Statement on Amendments to Conform PCAOB Rules and Forms to the Dodd-Frank Act and Make Certain Updates and Clarifications

The amendments to PCAOB rules before us today reflect Board action to respond to various provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act. I support the adoption of the amendments as necessary to protect the interests of investors and further the public interest in the preparation of informative, accurate and independent audit reports.

The Board's action today reflects another milestone in the Board's implementation of broker-dealer audit oversight envisioned by the Dodd-Frank Act. The Dodd-Frank Act amended the Sarbanes-Oxley Act to authorize the PCAOB to carry out oversight responsibilities for audits of broker-dealers that are registered with the Securities and Exchange Commission.

The Board has previously adopted procedures for broker-dealer auditors to register with the PCAOB,[1] and it established an interim inspection program to assess the degree of compliance with applicable rules and standards on audits of broker-dealers.[2]

More recently, after the SEC promulgated amendments to its broker-dealer financial responsibility and reporting rules in July 2013,[3] the Board adopted attestation standards and an auditing standard, and related amendments, for auditors of broker-dealers.[4] Those standards are currently under review by the SEC.[5]

The Dodd-Frank Act also contained other provisions related to the Board's existing audit oversight regulatory authorities. The Board votes today on two categories of amendments to PCAOB rules in response to the Dodd-Frank provisions related to PCAOB's oversight of broker-dealer audits and its existing authorities.

First, as described in the release before the Board today, are "conforming amendments" that reflect technical modifications to the Board's rules to align them with the provisions enacted in Dodd-Frank. These amendments should clarify for auditors of issuers and broker-dealers alike the scope and application of the Board's rules. These conforming amendments include technical amendments to PCAOB rules to conform them to specific provisions of Dodd-Frank related to:

  • the Board's oversight of the audits of SEC-registered broker-dealers, and
  • the Board's existing audit oversight regulatory authorities. For example, the amended rules would conform to Dodd-Frank provisions that clarify the Board's authorities in relation to foreign auditor oversight authorities, persons associated with public accounting firms, and persons in audit firm supervisory roles.

Second, in addition to these technical "conforming amendments," the amendments before us today also reflect modifications to PCAOB rules based on a "substantive assessment" of the Board's existing rules.[6] These include amendments to

  • tailor certain of the Board's rules to the audits of brokers and dealers;
  • call for relevant broker and dealer audit client information on the Board's forms; and,
  • revise a number of rules in light of the Board's experience administering and enforcing these rules.

The Board's review has appropriately identified some rules, such as certain independence rules and PCAOB forms that need tailoring for broker-dealer auditors, based on an assessment of our experience and other available evidence. For example, the amendments would extend Rule 3521 (Contingent Fees) and Rule 3522 (Tax Transactions) to auditors of broker-dealers. The Board also reviewed certain of its rules to assess whether they should be revised in light of the Board's experience in administering and enforcing them and other rules to assess whether they should be revised in relation to other statutory and regulatory changes. Among the many rules that are being revised and updated, the Board updated its Rule 4009 (Firm Response to Quality Control Defects) in light of a rule adopted by SEC in July 2010 and Rule 5300 (Civil Monetary Penalties) to reflect SEC's updated rules.

In addition, this process has identified other rules for which further study and gathering of additional evidence should be considered. For example, I support the Board's continuing study of its independence rule, Rule 3523, related to the provision of tax services by broker-dealer auditors and its investigative rule, Rule 5102, related to the presence of experts during investigative testimony.

As these amendments demonstrate, the Board can benefit significantly from an assessment of its existing rules. Effective regulatory practice and sound management principles suggest that PCAOB would benefit from conducting periodic reviews of our rules to determine whether they remain necessary, appropriate, and effective. I strongly support periodic reviews of PCAOB rules and policies to assess whether they continue to be necessary, appropriate, and effective. I compliment the Office of General Counsel and the other divisions and offices for completing this current review, and encourage future efforts in this area.

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In closing, I would like to thank Vince Meehan and Nancy Doty of the Office of General Counsel who have worked diligently on this project. I would also like to thank the SEC staff for their valuable input and support.

[1] SEC-registered brokers and dealers were required by the Sarbanes-Oxley Act of 2002 to file financial statements with the SEC that have been audited by a PCAOB-registered public accounting firm, but a series of orders of the SEC exempted broker-dealers from this requirement until the last order expired for fiscal years ending December 31, 2008. Under PCAOB rules, effective Dec. 31, 2009, all registered public accounting firms, including registered broker-dealer auditors, must also file annual reports with the PCAOB.

[3] See SEC Release Nos. 34-70072 and 34-70073, available at http://www.sec.gov/rules/final.shtml.

[4] See Board Member Jeanette M. Franzel, Statement on Attestation Standards for Broker-Dealer Audits and Auditing Standard on Auditing Supplemental Information, Oct. 10, 2013, available at http://pcaobus.org/News/Speech/Pages/10102013_Franzel_BD.aspx.

[5] See SEC Release Nos. 34-70842 and 34-70843, available at http://www.sec.gov/rules/pcaob.shtml.

[6] See PCAOB Release No. 2012-002, at 4-5.