Federal Register / Vol. 75, No. 13 / Thursday, January 21, 2010 / Notices 3509 

8 15 U.S.C. 78f(b). 

9 15 U.S.C. 78f(b)(5). 

10 15 U.S.C. 78s(b)(3)(A)(iii). 

11 17 CFR 240.19b–4(f)(6). 

12 15 U.S.C. 78s(b)(3)(A). 

13 17 CFR 240.19b–4(f)(6)(iii). In addition, Rule 

19b–4(f)(6)(iii) requires the Exchange to give the 

Commission written notice of the Exchange’s intent 

to file the proposed rule change along with a brief 

description and the 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 the pre-filing requirement. 

14 17 CFR 200.30–3(a)(12). 

1See SEC Release No. 34–60903 (October 29, 

2009); 74 FR 57357 (November 5, 2009). 

listing of $1 strike prices in option 

classes participating in the $1 Strike 

Program, and the listing of series of 

FLEX options. 

The Exchange believes that the 

proposed rule change implementing 

range limitation strategies for equity, 

ETF, and TIR options should be 

beneficial in reducing quote traffic on 

the Exchange and in the options 

industry. 

2. Statutory Basis 

The Exchange believes the proposed 

rule change is consistent with the 

Securities Exchange Act of 1934 (the 

‘‘Act’’) and the rules and regulations 

under the Act applicable to a national 

securities exchange and, in particular, 

the requirements of Section 6(b) of the 

Act.8 Specifically, the Exchange 

believes the proposed rule change is 

consistent with Section 6(b)(5) of the 

Act’s 9 requirements that the rules of a 

national securities exchange be 

designed to promote just and equitable 

principles of trade, to prevent 

fraudulent and manipulative acts and, 

in general, to protect investors and the 

public interest. In particular, the 

Exchange believes that codifying certain 

range limitation provisions of the OLPP, 

as amended, serves to foster investor 

protection. 

B. Self-Regulatory Organization’s 

Statement on Burden on Competition 

The proposed rule change does not 

impose any burden on competition that 

is not necessary or appropriate in 

furtherance of the purposes of the Act. 

C. Self-Regulatory Organization’s 

Statement on Comments on the 

Proposed Rule Change Received From 

Members, Participants or Others 

The Exchange has not solicited, and 

does not intend to solicit, comments on 

this proposed rule change. The 

Exchange has not received any 

unsolicited written comments from 

members or other interested parties. 

III. Date of Effectiveness of the 

Proposed Rule Change and Timing for 

Commission Action 

The Exchange has filed the proposed 

rule change pursuant to Section 

19(b)(3)(A)(iii) of the Act 10 and Rule 

19b–4(f)(6) thereunder.11 Because the 

proposed rule change does not: (i) 

Significantly affect the protection of 

investors or the public interest; (ii) 

impose any significant burden on 

competition; and (iii) become operative 

prior to 30 days from the date on which 

it was filed, or such shorter time as the 

Commission may designate if consistent 

with the protection of investors and the 

public interest, the proposed rule 

change has become effective pursuant to 

Section 19(b)(3)(A) of the Act 12 and 

Rule 19b–4(f)(6)(iii) thereunder.13

At any time within 60 days of the 

filing of the proposed rule change, the 

Commission may summarily abrogate 

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. 

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 (http://www.sec.gov/ 

rules/sro.shtml); or 

• Send an e-mail to rulecomments@sec.gov. Please include File 

Number SR–ISE–2010–01 on the subject 

line. 

Paper Comments: 

• Send paper comments in triplicate 

to Elizabeth M. Murphy, Secretary, 

Securities and Exchange Commission, 

100 F Street, NE., Washington, DC 

20549–1090. 

All submissions should refer to File 

Number SR–ISE–2010–01. This file 

number should be included on the 

subject line if e-mail 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 Web site (http://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 inspection and copying 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 self-regulatory 

organization. All comments received 

will be posted without change; the 

Commission does not edit personal 

identifying information from 

submissions. You should submit only 

information that you wish to make 

available publicly. All submissions 

should refer to File Number SR–ISE– 

2010–01 and should be submitted on or 

before February 11, 2010. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.14

Florence E. Harmon, 

Deputy Secretary. 

[FR Doc. 2010–1019 Filed 1–20–10; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–61363; File No. PCAOB– 

2009–02] 

Public Company Accounting Oversight 

Board; Order Approving Proposed 

Rules on Auditing Standard No. 7, 

Engagement Quality Review, and 

Conforming Amendment 

January 15, 2010. 

