were 

generally straightforward, each case 

consumed substantial time and 

resources that could have been 

expended pursuing other oversight 

activities. And in some cases, the 

PCAOB has encountered difficulties 

providing notice of the institution of a 

disciplinary proceeding to a firm that 

appears to have ceased operations; 

serving OIPs on seemingly nonexistent 

or nonoperational firms may be 

unnecessarily challenging, if even 

possible. 

Additionally, encumbering the 

disciplinary process to address a 

registered firm’s noncompliance with 

the PCAOB’s annual reporting and 

payment requirements may often be a 

disproportionate response to a defunct 

firm’s failure to request leave to 

withdraw from registration before 

ceasing operations. Instituting 

approximately 80 new disciplinary 

proceedings, one for each registered 

firm that failed to file an annual report 

and pay the annual fee for both the 2022 

and 2023 reporting periods, would 

impose significant resource demands on 

the Board and its staff and could require 

significant time to resolve. The Board 

believes a more efficient process, with 

appropriate procedural safeguards, 

should be available to address 

circumstances where a registered firm’s 

conduct gives rise to the inference that 

the firm has ceased to exist, is 

nonoperational, or no longer wishes to 

remain registered with the PCAOB. 

Mechanics of Rule 2107(h) 

The Board designed Rule 2107(h) 

expressly to fall within the framework 

of a withdrawal from registration. Rule 

2107(h) is aimed at registered firms that 

have ceased to exist, are nonoperational, 

or no longer wish to remain registered. 

Still, in the absence of procedural 

safeguards, the Board recognizes that 

there is some risk that a constructivewithdrawal-request approach could 

unintentionally affect a firm that wishes 

to remain registered. Anticipating that 

risk, Rule 2107(h) includes a set of 

procedural safeguards to protect the 

interests of any firm that wishes to 

remain registered, including written 

notice and website notice, and an 

opportunity to stop the Rule 2107(h) 

process merely by emailing the 

Registration staff. 

On balance, the Board believes that 

Rule 2107(h) will avoid unnecessary 

expenditures of PCAOB resources while 

still affording a registered firm notice 

and an opportunity to stop the 

withdrawal process. It would also cause 

consecutively delinquent firms either to 

contact the Registration staff or to be 

withdrawn from registration more 

efficiently than is possible currently. 

Thus, the Board believes Rule 2107(h) 

will provide a reasonable and effective 

way to identify and remove from the 

PCAOB’s registration records those 

firms that have ceased to exist, are 

nonoperational, or no longer wish to 

remain registered. 

Commenters broadly supported 

proposed Rule 2107(h), and the Board 

adopted the proposed amendment with 


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23See Rule 2107(d) (the Board may delay a firminitiated withdrawal by up to 18 months, if done 

within 60 days of receiving a completed Form 1– 

WD and determined necessary to fulfill the Board’s 

inspection, investigative, or disciplinary 

responsibilities under the Act); see also Rule 

2107(e) (automatically delaying a firm’s withdrawal 

if a Board disciplinary proceeding is pending 

against the firm or any of its associated persons). 

24A Form 2 reporting year covers the 12-month 

period from April 1 to March 31. See Form 2, 

General Instruction 4. 

25While the PCAOB recognizes that seven of the 

originally identified 87 consecutively delinquent 

firms either withdrew from registration (five firms) 

or caught up on overdue annual reports and annual 

fees (two firms), this activity supports the rationale 

for adopting Rule 2107(h). The actions of these 

firms reinforce the utility of establishing a clear 

benchmark to infer that a consecutively delinquent 

firm, if it still exists, no longer wishes to remain 

registered with the PCAOB. The two-year marker of 

consecutive noncompliance with the annual 

reporting and annual fee requirements will serve as 

an effective and clear benchmark for interpreting 

such consecutive noncompliance as a firm’s 

constructive request for leave to withdraw from 

registration. And the procedural safeguards built 

into Rule 2107(h) provide a clear and easy course 

of action for a firm if the inference that the firm no 

longer wishes to remain registered is inaccurate. 

26Of course, rule violations related to 

noncompliance with the Board’s annual reporting 

and payment requirements remain subject to 

enforcement. 

27 In the adopted rule, the PCAOB revised the 

proposed phrase ‘‘that results in a confirmation of 

actual or attempted delivery’’ to ‘‘and obtains a 

confirmation of actual or attempted delivery.’’ This 

change aims to enhance clarity. The Board did not 

receive any comments on this specific phrasing, 

and this change is not intended to alter the rule’s 

meaning. 28See PCAOB Rule 2203, Special Reports, and 

Items 2.18 and 7.2 of Form 3. 

certain limited modifications, as 

discussed below. One commenter, an 

academic, expressed concern that 

withdrawing a firm from registration 

through the Rule 2107(h) process would 

remove the firm from the PCAOB’s 

enforcement authority. However, the 

Board may consider its enforcementrelated responsibilities when deciding 

whether or when to employ Rule 

2107(h)’s constructive-withdrawalrequest process with respect to a 

particular firm, just as it may consider 

whether a firm-initiated withdrawal 

from registration should be delayed in 

light of the Board’s responsibilities to 

conduct investigations or disciplinary 

proceedings.23

1. Prerequisites 

Under Rule 2107(h)(1), the 

withdrawal process would be available 

only if a registered firm, for at least two 

consecutive Form 2 reporting years, has 

neither filed an annual report nor paid 

an annual fee.24 The two-year 

benchmark is intended to serve as a 

proxy to assist the Board in identifying 

firms that may fairly be deemed to have 

made a constructive withdrawal request. 

The Board believes delinquency for a 

period of at least two consecutive 

reporting years is an effective indication 

that a firm has ceased to exist, is 

nonoperational, or no longer wishes to 

remain registered.25 Under the two-year 

benchmark, all firms that recently filed 

an annual report or paid an annual fee 

would fall outside the scope of Rule 

2107(h). The Board believes that a single 

missed filing or payment, or even one 

reporting year’s worth of missed annual 

reports and payments, is an insufficient 

basis upon which to infer that a firm no 

longer wishes to remain registered.26 On 

the other hand, allowing three or more 

years of delinquency before presuming 

a firm no longer wishes to remain 

registered may unduly delay 

appropriate regulatory action. The 

minimum amount of time that a firm 

would have to be delinquent before 

meeting the threshold of ‘‘two 

consecutive reporting years’’ would be 

13 months, encompassing the first 

overdue annual report following the 

June 30 deadline, the first overdue 

annual fee following the July 31 

deadline, the second overdue annual 

report following June 30 of the second 

consecutive year, and the second 

overdue annual fee following July 31 of 

the second consecutive year. 

The Rule 2107(h) process is 

discretionary. Whether Rule 2107(h) is 

used, and the exact timing of how it is 

used, is left to the Board. Establishing a 

discretionary process, rather than a 

mandatory or automatic one, allows the 

Board to consider specific facts and 

circumstances—including whether a 

firm is providing services requiring 

PCAOB registration and whether the 

firm is subject to a current or 

forthcoming inspection or 

investigation—when determining 

whether to deem the firm’s registration 

withdrawn under Rule 2107(h). The 

Board did not receive any comments on 

the discretionary nature of Rule 2107(h). 

The Registration staff will continue its 

practice of sending warning letters each 

year to delinquent registered firms. 

