I support adopting temporary rules relating for the interim inspection program for SEC registered non-public broker-dealers.
Although the Sarbanes-Oxley Act in 2002 authorized and directed the Board to register auditors of SEC registered non-public broker-dealers, the Act did not give the PCAOB authority to inspect, set standards or engage in investigation and enforcement actions with respect to these entities. Last July, the Dodd-Frank Act extended this important authority to the PCAOB and charged the Board with setting standards for inspecting, and, if necessary, sanctioning accounting firms that audit SEC registered non-public brokers and dealers. Notably, the Dodd-Frank amendments did not prescribe a specific program of inspection of registered public accounting firms. Rather, the Dodd-Frank amendments authorized the Board to determine the specific elements of an inspection program.
The rules the Board is adopting today relating to the interim inspection program is the first step in the Board's process of creating a program specifically focused on inspecting auditors of SEC registered non-public broker-dealers.
I believe that the Board is taking a very thoughtful approach by starting with an interim inspection program to learn more about how auditors conduct audits of different types of brokers and dealers, including clearing and introducing brokers and dealers. As Michael Stevenson stated, the interim inspection program will allow the Board to assess registered public accounting firms’ current compliance with laws, rules, and standards as they perform audits of brokers and dealers. It also will inform the Board's decisions about significant elements of a permanent inspection program, including whether to differentiate among classes of brokers and dealers, whether to exempt any categories of public accounting firms, and what minimum inspection frequency schedules to establish.
When the Board began its operations in 2003, the Board conducted limited inspections of the Big 4 accounting firms. The limited inspections provided invaluable information to the Board as the Board determined how to set up the permanent inspection program for registered public accounting firms that audit public companies.
The adoption of the temporary rules relating to the interim inspection program for auditors of SEC registered non-public broker dealers will provide the Board will a similar opportunity to develop an inspection program that is best suited for its oversight of auditors who audit non-public brokers and dealers.
We plan to take a careful and informed approach in establishing a permanent program that appropriately protects the public interest and the interests of investors, and we intend to look carefully at the potential costs and regulatory burdens that would be imposed on different categories of registered public accounting firms and classes of brokers and dealers. The goal is to thoughtfully and carefully analyze the information that will be gathered during the interim inspection program and to use that information to inform the Board's thinking regarding how to structure the permanent inspection program, including whether to differentiate between different classes of brokers and dealers, whether to exempt certain auditors of non-public brokers and dealers, and how frequently the auditors should be inspected.
Many of the commenters on the proposal were concerned about the inclusive scope of the interim program. I would like to note that the inclusive scope should not be construed as either foreshadowing the likely scope of a permanent program or suggesting that every broker or dealer auditor will be inspected as part of the interim program. My expectation is that we will be able to gather the necessary information to inform our consideration of a permanent inspection program without having to inspect most firms during the interim program. I believe that my fellow Board members and I will carefully consider whether there should be exemptions from the permanent program. For example, we plan to give careful consideration to whether a broker's or dealer's meaningful access to client assets is a relevant factor in determining the investor protection and public interest benefits of PCAOB oversight of the auditor of that broker or dealer. I look forward to the information that will be gathered during the interim inspection program to inform our thinking regarding how to structure the permanent inspection program of auditors that audit SEC registered non-public brokers and dealers.
As I conclude my remarks, I would like to thank the organizations and individuals who took the time to comment on the Board's proposal. Your insightful comments were of great assistance to the Board in finalizing the temporary rules. I also would like to thank Michael Stevenson and Jennifer Williams from our Office of General Counsel who worked on this project and presented the finalized temporary inspection rules for the Board's consideration today.