Document ID: SEC-2015-1553-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Public Company Accounting Oversight Board
Posted Date: 2015-09-22T04:00Z

[Federal Register Volume 80, Number 183 (Tuesday, September 22, 2015)]
[Notices]
[Pages 57263-57265]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-24019]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-75935; File No. PCAOB-2015-01]

Public Company Accounting Oversight Board; Order Granting 
Approval of Proposed Rules To Implement the Reorganization of PCAOB 
Auditing Standards and Related Changes to PCAOB Rules and Attestation, 
Quality Control, and Ethics and Independence Standards

September 17, 2015.

I. Introduction

    On June 17, 2015, the Public Company Accounting Oversight Board 
(the ``Board'' or the ``PCAOB'') filed with the Securities and Exchange 
Commission (the ``Commission''), pursuant to section 107(b) \1\ of the 
Sarbanes-Oxley Act of 2002 (the ``Sarbanes-Oxley Act'') and section 
19(b) \2\ of the Securities Exchange Act of 1934 (the ``Exchange 
Act''), proposed rules to adopt amendments to implement the 
reorganization of PCAOB auditing standards and related changes to PCAOB 
rules and attestation, quality control, and ethics and independence 
standards (collectively, the ``Proposed Rules'' or ``Proposed 
Reorganization'').\3\ The Proposed Rules were published for comment in 
the Federal Register on June 25, 2015.\4\ At the time the notice was 
issued, the Commission designated a longer period to act on the 
Proposed Rules, until September 23, 2015.\5\ The Commission received 
four comment letters in response to the notice.\6\ This order approves 
the Proposed Rules.
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    \1\ 15 U.S.C. 7217(b).
    \2\ 15 U.S.C. 78s(b).
    \3\ The Board originally proposed in March 2013 (``Original 
Proposal'') what became the Proposed Rules. See PCAOB Release No. 
2013-002 (March, 26, 2013). The Board also issued a supplemental 
request for comment in May 2014 (``Supplemental Request''). See 
PCAOB Release No. 2014-001 (May 7, 2014).
    \4\ See Release No. 34-75251 (June 19, 2015), 80 FR 36602 (June 
25, 2015).
    \5\ Ibid.
    \6\ See Comment letters from Suzanne H. Shatto, June 27, 2015, 
Deloitte & Touche LLP, July 8, 2015, Michael McMurtry, July 28, 
2015, and Stephen G. Wills, August 17, 2015, available at http://www.sec.gov/comments/pcaob-2015-01/pcaob201501.shtml.

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[[Page 57264]]

II. Description of the Proposed Rules

    In April 2003, the Board adopted, on an interim, transitional 
basis, generally accepted auditing standards (``GAAS'') that were in 
existence on April 16, 2003. When the Board adopted those auditing 
standards, it continued to use the topical organization and reference 
numbers (``AU sections'') in the Auditing Standards Board (``ASB'') of 
the American Institute of Certified Public Accountants' (``AICPA'') 
then-existing codification of its standards. Auditing standards issued 
by the Board (``AS standards'') have not been codified or otherwise 
organized by topic, and are numbered in sequential order based upon 
when they were issued. As a result, the Board's auditing standards are 
organized using two separate numbering systems: (1) The numbering 
system used by the ASB when the Board adopted the interim standards; 
and (2) the numbering system used by the Board for the standards it has 
issued.

1. Proposed Reorganization

    Under the Proposed Reorganization, the individual standards will be 
grouped into the following topical categories:
     General Auditing Standards (AS 1000s)--standards on broad 
auditing principles, concepts, activities, and communications;
     Audit Procedures (AS 2000s)--standards for planning and 
performing audit procedures and for obtaining audit evidence;
     Auditor Reporting (AS 3000s)--standards for auditors' 
reports;
     Matters Related to Filings Under Federal Securities Laws 
(AS 4000s)--standards on certain auditor responsibilities relating to 
U.S. Securities and Exchange Commission filings for securities 
offerings and reviews of interim financial information; and
     Other Matters Associated with Audits (AS 6000s)--standards 
for other work performed in conjunction with an audit of an issuer or 
of a broker or dealer.
    Within each category are subcategories to further organize similar 
topics, such as standards related to auditor communications in the 
``General Auditing Standards'' category. The integrated reference 
system uses an ``AS'' prefix to identify the auditing standard and each 
standard is assigned a unique section number, based on a four-digit 
numbering system.