These notices will continue to call 

attention to any missed annual report 

filings or annual fee payments. 

While commenters generally 

supported the two-year threshold for 

considering a firm’s non-submission of 

annual reports and non-payment of 

annual fees as a basis for a constructive 

withdrawal request, some commenters 

suggested either reducing this period to 

one year or treating a single missed 

annual report or annual fee as a 

sufficient basis to initiate a firm’s 

withdrawal from PCAOB registration. 

The Board considered these options, 

but, as explained in the Proposing 

Release and above, the Board believes 

that a two-year criterion, encompassing 

both annual reports and annual fees, is 

an appropriate indicator that a firm has 

ceased to exist, is nonoperational, or no 

longer wishes to remain registered. 

Of course, the failure to file reports or 

pay fees when due constitutes a 

violation of PCAOB rules concerning 

annual reporting and fees, and firms 

should bear in mind that new paragraph 

(h) of Rule 2107 does not limit the 

Board’s enforcement authority with 

respect to violations of those 

requirements. 

2. Notice of Delinquency and Impending 

Withdrawal 

Pursuant to Rule 2107(h)(2), the Board 

commences the Rule 2107(h) process by 

sending a written notice to the 

registered firm’s primary contact with 

the Board as identified in the firm’s 

most recent filing on Form 1, Form 2, 

Form 3, or PCAOB Form 4, Succeeding 

to Registration Status of Predecessor. 

That notice (the ‘‘Notice of Delinquency 

and Impending Withdrawal’’) would 

specify the annual reports and annual 

fees that are past due and remain 

outstanding and provide information to 

the firm about the impending 

withdrawal of its registration, including 

the opportunity to avoid withdrawal by 

contacting the Registration staff within 

60 days. The Notice of Delinquency and 

Impending Withdrawal is intended to 

provide the firm notice of the 

commencement of the Rule 2107(h) 

process, the reason for the 

commencement of that process, its 

potential significance for the firm’s 

registration, and the firm’s opportunity 

to avoid withdrawal by sending an 

email to the Registration staff within 60 

days. 

The Board would send the Notice of 

Delinquency and Impending 

Withdrawal to the registered firm’s 

primary contact with the Board as 

identified in the firm’s most recent 

filing on Form 1, Form 2, Form 3, or 

Form 4, via a mail or commercial 

courier service, and the Board would 

obtain a confirmation of actual or 

attempted delivery.27 In considering the 

fairness of this approach, the Board has 

taken into account that if there has been 

a change in the identity or business 

mailing address of the firm’s primary 

contact from the information disclosed 

in a previous form filing, the firm is 

required to report that change to the 

PCAOB within 30 days on Form 3.28 In 

light of a firm’s longstanding obligation 

to maintain up-to-date primary contact 

information, the Board believes it is fair 

and reasonable for the Registration staff 


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29See generally Rule 141 of the Commission’s 

Rules of Practice, 17 CFR 201.141, which similarly 

permits service to the most recent address shown 

on a registered entity’s most recent filing with the 

Commission. 

30See Rule 2107(b)(2) (requiring disclosure of the 

identity of any firm with a pending request to 

withdraw from registration and the date the Board 

received the Form 1–WD); see also Registered 

Public Accounting Firms—Withdrawal Request 

Pending, available at https://assets.pcaobus.org/ 

pcaob-dev/docs/default-source/registration/firms/ 

documents/withdrawalrequests.pdf?sfvrsn=d30aab29_287. 

31PCAOB Rule 1002, Time Computation, governs 

the computation of periods of time prescribed in or 

allowed by the Board’s rules. Rule 1002’s time 

computation principles would apply to the 60-day 

period specified in the Notice of Delinquency and 

Impending Withdrawal. 

32The limitations imposed in Rule 2107(c) do not 

apply to firms that have received notice of the 

commencement of the Rule 2107(h) process. Those 

limitations apply only to firms that choose to 

initiate the withdrawal process through the filing of 

a completed Form 1–WD. 

33 If the email address of the firm’s primary 

contact on file with the Board is outdated, the firm 

is required to update this information using Form 

3 before transmitting an email to stop the Rule 

2107(h) process. See Items 2.18 and 7.2 of Form 3. 

This ensures that any email received by the 

Registration staff to stop the Rule 2107(h) process 

originates from an authorized representative of the 

firm, who has access to the firm’s account in the 

RASR system. 

34One firm expressed concern that emails sent to 

the PCAOB to stop the Rule 2107(h) process 

potentially could be marked as spam. The 

commenter suggested that the Board should either 

allow for additional communication methods or 

commit to confirming receipt of emails so that the 

sender has confidence that an email was received. 

The Board believes that having a single channel for 

communications from firms to stop the Rule 

2107(h) process promotes efficiency and the proper 

administration of the rule, and the Board believes 

that email is the optimal method because it is fast, 

not unduly burdensome, and in writing. Given the 

significance of an email from a firm under Rule 

2107(h)(4), the PCAOB staff will confirm receipt of 

such an email. This confirmation will provide 

assurance to firms regarding the successful delivery 

of their email to the PCAOB. 

35 If a firm sends an email to the Registration staff 

to stop Rule 2107(h)’s withdrawal process, it still 

could face potential enforcement action, just like 

any other registered firm that violates the PCAOB’s 

annual reporting or annual fee requirements. 

36As noted, the intent of Rule 2107(h) is to 

identify firms that have ceased to exist, are 

nonoperational, or no longer wish to remain 

registered. It is not intended as a disciplinary 

measure against firms that wish to remain registered 

but fail to fulfill their obligations to file annual 

reports or pay annual fees. The PCAOB has other 

mechanisms to address such noncompliance. 

to send the Notice of Delinquency and 

Impending Withdrawal to the firm’s 

primary contact at the address reported 

in the firm’s most recent filing.29

One commenter suggested that the 

PCAOB should use email in addition to 

traditional mail or a commercial courier 

service when providing notice of the 

initiation of the Rule 2107(h) 

withdrawal process. The Board 

emphasizes that all registered firms are 

required to keep their primary contact’s 

mailing address updated under current 

PCAOB rules. Moreover, as discussed in 

the next subsection, notice by mail or 

commercial courier service would be 

supplemented, as required under Rule 

2107(h), by a notice on the PCAOB’s 

website. Together, the Board believes 

that these methods of providing notice 

are sufficient. However, the Board also 

notes that the rule does not prohibit the 

Board or its staff from using email as an 

additional, discretionary means by 

which to provide notice of the initiation 

of the Rule 2107(h) process to firms. 

Though the use of email is not 

mandated by Rule 2107(h), the Board or 

PCAOB staff may deem it appropriate, 

under certain circumstances, to 

supplement the prescribed notice with 

email. 

3. Website Notice 

After the Notice of Delinquency and 

Impending Withdrawal is sent to the 

registered firm’s primary contact, the 

Board will publish notice of the 

impending withdrawal on its public 

website, pursuant to Rule 2107(h)(3). 

