Washington, D.C., June 30, 2003
The Public Company Accounting Oversight Board today adopted a rule requiring registered accounting firms to comply with the auditing and related standards previously adopted by the Board. The Board also adopted a rule relating to the formation of advisory groups under Section 103(a)(4) of the Sarbanes-Oxley Act.
The Rules will be submitted to the Securities and Exchange Commission for approval. Pursuant to Section 107 of the Sarbanes-Oxley Act, Board Rules do not take effect unless approved by the Commission. The text of the Rules will be posted on the Board’s Web site, www.pcaobus.org, as soon as possible.
The Board holds exclusive, statutory authority to establish and amend auditing and related professional practice standards, and all public accounting firms that are registered with the Board must comply with the Board's standards. While this requirement is implicit in the Sarbanes-Oxley Act, the Board has codified the obligation of registered firms to comply with the Board's standards in Rule 3100. Any registered public accounting firm or person associated with such a firm that fails to adhere to the Board's standards may be subject to a Board disciplinary proceeding.
The Board also adopted a rule on the formation of advisory groups – Rule 3700. The Rule would provide that the Board may form one or more advisory groups to assist it in carrying out its responsibilities.
Advisory groups would be composed of individuals with expertise in a variety of fields, including accounting, auditing, corporate finance and corporate governance, investing in public companies, and any other area that the Board deems relevant to one or more auditing or professional practice standards.
The Rule would also provide that members of any advisory group would be selected by the Board based upon nominations, including self-nominations, received from any person or organization. Membership in an advisory group would be personal to the member and the duties and responsibilities of the member could not be delegated to others.
Further, the Rule would provide for members to be subject to the provisions of the Board's Ethics Code that require members to –
The Board voted to issue a Release discussing nominations and qualifications of members, terms and conditions of membership, the conduct of meetings, and other matters related to its use of a standing advisory group (the SAG). In summary:
Proposed Rule 3100 (and a related definition) and proposed Rule 3700 were released for public comment on April 18, 2003. The board received 22 written comment letters. In response to these comments, the Board's final Rules both clarify and modify certain aspects of the proposed Rules. Most importantly, the revisions to the Rules as originally proposed would –