PCAOB Proposes Interim Inspection Program for Broker-Dealer Audits and Broker and Dealer Funding Rules

Washington, D.C., Dec. 14, 2010

The Public Company Accounting Oversight Board today proposed for public comment certain rules to begin implementation of provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act that expand the Board's oversight authority to encompass audits of securities brokers and dealers.

Specifically, the Board proposed for public comment a temporary rule to establish an interim inspection program for registered public accounting firms' audits of brokers and dealers, as well as rules related to assessing and collecting a portion of its Accounting Support Fee from brokers and dealers to fund PCAOB oversight of audits of brokers and dealers, consistent with the Act. Certain amendments to existing funding rules for issuers were also proposed for public comment.

"The Board's actions today are first steps along the path to creating a robust oversight program for accounting firms that audit securities brokers and dealers. In particular, the proposed interim inspection program would provide the Board with insight about how to maximize the benefits of broker-dealer inspections to the investing public in an effective and efficient manner," said PCAOB Acting Chairman Daniel L. Goelzer.

Interim Inspection Program

The Dodd-Frank Act authorized the Board to establish, by rule, a program of inspection of auditors of brokers and dealers. The law leaves to the Board, subject to the approval of the Securities and Exchange Commission, important questions concerning the scope of the program and the frequency of inspections, including whether to differentiate among categories of brokers and dealers and whether to exclude from the inspection program any categories of auditors.

The temporary rule proposed by the Board today would, if adopted, put in place an interim inspection program while the Board considers the scope and other elements of a permanent inspection program. Under the temporary rule, the Board would begin to inspect auditors of brokers and dealers and identify and address with the registered firms any significant issues in those audits. The Board also expects that insights gained through the interim program will inform the eventual determination of the scope and elements of a permanent program, and the Board expects to propose rules for a permanent program after no more than two years of an interim program. During the interim program, the Board would at least annually provide public reports on the progress of the interim program and significant issues identified, but the Board would not expect to issue firm-specific inspection reports before the scope of a permanent program is set.

The proposed temporary rule would not change anything about the rules or standards that govern audits of broker-dealers. As the Securities and Exchange Commission has previously explained, its rules continue to require those audits to be carried out under GAAS, or generally accepted auditing standards.

Comments are due to the PCAOB by no later than February 15, 2011.


Section 109 of the Sarbanes-Oxley Act, as originally enacted, provided that funds to cover the PCAOB annual budget, less registration and annual fees paid by registered public accounting firms, would be collected from issuers based on each issuer's relative average monthly equity market capitalization. The amount due from issuers is referred to as the Accounting Support Fee. As amended by Dodd-Frank, Section 109 now requires that the Board allocate respective portions of the total Accounting Support Fee among issuers, brokers and dealers and allow for differentiation among classes of brokers, and dealers.

The rules proposed today for comment would establish classes of broker-dealers for funding purposes, describe the method for allocating the appropriate portion of the Broker-Dealer Accounting Support Fee to each broker and dealer within each class, and address the collection of assessed shares from brokers and dealers. The Board anticipates that the rules, subject to SEC approval, would be in effect for its 2011 funding cycle for broker and dealers.

The Board also proposed certain amendments to its funding rules for issuers, based on its experience with the issuer accounting support fee process over the last eight years. The rules proposed today for comment would, among other things, increase the market capitalization threshold for equity and investment company issuers and would revise the basis for calculating an issuer's market capitalization to include the market capitalization of all classes of an issuers' voting and non-voting common equity rather than just its common stock. The Board anticipates that the rules related to the Issuer Accounting Support fee, subject to SEC approval, would become effective for its 2012 funding cycle for issuers.

Comments are due to the PCAOB no later than Feb.15, 2011.