The Board will make reasonable efforts 

to do so promptly. The website posting 

is intended to provide reasonable notice 

to the firm and to others, including any 

current or former audit clients, who may 

be able to alert the firm of the 

impending withdrawal of its registration 

and its 60-day window to avoid 

withdrawal. Disclosing the firm’s 

pending withdrawal on the Board’s 

website is also consistent with the 

current firm-initiated withdrawal 

process.30

4. Sixty-Day Opportunity To Avoid 

Withdrawal From Registration 

After the date the Board sends the 

Notice of Delinquency and Impending 

Withdrawal to the registered firm’s 

primary contact, the firm, under Rule 

2107(h)(4), would have 60 days to stop 

the withdrawal process.31 The Board 

believes 60 days is a reasonable amount 

of time for the firm to become aware of 

the initiation of the Rule 2107(h) 

process, review the Notice of 

Delinquency and Impending 

Withdrawal, consider whether it wishes 

to remain registered, and contact the 

Registration staff by email.32

To stop the Rule 2107(h) process, the 

registered firm’s primary contact would 

be required to send an email to a 

designated electronic address specified 

in the Notice of Delinquency and 

Impending Withdrawal within the 60- 

day period. In contemplating how a firm 

should stop the Rule 2107(h) process, 

the Board sought to establish a method 

of contacting the PCAOB that would not 

be overly burdensome. Requiring that an 

email be sent by the firm’s primary 

contact increases the likelihood that the 

person who contacts the PCAOB is an 

authorized representative of the firm.33

This requirement also increases the 

likelihood that future communications 

to the firm would result in actual notice 

to the firm.34 In particular, this process 

expedites further communications with 

the firm regarding its legal obligations to 

file annual and special reports and pay 

annual fees, and will facilitate its ability 

to institute, as the Board deems 

appropriate, a disciplinary proceeding 

against the firm.35

In the Proposing Release, the Board 

suggested a 30-day period for firms to 

send an email to the Registration staff to 

stop the withdrawal process. One firm 

suggested that a 60-day period might be 

more appropriate. The Board has 

decided to adopt a 60-day window for 

sending an email to the Registration 

staff. This extension aims to provide 

firms with sufficient time to become 

aware of the initiation of the Rule 

2107(h) process, which includes 

notification of pending withdrawals 

posted on its website. The extended 

period also allows firms sufficient time 

to have internal discussions to 

determine whether they wish to remain 

registered. It also accommodates any 

updates needed regarding the firm’s 

primary contact with the Board to 

facilitate the email to the Registration 

staff. 

5. Withdrawal From Registration 

If, after the 60-day period in Rule 

2107(h), the registered firm has not 

emailed the Registration staff, the Board 

would be able to treat the firm’s 

consecutive failures to file annual 

reports and to pay annual fees as a 

constructive request for leave to 

withdraw from registration, and to deem 

the firm’s registration withdrawn.36 The 

provision reflects the Board’s judgment 

that a firm that has not filed an annual 

report and has not paid an annual fee 

over a period of at least two consecutive 

reporting years may reasonably be 

deemed to have made a constructive 

request for leave to withdraw from 

PCAOB registration. After the Board 

deems a registration withdrawn 

pursuant to Rule 2107(h), the 

Registration staff, consistent with 

existing practices, would send written 

notification to the firm regarding the 

withdrawal. The withdrawal of the firm 

from registration would also be reflected 

on the Board’s website. 


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37See Section 102(a) of the Act; Rule 2100; Rule 

1001(p)(ii). Note 2 to Rule 2100 clarifies that issuing 

a consent to include an audit report for a prior 

period does not, in itself, obligate a public 

accounting firm to be registered with the PCAOB. 

This provision applies to a firm whose registration 

has been withdrawn, including a firm whose 

registration has been withdrawn pursuant to Rule 

2107(h). 

38Consistent with the Board’s current practices, 

a history of not filing annual reports or paying 

annual fees has, in some cases, led to disapproval 

of a withdrawn firm’s subsequent application for reregistration. See, e.g., Registration Application of 

Alas Oplas & Co., CPAs, PCAOB Release No. 102– 

2024–004 (Aug. 20, 2024); Registration Application 

of S S Kothari Mehta and Company, PCAOB 

Release No. 102–2021–001 (Nov. 23, 2021); 

Registration Application of GYL Decauwer LLP, 

PCAOB Release No. 102–2018–001 (June 13, 2018); 

Registration Application of David R. Ramos, CPA, 

PCAOB Release No. 102–2014–002 (Mar. 6, 2014); 

Registration Application of Lawrence Hoffman, 

Certified Public Accountant, P.C., PCAOB Release 

No. 102–2014–001 (Jan. 28, 2014); Registration 

Application of Vail & Knauth LLP, PCAOB Release 

No. 102–2013–001 (Feb. 21, 2013). 

39See, e.g., Proposing Release at 44, 52, 56, 60– 

61, 62–63. Although the Proposing Release’s 

economic analysis also addressed proposed Rule 

2400 and the proposed amendment to Form 3, this 

economic discussion is limited to the amendment 

to Rule 2107 that the Board has adopted. 

40As previously noted, annual report (Form 2) 

reporting years span from April 1 of the previous 

year to March 31 of the reporting year. The 2022 

reporting year covers April 1, 2021, to March 31, 

2022. The 2023 reporting year covers April 1, 2022, 

to March 31, 2023. 

41The PCAOB staff based this analysis of 

reporting years 2022 and 2023 using August 31, 

2024, as the cutoff date. As discussed above, the 

PCAOB did not include data from reporting year 

2024. 

42Firms with pending withdrawal requests are 

excluded from the analysis. Also, as of August 31, 

2024, some registered firms were not required to 

pay annual fees or file annual reports for reporting 

years 2022 and 2023. For example, firms that 

registered after March 31, 2023, were not required 

to file the 2023 annual report or pay the 2023 

annual fee. 

43Four firms failed to file annual reports for both 

years but paid an annual fee for at least one of the 

years, and another four firms failed to pay annual 

fees for both years but filed an annual report for at 

least one of the years. The PCAOB does not have 

access to specific information on the reasons for 

this partial noncompliance. The PCAOB notes that 

these firms would not meet the criteria for 

withdrawal under Rule 2107(h). 

After a firm’s registration is 

withdrawn pursuant to Rule 2107(h), 

the consequences would mirror those of 

any other withdrawal from PCAOB 

registration. Specifically, the withdrawn 

firm, like any other unregistered firm, 

would be prohibited from engaging in 

the preparation or issuance of an audit 

report for an issuer or broker-dealer, or 

playing a substantial role in the 

preparation or furnishing of an audit 

report for an issuer or broker-dealer, 

other than to issue a consent to the use 

of an audit report for a prior period that 

it issued while registered.37 A firm that 

has had its registration withdrawn 

pursuant to Rule 2107(h) would no 

longer have to comply with the 

PCAOB’s annual reporting or annual fee 

requirements. Should such a firm wish 

to re-register, it would have to file a new 

registration application and pay a 

registration fee, as is required of all 

firms reapplying after withdrawal. In 

reviewing any such registration 

application from the firm, the Board has 

discretion to consider its past 

interactions with the firm during the 

firm’s previous registration period. This 

includes considering any instances in 

which the firm did not file required 

reports, including annual reports, or pay 

required annual fees.38

Effective Date 

The Board has determined that Rule 

2107(h), if approved by the 

Commission, will take effect initially for 

annual reports and annual fees that are 

due in 2025, meaning that a registered 

firm that does not file an annual report 

and does not pay an annual fee in 2025 

and in 2026 could have its registration 

deemed withdrawn under Rule 2107(h) 

beginning in the fall of 2026. 