2. Changes to PCAOB Standards and Rules

    The amendments to PCAOB standards and rules include changes 
rescinding certain interim auditing standards that the Board believes 
are no longer necessary, eliminating inoperative language in auditing 
standards, references, and interpretations, and eliminating inoperative 
references to AICPA standards or rules.
a. Changes to the PCAOB Standards
    The amendments primarily update section numbers, update cross-
references among standards using the numbering system in the adopted 
reorganization, and change the titles of certain standards. Other 
amendments rescind certain interim standards and remove or update 
certain terms and phrases in the standards.
Interim Standards to be Rescinded
    The following interim standards are being rescinded because they 
contain requirements that have been superseded or duplicated by other 
PCAOB standards, and as such, are considered unnecessary:

 AU sec. 150, Generally Accepted Auditing Standards
 AU sec. 201, Nature of the General Standards
 AU sec. 410, Adherence to Generally Accepted Accounting 
Principles
 AU sec. 532, Restricting the Use of an Auditor's Report
 AU sec. 901, Public Warehouses--Controls and Auditing 
Procedures for Goods Held.
Interpretive Publications
    Almost all \7\ of the AICPA auditing interpretations are being 
retained and presented separately from the auditing standards. The 
Proposed Reorganization retains the existing requirement for the 
auditor to be aware of and consider the applicable auditing 
interpretations.
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    \7\ The Proposed Reorganization will rescind two auditing 
interpretations related to AU sec. 410 and AU sec. 534 and 
interpretation 16 of AU sec. 508 because they are either duplicative 
or unrelated to the preparation or issuance of any audit report for 
an issuer, broker, or dealer, and thus unnecessary.
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    The Proposed Reorganization retains the majority \8\ of the 
appendices to the interim auditing standards and to continue presenting 
those appendices together with their related auditing standards in the 
same manner that appendices to PCAOB-issued standards are presented. 
Additionally, the Proposed Reorganization removes references to AICPA 
Audit and Accounting Guides and AICPA auditing Statements of Position 
because the guides referenced in PCAOB standards are outdated.\9\
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    \8\ The Proposed Reorganization will delete duplicative and thus 
unnecessary appendices that contain paragraphs .86 and .87 of AU 
sec. 316.
    \9\ AICPA Audit and Accounting Guides and auditing Statements of 
Position referenced in PCAOB standards are the editions of those 
publications as in existence on April 16, 2003.
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Other Changes to PCAOB Standards
    The Proposed Reorganization includes amendments to replace 
references to GAAS throughout the auditing standards with references to 
the standards of the PCAOB or PCAOB auditing standards, and 
accordingly, to supersede Auditing Standard No. 1 (``AS 1''), 
References in Auditors' Reports to the Standards of the Public Company 
Accounting Oversight Board.\10\ The Proposed Reorganization also 
includes amendments to preserve the requirement from AS 1 for the 
auditor's report to include the city and state, (or city and country), 
of the auditor. Finally, as AS 1 applied to the PCAOB's attestation 
standards, amendments to update references to PCAOB standards and to 
include the city and state (or city and country) have been applied to 
the attestation standards.
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    \10\ In 2004, the Commission published interpretive guidance to 
explain that references in Commission rules and staff guidance to 
GAAS or specific standards of GAAS, as they relate to issuers, 
should be understood to mean the standards of the PCAOB plus any 
applicable rules of the Commission. See Release No. 34-49708, FR-73 
(May 14, 2004).
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    As a result of these changes, the amendments also include updates 
to the illustrative auditor's reports included throughout the auditing 
standards. In addition to illustrating the two changes described above, 
the updates to the reports include changing the title to ``Report of 
Independent Registered Public Accounting Firm.'' \11\
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    \11\ In the Board's final rule release, it notes that the 
amendments would not preclude an unregistered firm that applies 
PCAOB standards, when appropriate, from omitting ``Registered'' from 
the title of the report. See PCAOB Release No. 2015-002 at fn. 26 
(March 31, 2015).
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b. Changes to PCAOB Rules
    The Proposed Reorganization amends PCAOB Rule 3200T to remove (1) 
the reference to AU sec. 150, which, as discussed above, is rescinded, 
and (2) terms such as ``interim auditing standards'' and ``generally 
accepted auditing standards.'' These terms are no longer relevant under 
the Proposed Reorganization. Additionally, the Proposed Reorganization 
makes the rule permanent, rather than temporary, and therefore removes 
the word ``Interim'' from its title.