I. Introduction 

On August 4, 2009, the Public 

Company Accounting Oversight Board 

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

the Securities and Exchange 

Commission (the ‘‘Commission’’) a 

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

(File No. PCAOB–2009–02) on Auditing 

Standard No. 7, Engagement Quality 

Review, and Conforming Amendment to 

the Board’s Interim Quality Control 

Standards, pursuant to Section 107(b) of 

the Sarbanes-Oxley Act of 2002 (the 

‘‘Act’’). Notice of the proposed rules was 

published in the Federal Register on 

November 5, 2009.1 The Commission 

received nine comment letters relating 

to the proposed rules. For the reasons 

discussed below, the Commission is 

granting approval of the proposed rules. 

As specified by the Board, the rules are 


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3510 Federal Register / Vol. 75, No. 13 / Thursday, January 21, 2010 / Notices 

2See comments of Deloitte & Touche LLP 

(‘‘Deloitte’’), Ernst & Young LLP (‘‘EY’’), Grant 

Thornton LLP (‘‘Grant’’), KPMG LLP (‘‘KPMG’’), 

McGladrey & Pullen LLP (‘‘McGladrey’’), Piercy 

Bowler Taylor & Kern (‘‘PBTK’’), 

PricewaterhouseCoopers LLP (‘‘PWC’’), Center for 

Audit Quality (‘‘CAQ’’), and Center for Capital 

Markets Competitiveness of the U.S. Chamber of 

Commerce (‘‘CCMC’’). 

3One commenter (CCMC) provided comments 

related to the PCAOB’s standard-setting process in 

general, including due process and convergence 

with international auditing standards. These 

comments were similar to comments received by 

the PCAOB during its standard-setting process for 

Auditing Standard No. 7. In response, the PCAOB 

stated in its adopting release for Auditing Standard 

No. 7 that it continuously endeavors to improve its 

processes, including the standard-setting process, 

and is considering comments it receives. The 

Commission encourages the Board to continue to 

consider comments to improve the Board’s 

standard-setting process. The Commission will 

continue to provide oversight as the Board 

endeavors to improve all of its processes. 

4See comments of CAQ, CCMC, Deloitte, EY, 

Grant, KPMG, McGladrey, and PWC. 

5See comments of PBTK. 

6See comments of CCMC. 

7See comments of CAQ, Deloitte, EY, Grant, 

KPMG, McGladrey, and PWC. 

8See comments of KPMG. 

effective for the engagement quality 

review (‘‘EQR’’) of audits and interim 

reviews for fiscal years beginning on or 

after December 15, 2009. 

II. Description 

Section 103 of the Act directs the 

Board, among other things, to set 

standards for public company audits, 

including a requirement for each 

registered public accounting firm to 

‘‘provide a concurring or second partner 

review and approval of [each] audit 

report (and other related information), 

and concurring approval in its issuance 

* * * .’’ According to the Board, the 

proposed rules would strengthen and 

expand the Board’s existing 

requirements for concurring reviews. 

According to the Board, a wellperformed EQR can serve as an 

important safeguard against erroneous 

or insufficiently supported audit 

opinions and, accordingly, can 

contribute to audit quality. As described 

in the Notice, the engagement quality 

review will serve as a meaningful check 

on the work performed by the 

engagement team, and the Board 

believes this should increase the 

likelihood that a registered public 

accounting firm will identify any 

significant engagement deficiencies 

before it issues its audit report. 

Auditing Standard No. 7 requires the 

engagement quality reviewer (or the 

‘‘reviewer’’) to evaluate the significant 

judgments made and related 

conclusions reached by the engagement 

team in forming the overall conclusion 

on the engagement and in preparing the 

engagement report. Auditing Standard 

No. 7 also requires the engagement 

quality reviewer to perform certain 

procedures designed to focus the 

reviewer on those judgments and 

conclusions. As discussed in the Notice, 

the procedures required of an 

engagement quality reviewer are 

different in nature from the procedures 

required of the engagement team. Unlike 

the engagement team, a reviewer does 

not perform substantive procedures or 

obtain sufficient evidence to support an 

opinion on the financial statements or 

internal control over financial reporting. 

If more audit work is necessary before 

the reviewer may provide concurring 

approval of issuance, the engagement 

team—not the reviewer—is responsible 

under PCAOB standards for performing 

the work. In contrast, the reviewer 

fulfills the obligation to perform an EQR 

by holding discussions with the 

engagement team, reviewing 

documentation, and determining 

whether to provide concurring approval 

of issuance. 

The proposed rules also amend the 

Board’s interim quality control 

standards by replacing the third 

sentence of paragraph 18 of QC section 

20, ‘‘System of Quality Control for a CPA 

Firm’s Accounting and Auditing 

Practice’’ with a statement that a firm’s 

quality control policies and procedures 

also should address engagement quality 

reviews pursuant to PCAOB Auditing 

Standard No. 7. 

III. Discussion 

The Commission received nine 

comment letters on the proposed rules. 