The Board initially proposed that 

annual reports and annual fees due in 

2024 could be considered if Rule 

2107(h) was adopted. While most 

commenters did not comment on the 

proposed amendment’s effective date, 

one commenter supported the proposed 

effective date. In addition, one firm 

suggested that missing annual reports 

and unpaid annual fees for 2024 should 

be taken into consideration under Rule 

2107(h) only if the final rule 

amendment took effect prior to the 2024 

deadlines for these annual obligations. 

In light of the timing of Rule 2107(h)’s 

adoption, the Board opted to defer the 

initial consideration of annual reports 

and annual fees under Rule 2107(h) to 

those due in 2025. This approach 

ensures that registered firms are 

adequately informed of the constructivewithdrawal-request mechanism 

introduced by Rule 2107(h). 

D. Economic Considerations and 

Application to Audits of Emerging 

Growth Companies 

Economic Analysis 

The Board is mindful of the economic 

impacts of its rulemaking. This section 

discusses the economic baseline, need, 

expected economic impacts of the final 

rule amendment, and alternative 

approaches considered. The Board’s 

economic discussion is largely 

qualitative in nature due to data 

limitations. However, where reasonable 

and feasible, the analysis incorporates 

quantitative information, including data 

from the PCAOB’s RASR system. 

The Board sought information 

relevant to the economic analysis 

throughout this rulemaking 39 and has 

carefully considered the comments 

submitted. Some commenters expressed 

favorable opinions about the economic 

analysis and also commented on 

specific sections of the economic 

analysis such as the baseline, need, 

benefit, and cost sections. Some 

commenters raised concerns about 

certain aspects of the economic analysis. 

The Board discussed these comments 

and its responses to them in the relevant 

sections below. 

Baseline 

This section establishes the economic 

baseline against which the impacts of 

the final rule amendment can be 

considered. The discussion above 

describes important components of the 

baseline, including the current 

regulatory framework and certain firms’ 

consecutive failures to file annual 

reports and pay annual fees. This 

section discusses two additional 

components that inform the Board’s 

understanding of the economic baseline: 

(1) the PCAOB staff’s analysis of RASR 

data and (2) a consideration of relevant 

research. 

Commenters indicated that the 

baseline and the data provided in the 

economic analysis are helpful in 

understanding the economic impacts of 

the proposals. 

1. Analysis of RASR Data 

To inform the Board’s understanding 

of the baseline for the Rule 2107(h) 

amendment, the PCAOB staff has 

analyzed RASR data to calculate the 

number of registered firms with 

repeated failures to file annual reports 

and pay annual fees (Figure 1 below). 

This section examines statistics of 

registered firms that failed to file annual 

reports and/or pay annual fees. Figure 1 

presents the number of registered firms 

that failed to file annual reports and/or 

pay annual fees for reporting years 2022 

and 2023.40 Among all 1,554 registered 

firms as of August 31, 2024,41 1,406 

firms (90 percent) were required to file 

annual reports and pay annual fees for 

reporting years 2022 and 2023.42 Of 

those 1,406 registered firms, 84 firms 

failed for both years to file annual 

reports, 84 firms failed for both years to 

pay annual fees, and 80 firms failed for 

those two reporting years to both pay 

annual fees and file annual reports.43

The overall rate of registered firms that 

failed to both file annual reports and 

pay annual fees for reporting years 2022 


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44NAFs are accounting firms registered with the 

Board that are not global network firms (‘‘GNFs’’). 

GNFs are the member firms of the six global 

accounting firm networks that include the largest 

number of PCAOB-registered non-U.S. firms (BDO 

International Ltd., Deloitte Touche Tohmatsu Ltd., 

Ernst & Young Global Ltd., Grant Thornton 

International Ltd., KPMG International Cooperative, 

and PricewaterhouseCoopers International Ltd.). 

The discussion in this release uses ‘‘U.S. GNF’’ to 

refer to a GNF member firm based in the United 

States, and ‘‘non-U.S. GNF’’ to refer to a GNF 

member firm based outside the United States. 

Similarly, ‘‘U.S. NAF’’ refers to a NAF firm based 

in the United States, and ‘‘non-U.S. NAF’’ refers to 

a NAF firm based outside the United States. 

45The PCAOB did not receive any comments 

regarding additional data or academic studies in 

response to its request for such information in the 

Proposing Release. 

46See, e.g., E. Blankespoor, E. deHaan, and I. 

Marinovic, Disclosure processing costs, investors’ 

information choice, and equity market outcomes: A 

review, 70 Journal of Accounting and Economics 1 

(2020). Blankespoor et al. (2020) study how 

information processing costs—such as the costs of 

monitoring, acquiring, and integrating public 

information—impact investor behavior and market 

outcomes. They argue that high processing costs, 

such as acquiring and integrating information into 

decision-making, can discourage stakeholders from 

engaging with available data, leading to inefficient 

outcomes. Extending these findings to the PCAOB 

registration context, it suggests that removing 

persistently delinquent firms from registration 

could decrease information processing costs by 

lowering the costs of assessing the operational 

status of these firms. Thus, improving the overall 

quality of information available could reduce 

inefficiencies in audit search decisions. 

and 2023 is just under six percent (80 

out of 1,406). 

Ninety-nine percent of the firms that 

failed to file annual reports and pay 

annual fees for both years are nonaffiliate firms (‘‘NAFs’’) (79 out of 80), 

which tend to be smaller firms.44 Thirtythree percent of these 80 firms (26 firms) 

are U.S. NAFs and 66 percent (53 firms) 

are non-U.S. NAFs; thus non-U.S. NAFs 

account for twice as many instances of 

failing to both file annual reports and 

pay annual fees for both years. Within 

firm types, four percent of U.S. NAFs 

and 12 percent of non-U.S. NAFs failed 

to file annual reports and pay annual 

fees for both years. In comparison, no 

U.S. GNFs and only one non-U.S. GNF 

failed to file annual reports and pay 

annual fees for both years. 

FIGURE 1—NUMBER OF REGISTERED FIRMS THAT DID NOT FILE ANNUAL REPORTS AND/OR PAY ANNUAL FEES AS OF

AUGUST 31, 2024 

Firms required 

to file annual 

reports and pay 

annual fees for 

reporting years 

2022 and 2023 

Firms that did 

not file annual 

reports for 

reporting years 

2022 and 2023 

Firms that did 

not pay annual 

fees for 

reporting years 

2022 and 2023 

Firms that both 

did not file 

annual reports 

and did not pay 

annual fees for 

reporting years 

2022 and 2023 

Percentage of 

firms that both 

did not file 

annual reports 

and did not pay 

annual fees for 

reporting years 

2022 and 2023 

(%) 

Firms ............................................ 1,406 84 84 80 6 

By firm type: 

U.S. GNF .............................. 6 0 0 0 0 

Non-U.S. GNF ...................... 323 1 1 1 0.3 

U.S. NAF ............................... 633 27 26 26 4 

Non-U.S. NAF ....................... 444 56 57 53 12 

Source: RASR. 

The PCAOB staff’s analysis of the 80 

registered firms that failed to file annual 

reports and pay annual fees for 

reporting years 2022 and 2023 (reflected 

in Figure A above) shows a consistent 

pattern over multiple reporting years. 