[[Page 57265]]

3. Applicability and Effective Date

    The PCAOB has proposed application of its Proposed Rules to audits 
of all issuers, including audits of emerging growth companies 
(``EGCs''),\12\ as discussed in section IV. below. The Proposed Rules 
also would apply to audits of SEC-registered brokers and dealers.\13\
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    \12\ The term ``emerging growth company'' is defined in Section 
3(a)(80) of the Exchange Act. 15 U.S.C. 78c(a)(80).
    \13\ On July 30, 2013, the Commission adopted amendments to Rule 
17a-5 under the Exchange Act to require, among other things, that 
audits of brokers' and dealers' financial statements be performed in 
accordance with the standards of the PCAOB for fiscal years ending 
on or after June 1, 2014. 17 CFR 240.17a-5. See Broker-Dealer 
Reports, Release No. 34-70073, (July 30, 2013), 78 FR 51910 (August 
21, 2013), available at http://www.sec.gov/rules/final/2013/34-70073.pdf.
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    The Proposed Rules would be effective as of December 31, 2016. 
However, auditors and others are not precluded from using and 
referencing the standards as reorganized pursuant to the Proposed Rules 
before the effective date because the amendments do not substantively 
change the standards' requirements.\14\
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    \14\ See PCAOB Release No. 2015-002 at 21.
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III. Comment Letters

    As noted above, the Commission received four comment letters 
concerning the Proposed Rules. Three commenters expressed support for 
the Proposed Rules,\15\ and the other commenter provided suggestions 
discussed further below.\16\
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    \15\ See Shatto Letter, Deloitte Letter and McMurtry Letter.
    \16\ See Wills Letter.
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    One commenter stated that the new organizational structure will 
improve the usability of the PCAOB's auditing standards, including 
helping users navigate the standards more easily.\17\ Another commenter 
suggested adopting a similar structure used by the ASB and IAASB and 
reorganizing the PCAOB's attestation, quality control, and ethics and 
independence standards. This same commenter expressed concern regarding 
the rescission of AU sec. 532 and removal of references to non-
authoritative other guidance in the Proposed Reorganization.\18\ 
Finally, one commenter suggested enhancements to improve the usability 
of the Proposed Reorganization, including a suggestion to embed PCAOB 
standards in the FASB's Accounting Standards Codification.\19\ The 
PCAOB addressed many of these comments in its Original Proposal, 
Supplemental Request, and final rule release. The Commission does not 
find the PCAOB's responses to be unreasonable. The comment on embedding 
PCAOB standards in the FASB's Accounting Standards Codification is 
outside the scope of the Proposed Rules.
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    \17\ See Deloitte Letter.
    \18\ See McMurtry Letter.
    \19\ See Wills Letter.
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IV. The PCAOB's EGC Request

    Section 103(a)(3)(C) of the Sarbanes-Oxley Act provides that any 
additional rules adopted by the PCAOB subsequent to April 5, 2012 do 
not apply to the audits of EGCs, 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.\20\ Having considered those factors, and as 
explained further herein, the Commission finds that applying the 
Proposed Rules to audits of EGCs is necessary or appropriate in the 
public interest.
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    \20\ Section 103(a)(3)(C) of the Sarbanes-Oxley Act, as amended 
by section 104 of the JOBS Act.
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    In proposing application of the Proposed Rules to audits of all 
issuers, including EGCs, the PCAOB requested that the Commission make 
the determination required by section 103(a)(3)(C). To assist the 
Commission in making its determination, the PCAOB prepared and 
submitted to the Commission its own EGC analysis. The PCAOB's EGC 
analysis includes discussions of characteristics of self-identified 
EGCs and economic considerations pertaining to audits of EGCs, 
including efficiency, competition, and capital formation. In its 
analysis, the Board states the reorganization of PCAOB auditing 
standards would involve amendments that do not impose additional 
requirements on auditors or change substantively the requirements of 
PCAOB standards. Thus, the reorganization, including the amendments, is 
not expected to affect the manner in which audits are performed and 
reported under PCAOB standards, including audits of EGCs. Additionally, 
reorganizing the PCAOB standards into a single, integrated 
organizational structure should make it easier for auditors and others 
to navigate, use, and apply the standards.
    The PCAOB's EGC analysis was included in the Commission's public 
notice soliciting comment on the Proposed Rules. Based on the analysis 
submitted, we believe the information in the record is sufficient for 
the Commission to make the requested EGC determination in relation to 
the Proposed Rules.

V. Conclusion

    The Commission has carefully reviewed and considered the Proposed 
Rules and the information submitted therewith by the PCAOB, including 
the PCAOB's EGC analysis, and the comment letters received. In 
connection with the PCAOB's filing and the Commission's review,
    A. The Commission finds that the Proposed Rules are consistent with 
the requirements of the Sarbanes-Oxley Act and the securities laws and 
are necessary or appropriate in the public interest or for the 
protection of investors; and
    B. Separately, the Commission finds that the application of the 
Proposed Rules to EGC audits 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.
    It is therefore ordered, pursuant to section 107 of the Sarbanes-
Oxley Act and section 19(b)(2) of the Exchange Act, that the Proposed 
Rules (File No. PCAOB-2015-01) be and hereby are approved.

    By the Commission.
Brent J. Fields,
Secretary.
[FR Doc. 2015-24019 Filed 9-21-15; 8:45 am]
BILLING CODE 8011-01-P