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PCAOB Issues Release on Failure to Supervise

The Public Company Accounting Oversight Board today issued a Release discussing the provision of the Sarbanes-Oxley Act of 2002 that authorizes the PCAOB to impose sanctions on registered public accounting firms and their supervisory personnel for failing to reasonably supervise associated persons.

"Through its inspections and investigations, the PCAOB has observed that supervision processes within firms are frequently not as robust as they should be, and that supervisory responsibilities are often not as clearly assigned as they should be," said PCAOB Acting Chairman Daniel L. Goelzer. "Today's Release seeks to highlight the Board’s views on the scope for using the authority provided in the Act to address those problems."

The PCAOB issued a two-part Release addressing matters related to the application of Section 105(c)(6) of the Sarbanes-Oxley Act, which authorizes the PCAOB to sanction registered firms and their supervisory personnel for failing to reasonably supervise associated persons who violate certain laws, rules, or standards.

Part I of the Release serves to highlight the scope of the application of Section 105(c)(6) for the information of registered firms, their associated persons, and the public generally. Part I is not a rule or rule proposal, and the PCAOB is not seeking comment on Part I.

Part II of the Release discusses concepts relating to possible rulemaking or standard setting that, without imposing any new supervision responsibilities, would require firms to make and document clear assignments of the supervision responsibilities that are already required to be part of any audit practice.

The PCAOB is considering whether such rules would further the public interest and protect investors by increasing clarity about who, within a firm, is accountable for various responsibilities that bear on the quality of a firm's audits. The PCAOB is soliciting public comment on the concepts discussed in Part II. The comment period is open until Nov. 3, 2010.

 

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