Notably, a majority of these firms have 

failed to file annual reports and pay 

annual fees for more than two 

consecutive reporting years. For 

example, Figure A shows that 58 of 

these 80 firms failed both to file an 

annual report and to pay an annual fee 

for reporting year 2019, and these 58 

firms continued to neglect these 

obligations for five consecutive years, 

from reporting years 2019 to 2023. 

2. Consideration of Relevant Research 

and Implications 

The PCAOB staff has reviewed 

literature related to the final rule 

amendment. To the PCAOB’s 

knowledge, no studies specifically 

address the economic consequences of 

situations where an audit firm has 

ceased to exist, is nonoperational, or no 

longer wishes to remain registered—as 

indicated by consecutive delinquencies 

in its annual reporting and annual fee 

obligations—and yet continues to 

appear as registered on the PCAOB 

website. Additionally, there is a lack of 

research on the effects of withdrawing 

such firms from registration.45

The presence of registered firms that 

have ceased to exist, are nonoperational, 

or no longer wish to remain registered 

impacts the utility and value of the 

registration data on the PCAOB’s 

website and in its internal records. First, 

there is a significant misalignment: the 

PCAOB’s registration records continue 

to list these firms as registered, which 

implies they exist, are operational, and 

wish to remain registered, despite their 

actual statuses potentially being to the 

contrary—nonexistent, nonoperational, 

or no longer wishing to remain 

registered. Second, these firms do not 

file annual reports, resulting in outdated 

information about their existence, 

operational status, and scope of 

practice. Third, while it is more 

common for the PCAOB to have limited 

or no information about the operational 

status of registered firms that have 

stopped filing annual reports and 

paying annual fees, there are 

exceptional circumstances where the 

PCAOB staff is aware of information, 

such as the death of a sole proprietor, 

indicating that a registered firm has 

ceased to exist or become 

nonoperational. In these instances, 

despite having information that the firm 

has ceased operations, the PCAOB 

currently lacks a mechanism to adjust 

its registration records to reflect this 

reality. This limitation introduces a 

discrepancy between the PCAOB staff’s 

internal knowledge and the information 

reflected on the PCAOB’s website. 

Academic research provides insights 

into the broader implications of lowerquality information in the registration 

data. Studies indicate that higher 

information processing costs—arising 

from the need to verify and interpret 

potentially lower-quality information on 

registered firms—can lead to 

inefficiencies in information search 

costs.46 Currently, the inclusion of 

persistently delinquent firms in the 


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47The accumulation of possibly defunct or 

nonoperational firms on the PCAOB’s registration 

list potentially reflects a growing issue. See Figure 

A and the accompanying description. If a 

significant portion of all registered firms is 

perceived as never filing annual reports or paying 

annual fees without apparent consequence, it risks 

creating a perception of widespread noncompliance 

and PCAOB inaction. 

PCAOB’s registration list could impose 

additional search costs, as the 

information available to stakeholders is 

less useful. Additionally, in 

circumstances where the PCAOB has 

information indicating that certain firms 

may no longer exist, are nonoperational, 

or no longer wish to remain registered, 

the PCAOB lacks a mechanism to 

withdraw these firms from registration. 

Without a mechanism to update PCAOB 

registration records to reflect this 

information, search costs could remain 

elevated for stakeholders attempting to 

verify the operational status of PCAOBregistered firms. 

For stakeholders such as audit 

committees of potential clients assessing 

a firm’s suitability as an auditor, these 

higher information processing costs can 

delay their analysis and potentially 

impact the efficiency of audit-related 

decisions. Improving the quality of the 

PCAOB’s registration records by 

removing persistently delinquent firms 

would reduce stakeholders’ information 

processing costs and better support 

well-informed decision-making in the 

audit market. 

Partners or former partners of audit 

firms are typically aware of their firm’s 

operational status—including whether 

the firm no longer exists, is 

nonoperational, or no longer wishes to 

remain registered. Additionally, the 

PCAOB staff sometimes gathers 

anecdotal information through its 

interactions with firms and their 

personnel, further informing its 

understanding of a firm’s operational 

status. However, such information 

bearing upon a registered firm’s 

operational status may not be readily 

available to the public. Together, these 

discrepancies obscure the true status of 

these firms, resulting in a gap between 

what the PCAOB staff knows internally 

and what is publicly available on the 

PCAOB website. Additionally, there are 

gaps between what firms, including 

their partners or former partners, know 

about their operational status and what 

is accessible to the public on the 

PCAOB’s website. 

Currently, without a mechanism to 

remove consecutively delinquent firms 

from registration, the PCAOB lacks a 

means to accurately convey the status of 

these firms to stakeholders, which could 

result in less-informed decisions. 

Need and How the Changes Would 

Address the Need 

This section discusses the problem 

that needs to be addressed and explains 

how the final rule amendment is 

expected to address it. 

The PCAOB currently has no effective 

and efficient procedural mechanism to 

withdraw from registration firms that 

are consecutively delinquent with 

respect to filing required annual reports 

and paying mandatory annual fees. As 

discussed in Figure 1, PCAOB staff 

analysis indicates that as of August 31, 

2024, 80 firms did not file annual 

reports and did not pay annual fees for 

both the 2022 and 2023 reporting years. 

Many of these firms may be defunct. 

The presence of such firms on the 

PCAOB’s registration records may not 

only disrupt the PCAOB’s regulatory 

objectives, such as maintaining an 

accurate public record of operational 

registered firms that wish to remain 

registered and efficiently using PCAOB 

staff time and resources, which 

diminishes the Board’s ability to fulfill 

its investor protection mission, but 

could also adversely impact investor 

confidence in the capital markets. While 

their number is small and there is no 

indication that these firms are currently 

issuing audit reports on which investors 

rely, the fact that a firm may fail to 

comply with fundamental obligations 

incident to registration and yet remain 

registered could lessen the significance 

of PCAOB registration in the market. 

Firms that are complying with the 

annual reporting and fee requirements 

may form a mistaken belief that they 

also may be able to forgo compliance 

with their reporting and fee obligations 

when they observe that these 

consecutively delinquent firms remain 

registered with the Board. It is also 

possible that this conduct could 

persist,47 necessitating resolution to 

maintain confidence in the capital 

markets. 

In addition, PCAOB staff spend time 

and resources seeking to contact these 

firms year after year so that they will 

comply with their basic legal 

obligations, including annual reporting 

and the payment of annual fees that 

contribute to funding the PCAOB’s 

registration program. Also, utilizing 

enforcement mechanisms to pursue 

these firms would not always be 

feasible, and even where feasible, would 

further strain staff time and resources. 

These firms’ inattention, inactivity, or 

inanimacy would cause the PCAOB to 

incur recurring costs with no expected 

improvement in sight. 

Rule 2107(h) would address the need 

to make the PCAOB’s oversight more 

effective and efficient by providing an 

effective procedural mechanism to 

withdraw from PCAOB registration 

firms that have ceased to exist or are 

otherwise defunct, or no longer wish to 

remain registered. 

Commenters were generally 

supportive of the proposed amendment 

to Rule 2107 and stated that they 

understood the rationale for the 

amendment to the rule. In particular, 

one commenter expressed agreement 

that the proposed amendment to Rule 

2107 would result in more efficient use 

of PCAOB resources. 