Seven letters were received from 

registered public accounting firms, and 

two letters were received from 

professional organizations.2 The 

commenters generally agreed with the 

requirements of Auditing Standard No. 

7 and also expressed agreement with the 

changes made by the PCAOB in 

response to its comment process.3

PCAOB Use and Purpose of Release 

Text 

Many of the comments indicated that 

there is a lack of clarity resulting from 

perceived inconsistencies between 

Auditing Standard No. 7 and text in the 

Board’s adopting release.4 One 

commenter expressed a concern 

whether the release text has the ‘‘same 

weight’’ as the standard itself.5 One 

commenter expressed a concern that the 

release text issued with an adopted 

standard is not subject to the PCAOB’s 

comment process.6

The release text summarizes issues 

that the Board considered significant in 

reaching the conclusions set forth in the 

standard, including responses to 

comments and the rationale for 

accepting certain approaches and 

rejecting others. The Commission 

publishes notice of and approves the 

‘‘Rules of the Board’’ as defined in 

Section 2(a)(13) of the Act, including 

the auditing standards adopted by the 

Board. The release text accompanying 

the Board’s issuance of an auditing 

standard is not part of the ‘‘Rules of the 

Board’’ that are approved by the 

Commission; rather, it is a statement 

made by the PCAOB to provide insight 

into the Board’s decisionmaking 

process. 

Documentation of the EQR 

Commenters generally expressed 

agreement with the documentation 

requirement as set forth in Auditing 

Standard No. 7.7 Many of the same 

commenters, however, expressed 

concerns regarding an example in the 

PCAOB’s adopting release that describes 

the documentation requirement for 

significant engagement deficiencies 

identified by the engagement quality 

reviewer. The release states that ‘‘the 

EQR documentation should contain 

sufficient information to enable an 

experienced auditor, having no previous 

connection with the engagement, to 

understand, e.g., the significant 

deficiency identified, how the reviewer 

communicated the deficiency to the 

engagement team, why such matter was 

important, and how the reviewer 

evaluated the engagement team’s 

response.’’ 

Commenters were concerned that the 

example in the release could be read to 

be inconsistent with the requirement in 

the standard and could result in 

unintended consequences in terms of 

performance. The primary concern was 

that the engagement quality reviewer 

may be compelled to document every 

interaction with the engagement team, 

not knowing whether a matter will 

ultimately be identified as a significant 

engagement deficiency. Commenters 

viewed this as a documentation 

requirement for an EQR that is 

incremental to the requirements of 

PCAOB Auditing Standard No. 3, Audit 

Documentation. Auditing Standard No. 

3 does not require the auditor to 

document each discussion and 

preliminary conclusion. 

In addition, one commenter was 

concerned that the example provided in 

the PCAOB’s adopting release may 

disrupt the communication between the 

engagement team and the engagement 

quality reviewer.8 The commenter 

expressed a view that, if unable to 


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Federal Register / Vol. 75, No. 13 / Thursday, January 21, 2010 / Notices 3511 

9We note clarifications have been provided in 

other contexts. For example, see PCAOB Staff Q&A 

at http://www.pcaobus.org/Standards/ 

Staff_Questions_and_Answers/2009/09- 

02_FASB_Codification.pdf. 

10See comments of CAQ, Deloitte, EY, Grant, 

KPMG, and PWC. 

11See comments of Deloitte, Grant, and KPMG. 

12See comments of PBTK. 

13 17 CFR 210.2–01(f)(7)(ii). 

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

2 17 CFR 240.19b–4. 

3 15 U.S.C. 78s(b)(3)(A). 

4 17 CFR 240.19b–4(f)(6). 

determine which matters may be 

significant, the engagement quality 

reviewer would need to document every 

issue and therefore would not perform 

any review procedures until the 

engagement team completed all audit 

work and finalized all of its 

conclusions. 

The Commission does not believe that 

there is any inconsistency between the 

example in the adopting release and the 

requirements of Auditing Standard No. 

7. The PCAOB specified in its adopting 

release that the example applies ‘‘if a 

reviewer identified a significant 

engagement deficiency to be addressed 

by the engagement team.’’ We believe 

that documentation suggested in the 

example from the adopting release is 

appropriate after the engagement quality 

reviewer has concluded that he or she 

has identified a significant engagement 

deficiency. However, since several 

comments were related to this point, we 

encourage the PCAOB to provide further 

implementation guidance on the 

documentation requirement.9

Standard of Care 

Commenters generally expressed 

agreement with the revisions that the 

PCAOB made to the description of due 

professional care in the standard in 

response to comments, including 

establishing the expected standard of 

performance by referring to AU Section 

230, Due Professional Care in the 

Performance of Work (‘‘AU 230’’).10

However, many of the same commenters 

expressed concern with language in the 

adopting release about the concept of 

due professional care. Particularly, 

many commenters pointed to language 

in the adopting release that a qualified 

reviewer who has performed the 

required review with due professional 

care ‘‘will, necessarily, have discovered 

any significant engagement deficiencies 

that could reasonably have been 

discovered under the circumstances.’’ 