Furthermore, commenters agreed that 

the proposed amendment to Rule 

2107(h) would address the need to make 

the PCAOB’s oversight more effective 

and efficient. One commenter agreed 

that the amendment generally will 

accomplish the objective of providing a 

mechanism for the Board to remove 

from the PCAOB’s registration records 

firms that are delinquent in filing their 

annual reports with the PCAOB and 

paying their annual fees. Another 

commenter indicated the proposed 

amendment to Rule 2107 would provide 

the PCAOB with a mechanism to keep 

its registration records updated, 

providing issuers and broker-dealers in 

the process of selecting an appropriate 

accounting firm greater confidence that 

any accounting firm they consider 

hiring is operational and wishes to 

remain registered with the PCAOB. 

In general, commenters did not 

introduce arguments or data that caused 

the Board to change its assessment of 

the need for the final rule amendment. 

The Board believes the final rule 

amendment addresses the problem 

discussed above, yielding the economic 

impacts discussed further below. 

Economic Impacts 

This section discusses the expected 

benefits and costs of the final rule 

amendment and potential unintended 

consequences. One commenter 

expressed agreement with the benefit 

and cost evaluation provided in the 

Proposing Release and stated that it was 

not currently aware of any additional 

academic studies or data related to the 

economic impacts of the proposals that 

could be used to quantify the benefits 

and costs. 

1. Benefits 

Rule 2107(h) would provide an 

effective procedural mechanism to 

withdraw from PCAOB registration 

firms that have ceased to exist, are 

nonoperational, or no longer wish to 

remain registered. Therefore, it would 

facilitate the PCAOB’s regulatory 

objectives discussed above by enabling 


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48As discussed above, among the 80 firms that 

meet the criterion for Rule 2107(h)’s constructivewithdrawal-request process based on the 2022 and 

2023 reporting years, 58 had not filed annual 

reports and had not paid annual fees since at least 

2019. The PCAOB staff’s analysis has found that 

only one of the 80 firms has any indication that it 

may have performed services requiring registration 

in recent years. Should this firm’s noncompliance 

persist, it could be subject to the Rule 2107(h) 

constructive-withdrawal-request process and could 

utilize the rule’s safeguards to stop the withdrawal 

process if it wishes to remain registered. 

49While unlikely, there exists a possibility that a 

firm might unexpectedly discover that its 

registration has been withdrawn under Rule 

2107(h), despite the rule’s safeguards. Should this 

occur, the firm would need to undertake the process 

of re-registering with the PCAOB if it wished to 

provide services requiring registration, thereby 

incurring the costs associated with registration. 

Additionally, the firm could lose business from 

issuers or broker-dealers that might have engaged 

the firm’s audit services had it maintained its 

PCAOB registration. 

50While unlikely, it is conceivable that, despite 

the PCAOB’s best efforts to provide notice, a firm 

deemed withdrawn under Rule 2107(h) may issue 

an audit report, or update or dual-date a previouslyissued report, that gets included in a filing with the 

Commission. In such a scenario, the Commission 

has authority to bring an enforcement action against 

the firm; the Board may consider such conduct if 

the firm applies to re-register; and issuer and 

broker-dealer clients of the firm may incur costs to 

engage a new accounting firm, as well as 

reputational costs. 

51 In such litigation, even in circumstances where 

the firm is defunct, the hearing officer may need to 

address service issues (including for non-U.S. 

firms), issue a show-cause order, enter default (after 

DEI files a motion), and issue an initial decision 

specifying and justifying sanctions. Such litigation 

the public and the PCAOB to have a 

higher quality list of registered firms. 

Such an improvement could provide 

informational benefits to investors, 

audit committees, and other 

stakeholders by reducing their 

information search and processing costs. 

Additionally, it would reduce the gaps 

in information about the operational 

status of registered firms. 

Additionally, Rule 2107(h) would 

reduce resources spent by the PCAOB in 

efforts to bring delinquent firms into 

compliance with the annual reporting 

and fee payment requirements. This 

would allow the PCAOB to more 

effectively allocate PCAOB staff 

resources that are currently used to 

attempt to contact delinquent firms, 

which could enhance the PCAOB’s 

ability to advance its investor protection 

mission. One commenter agreed that, by 

allowing the PCAOB to reallocate staff 

resources away from contacting 

delinquent firms, Rule 2107(h) would 

enhance the PCAOB’s ability to further 

its mission. 

Further, removing firms that 

consistently fail to meet their annual 

reporting and annual payment 

obligations will help promote the 

integrity of the list of registered firms. 

By treating consecutive delinquencies as 

a constructive request for leave to 

withdraw, the PCAOB may foster a 

sense of fairness among all registered 

firms, and a level playing field where 

compliance with basic requirements, 

such as filing annual reports and paying 

annual fees, is maintained. 

Given the nature of these benefits, the 

PCAOB does not expect a substantial 

influence on efficiency, competition, or 

capital formation as a result of the rule 

amendment. 

2. Costs 

Rule 2107(h) would impose potential 

incremental costs only on operating 

firms with at least two years of 

consecutive delinquencies. As 

discussed above, 80 firms currently 

meet the criterion for Rule 2107(h)’s 

withdrawal process. For firms that no 

longer exist, are nonoperational, or no 

longer wish to remain registered, the 

Board does not anticipate any costs with 

respect to being removed from the 

PCAOB’s registration records.48

For any firms that wish to remain 

registered, they would incur the cost of 

stopping the withdrawal process under 

Rule 2107(h), by preparing and 

submitting an email to the PCAOB 

notifying the staff of their desire to 

remain registered with the Board as 

directed in the Notice of Delinquency 

and Impending Withdrawal within the 

60-day period. 

Rule 2107(h) includes several 

safeguards to protect firms that wish to 

remain registered but may be unaware 

that the withdrawal process has 

commenced. These include multiple 

forms of notice, a 60-day window 

during which firms can stop the 

withdrawal process, and a 

straightforward process to stop the 

withdrawal. These measures should 

significantly reduce the likelihood of a 

firm being withdrawn under Rule 

2107(h) without its knowledge, which 

should attenuate any potential costs or 

disruptions associated with an 

unexpected withdrawal.49

The Board did not receive specific 

comments on the costs of Rule 2107(h). 

However, a commenter expressed the 

belief that the expected implementation 

costs of the proposals as a whole would 

be minimal, which would result in a net 

positive economic impact. Based on the 

above discussion of the incremental 

costs expected to result from this 

amendment, the Board does not 

anticipate a significant impact on 

efficiency, competition, or capital 

formation. 

3. Potential Unintended Consequences 

In addition to the benefits and costs 

discussed above, the final rule 

amendment could have unintended 

economic consequences. One 

commenter noted that the potential 

unintended consequences discussed in 

the proposals are adequate. There were 

no other comments related to potential 

unintended consequences with respect 

to the proposed amendment to Rule 

2107. The following discussion 

describes potential unintended 

consequences considered by the Board 

and, where applicable, factors that 

mitigate those potential consequences. 

Rule 2107(h) provides a new 

procedural mechanism that would make 

consecutively delinquent registered 

firms eligible for withdrawal from 

PCAOB registration. Because this 

mechanism does not require affirmative 

action by a firm, an unintended 

consequence could arise if a firm was 

withdrawn from registration contrary to 

the firm’s wishes. This could potentially 

impact clients, potential clients, and the 

public. However, as noted above, Rule 

2107(h) includes several safeguards— 

including multiple forms of notice and 

a straightforward process to stop the 

withdrawal process—that should 

significantly reduce the likelihood of 

such an occurrence. Should such an 

exceptional situation arise, the firm has 

the option to reapply for registration 

and present to the PCAOB any special 

circumstances that led to the firm’s 

noncompliance with the PCAOB’s 

annual reporting and fee payment rules 

and its inability to stop the Rule 2107(h) 

withdrawal procedure.50

Alternatives Considered 

The Board considered alternatives to 

the final rule amendment, taking into 

account feedback from commenters on 

alternative approaches considered in the 

Proposing Release, as well as other 

alternatives suggested by commenters. 

This section considers all of the 

alternative approaches and discusses 

what the Board believes to be the most 

reasonable alternatives. 

Rather than a constructivewithdrawal-request approach to 

delinquent annual reports and annual 

fees, the Board considered an expedited 

enforcement approach. Although 

issuing an order imposing a disciplinary 

sanction on these firms, upon a finding 

of consecutive violations of the Board’s 

annual reporting and annual payment 

requirements, is a possibility, instituting 

and resolving an expedited disciplinary 

proceeding would require significantly 

more PCAOB staff time and other Board 

resources than the approach outlined in 

Rule 2107(h).51 Furthermore, revocation 


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also consumes significant DEI staff time, in light of 

the production requirements of PCAOB Rule 5422, 

Availability of Documents For Inspection and 

Copying, as well as the motion practice and briefing 

that is expected on sanctions. The adopted 

approach would avoid these delays. 

52As discussed above, the minimum amount of 

time that a firm must be delinquent in filing annual 

reports and paying annual fees before meeting the 

threshold of two consecutive reporting years is 13 

months. In contrast, under a framework that 

considers only a single reporting year’s 

noncompliance, a firm would be eligible for the 

constructive-withdrawal-request mechanism after 

only one month of delinquency, spanning from the 

firm’s failure to file an annual report by June 30 of 

the reporting year to the firm’s failure to pay the 

annual fee by July 31 of the same reporting year. 

The Board believes that such a brief period of 

delinquency is not sufficient to indicate that a firm 

has ceased to exist, is nonoperational, or no longer 

wishes to remain registered. 

53See Public Law 112–106 (Apr. 5, 2012). Section 

103(a)(3)(C) of the Act, as added by Section 104 of 

the JOBS Act, also provides that any rules of the 

Board requiring (1) mandatory audit firm rotation 

or (2) 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 the issuer (auditor discussion and 

analysis) shall not apply to an audit of an EGC. The 

final rule amendment does not fall within either of 

these two categories. 

54See PCAOB Office of Economic and Risk 

Analysis, Characteristics of Emerging Growth 

Companies and Their Audit Firms at November 15, 

2022 (Feb. 20, 2024) (‘‘EGC Staff White Paper’’), 

available at https://assets.pcaobus.org/pcaob-dev/ 

docs/default-source/economicandriskanalysis/ 

projectsother/documents/white-paper-oncharacteristics-of-emerging-growth-companies-asof-nov-15-2022.pdf?sfvrsn=a8294f3_4. 

55The EGC Staff White Paper uses a lagging 18- 

month window to identify companies as EGCs. 

Please refer to the ‘‘Current Methodology’’ section 

in the Staff White Paper for details. Using an 18- 

month window enables staff to analyze the 

characteristics of a fuller population in the EGC 

Staff White Paper but may tend to result in a larger 

number of EGCs being included for purposes of the 

present EGC analysis than would alternative 

methodologies. For example, an estimate using a 

lagging 12-month window would exclude some 

EGCs that are delinquent in making periodic filings. 

An estimate as of the measurement date would 

exclude EGCs that have terminated their 

registration, or that have exceeded the eligibility or 

time limits. In the EGC Staff White paper, PCAOB 

staff identified 263 registered audit firms that 

issued audit reports for the 3,031 EGCs as of the 

November 15, 2022 measurement date. None of 

these 263 audit firms are among the 80 firms that 

failed to file annual reports and pay annual fees for 

reporting years 2022 and 2023. 

would take significantly longer as 

compared to the approximately 60 days 

it would take following the approach 

outlined in Rule 2107(h). Therefore, the 

Board has adopted the constructivewithdrawal-request approach largely as 

it was originally proposed. 

Some commenters stated they would 

be supportive of constructive 

withdrawal requests if a firm fails to file 

annual reports or fails to pay annual 

fees. The Board believes the dual 

condition of both failure to file annual 

reports and failure to pay annual fees 

appropriately identifies firms that cease 

to exist, are nonoperational, or no longer 

wish to remain registered. A firm that 

has done one or the other but not both 

implies some level of activity at the firm 

and wish to remain registered, 

indicating that other tools in the 

PCAOB’s toolkit may be available to 

promote compliance. 

One commenter suggested reducing 

the threshold for constructive 

withdrawal requests to one year of 

noncompliance, but the Board 

concluded that this could increase the 

risk of withdrawing from registration 

operational firms that wish to remain 

registered.52

The Board believes that both of these 

alternative processes suggested by 

commenters would enhance the risk of 

a withdrawal from registration of 

operational firms that wish to remain 

registered. The procedural safeguards in 

Rule 2107(h), including the timing 

parameters, help ensure that the Rule 

2107(h) process does not impose a 

significant burden on firms that 

inadvertently fail to comply with the 

annual reporting and annual payment 

requirements or on other entities 

(clients, investors, etc.). The 

requirements set forth in Rule 2107(h) 

provide firms sufficient notice and a 

clear process that governs how and 

when a firm’s registration would be 

withdrawn based on a constructive 

withdrawal request. 

In response to a commenter’s 

suggestion, the Board extended from 30 

days to 60 days the time that these firms 

have to decide whether to send an email 

to the Registration staff so that firms can 

remain registered. This change may 

incrementally reduce the likelihood of 

withdrawals from registration of a firm 

that is operational and wishes to remain 

registered. 

Special Considerations for Audits of 

Emerging Growth Companies 

Pursuant to Section 104 of the 

Jumpstart Our Business Startups 

(‘‘JOBS’’) Act, rules adopted by the 

Board subsequent to April 5, 2012, 

generally do not apply to the audits of 

emerging growth companies (‘‘EGCs’’), 

as defined in Section 3(a)(80) of the 

Exchange Act, unless the Commission 

‘‘determines that the application of such 

additional requirements is necessary or 

appropriate in the public interest, after 

considering the protection of investors, 

and whether the action will promote 

efficiency, competition, and capital 

formation.’’ 53 As a result of the JOBS 

Act, the rules that the Board adopts are 

generally subject to a separate 

determination by the Commission 

regarding their applicability to audits of 

EGCs. 

The final rule amendment does not 

impose any additional requirements on 

emerging growth company audits. 

Accordingly, the Board believes that 

Section 103(a)(3)(C) of the Act does not 

apply. Nevertheless, the Board has 

included this analysis to inform the 

rulemaking. The discussion of benefits, 

costs, and unintended consequences 

above generally applies to audits of 

EGCs. 