Certain commenters expressed a view 

that the language in the release could be 

read as requiring absolute assurance or 

a ‘‘flawless’’ review.11

The Commission believes that the 

PCAOB adequately responded to 

comments in this area during its 

reproposal process. We do not find any 

inconsistency between the PCAOB’s 

adopting release and the requirement to 

conduct the EQR with due professional 

care as described in paragraphs 12 and 

17 of Auditing Standard No. 7. 

Paragraph 12 of Auditing Standard No. 

7 references AU 230, which is the 

source of guidance regarding due 

professional care in the PCAOB’s 

interim auditing standards. Moreover, 

the PCAOB specified in its adopting 

release that ‘‘the Board is not redefining 

due professional care in the context of 

the EQR standard.’’ 

Definition of Partner 

One commenter suggested that the 

PCAOB revise the description of the 

qualifications of the engagement quality 

reviewer in Auditing Standard No. 7 to 

specify that equity ownership in the 

firm is not a requirement for a 

reviewer.12 The commenter believed 

Board language in its adopting release 

on the distinction between ‘‘partner’’ 

and ‘‘non-partner’’ could be considered 

‘‘muddying and potentially biasing (and 

perhaps unintended) restrictive 

language.’’ 

The discussion of requiring a partner 

or an individual in an equivalent 

position to perform the EQR is 

consistent with the Commission’s 

independence rules.13 We do not 

believe that equity ownership is 

necessarily inherent in the analysis; 

rather the analysis of whether an 

individual is a partner or in an 

equivalent position is based on the 

organization of the individual firm and 

other related facts and circumstances. 

IV. Conclusion 

On the basis of the foregoing, the 

Commission finds that the proposed 

PCAOB Rules on Auditing Standard No. 

7, Engagement Quality Review, and 

Conforming Amendment (File No. 

PCAOB–2009–02) are consistent with 

the requirements of the Act and the 

securities laws and are necessary or 

appropriate in the public interest or for 

the protection of investors. 

It is therefore ordered, pursuant to 

Section 107 of the Act and Section 

19(b)(2) of the Exchange Act, that the 

proposed PCAOB Rules on Auditing 

Standard No. 7, Engagement Quality 

Review, and Conforming Amendment 

(File No. PCAOB–2009–02) be and 

hereby are approved. 

By the Commission. 

Elizabeth M. Murphy, 

Secretary. 

[FR Doc. 2010–1028 Filed 1–20–10; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–61349; File No. SR–CBOE– 

2010–004] 

Self-Regulatory Organizations; 

Chicago Board Options Exchange, 

Incorporated; Notice of Filing and 

Immediate Effectiveness of a Proposed 

Rule Change To Modify Trading Hours 

for CBSX 

January 14, 2010. 

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

Securities Exchange Act of 1934 

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

notice is hereby given that on January 

12, 2010, the Chicago Board Options 

Exchange, Incorporated (‘‘CBOE’’ or 

‘‘Exchange’’) filed with the Securities 

and Exchange Commission 

(‘‘Commission’’) the proposed rule 

change as described in Items I and II 

below, which Items have been prepared 

by CBOE. CBOE has submitted the 

proposed rule change under Section 

19(b)(3)(A) of the Act 3 and Rule 19b– 

4(f)(6) thereunder,4 which renders the 

proposal effective upon filing with the 

Commission. The Commission is 

publishing this notice to solicit 

comments on the proposed rule change 

from interested persons. 

I. Self-Regulatory Organization’s 

Statement of the Terms of Substance of 

the Proposed Rule Change 

The Exchange proposes to modify 

trading hours for the CBOE Stock 

Exchange (‘‘CBSX’’). The text of the 

proposed rule change is available on the 

Exchange’s Web site (http:// 

www.cboe.org/Legal), at the Exchange’s 

Office of the Secretary, and at the 

Commission. 

II. Self-Regulatory Organization’s 

Statement of the Purpose of, and 

Statutory Basis for, the Proposed Rule 

Change 

In its filing with the Commission, the 

CBOE included statements concerning 

the purpose of and basis for the 

proposed rule change and discussed any 

comments it received on the proposed 

rule change. The text of these statements 

may be examined at the places specified 

in Item III below. The Exchange has 

prepared summaries, set forth in 

sections A, B, and C below, of the most 

significant aspects of such statements. 


jlentini on DSKJ8SOYB1PROD with NOTICES