To inform consideration of the 

application of PCAOB rules and 

standards to audits of EGCs, PCAOB 

staff prepares a white paper annually 

that provides general information about 

characteristics of EGCs.54 As of the 

November 15, 2022 measurement date, 

PCAOB staff identified 3,031 companies 

that self-identified with the Commission 

as EGCs and filed audited financial 

statements in the 18 months preceding 

the measurement date.55

EGCs are likely to be newer 

companies, and their audit committees 

may have limited experience in seeking 

and selecting PCAOB-registered public 

accounting firms. The removal of 

consecutively delinquent firms from the 

PCAOB registration database, as 

facilitated by Rule 2107(h), could 

enhance the quality of the information 

available and reduce information search 

costs, thereby aiding the decisionmaking of these stakeholders. As for the 

costs associated with the final rule 

amendment, which are likely to be 

incremental for operating firms that 

wish to remain registered, the Board has 

no reason to believe that registered firms 

providing services to EGCs will incur 

costs that are greater than those incurred 

by firms providing services to nonEGCs. 

Commenters agreed that the proposals 

generally should apply to audits of 

EGCs and that excluding the application 

of the proposals from audits of EGCs 

would be inconsistent with protecting 

the public interest. 

Accordingly, and for the reasons 

explained above, the Board has 

requested that the Commission 

determine, to the extent that Section 

103(a)(3)(C) of the Act applies, that it is 

necessary or appropriate in the public 

interest, after considering the protection 

of investors and whether the action will 

promote efficiency, competition, and 

capital formation, to apply the final rule 

amendment to audits of EGCs. 

III. Date of Effectiveness of the 

Proposed Rules and Timing for 

Commission Action 

Within 45 days of the date of 

publication of this notice in the Federal 


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92226 Federal Register / Vol. 89, No. 225 / Thursday, November 21, 2024 / Notices 

1Applicant states that its 28 wholly-owned 

subsidiaries generally engage in sales and marketing 

or research and development (‘‘R&D’’) activities in 

their respective jurisdictions. 

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: 

(A) By order approve or disapprove 

such proposed rules; or 

(B) Institute proceedings to determine 

whether the proposed rules 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 rules 

are 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); or 

• Send an email to rule-comments@

sec.gov. Please include PCAOB–2024– 

05 on the subject line. 

Paper Comments 

• Send paper comments in triplicate 

to Vanessa A. Countryman, Secretary, 

Securities and Exchange Commission, 

100 F Street NE, Washington, DC 

20549–1090. 

All submissions should refer to 

PCAOB–2024–05. 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/ 

rules/pcaob). Copies of the submission, 

all subsequent amendments, all written 

statements with respect to the proposed 

rules that are filed with the 

Commission, and all written 

communications relating to the 

proposed rules 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 a.m. and 3 p.m. Copies of 

such filing will also be available for 

inspection and copying at the principal 

office of the PCAOB. Do not include 

personal identifiable information in 

submissions; you should submit only 

information that you wish to make 

available publicly. 

We may redact in part or withhold 

entirely from publication submitted 

material that is obscene or subject to 

copyright protection. All submissions 

should refer to PCAOB–2024–05 and 

should be submitted on or before 

December 12, 2024. 

By the Commission. 

Vanessa A. Countryman. 

Secretary. 

[FR Doc. 2024–27247 Filed 11–20–24; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Investment Company Act Release No. 

35387; File No. 812–15188] 

Zscaler, Inc. 

November 15, 2024. 

AGENCY: Securities and Exchange 

Commission (‘‘Commission’’). 

ACTION: Notice. 

Notice of application for an order 

under Section 3(b)(2) of the Investment 

Company Act of 1940 (‘‘Act’’). 

APPLICANT: Zscaler, Inc. 

SUMMARY OF APPLICATION: Applicant 

seeks an order under Section 3(b)(2) of 

the Act declaring it to be primarily 

engaged in a business other than that of 

investing, reinvesting, owning, holding 

or trading in securities. Applicant states 

that it is in the business of providing, 

improving, and developing cloud 

security solutions to businesses. 

FILING DATES: The application was filed 

on December 28, 2020, and amended on 

May 11, 2021, July 28, 2021, January 6, 

2022, July 31, 2023, and September 13, 

2024. 

HEARING OR NOTIFICATION OF HEARING: 

An order granting the requested relief 

will be issued unless the Commission 

orders a hearing. Interested persons may 

request a hearing by emailing the 

Commission’s Secretary at SecretarysOffice@sec.gov and serving applicants 

with a copy of the request, by email if 

an email address is listed for the 

relevant Applicant below, or personally 

or by mail, if a physical address is listed 

for the relevant Applicant below. 

Hearing requests should be received by 

the Commission by 5:30 p.m. on 

December 10, 2024, and should be 

accompanied by proof of service on the 

applicants, in the form of an affidavit, 

or for lawyers, a certificate of service. 

Pursuant to rule 0–5 under the Act, 

hearing requests should state the nature 

of the writer’s interest, any facts bearing 

upon the desirability of a hearing on the 

matter, the reason for the request, and 

the issues contested. Persons who wish 

to be notified of a hearing may request 

notification by emailing the 

Commission’s Secretary at SecretarysOffice@sec.gov. 

ADDRESSES: The Commission: 

Secretarys-Office@sec.gov. Applicant: 

Remo Canessa, Chief Financial Officer, 

and Robert Schlossman, Esq., Chief 

Legal Officer, Zscaler, Inc., at Treasury@

zscaler.com; Kevin R. Bettsteller, Esq., 

at kbettsteller@gibsondunn.com. 

FOR FURTHER INFORMATION CONTACT: 

Adam Lovell, Senior Counsel, or Terri 

G. Jordan, Branch Chief, at (202) 551– 

6825 (Division of Investment 

Management, Chief Counsel’s Office). 

SUPPLEMENTARY INFORMATION: The 

following is a summary of the 

application. For Applicant’s 

representations, legal analysis, and 

conditions, please refer to Applicant’s 

fifth amended and restated application, 

dated September 13, 2024, which may 

be obtained via the Commission’s 

website by searching for the file number 

at the top of this document, or for an 

Applicant using the Company name 

search field, on the SEC’s EDGAR 

system. The SEC’s EDGAR system may 

be searched at https://www.sec.gov/ 

edgar/searchedgar/legacy/ 

companysearch.html. You may also call 

the SEC’s Public Reference Room at 

(202) 551–8090. 

Applicant’s Representations 

1. Applicant states that it is a 

Delaware corporation formed in 2007 

that, directly and through its whollyowned subsidiaries,1 is engaged in the 

business of providing, improving, and 

developing cloud security solutions to 

businesses. 

2. Applicant states that its business is 

highly capital intensive, requires R&D of 

new technologies, and does not involve 

the Applicant acquiring or retaining 

significant ‘‘hard’’ operating assets. 

Applicant states that it maintains 

significant cash reserves that it seeks to 

invest for purposes of conserving capital 

and providing liquidity until the funds 

are used in its cloud-based services and 

technology business. As described more 

fully in the application, Applicant states 

that it requires significant liquid capital 

primarily to: (i) fund R&D for new 

products and services, (ii) advance the 

commercialization of its business, (iii) 

otherwise fund its operations, and (iv) 

make other capital expenditures in 

keeping with the growth of the 


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