Constructive Withdrawal from PCAOB Registration: Amendment of PCAOB Rule 2107

Remarks as prepared for delivery

Thank you, Chair Williams.

The recommendation before us today addresses the problem of what might be called “phantom firms.”  

Most audit firms registered with the PCAOB adhere to our registration rules, file timely reports, and pay their annual fees. Not all registered firms, however, do so.

Today’s rule change is targeted at those firms that are registered but no longer follow our administrative rules; no longer pay the required annual fees; and no longer file required reports. For all intents and purposes, they seem to have disappeared.

The new rule would allow the Board, under specified conditions, to consider a registered firm’s failures both to file annual reports and to pay annual fees for at least two consecutive reporting years as a constructive request for leave to withdraw from registration, and to deem the firm’s registration withdrawn.

As of August 31, 2024, there are about 80 such firms in this situation, about six percent of total registrants.

Perhaps these registered firms have ceased to exist; maybe they have decided to focus on lines of business other than auditing public companies; maybe the firms have changed ownership; or maybe the firms have simply gone out of business.

Regardless of the reason for a firm’s failure to maintain current reporting to the PCAOB and to pay the required fees for more than two years, its continued presence on the list of PCAOB registered firms can only be a source of confusion.

The operation of the new rule ensures that mere mistakes made by registered firms in the filing of annual reports or payment of fees will not lead to constructive withdrawal.

• The delinquency must extend to a minimum of two consecutive reporting periods.
• The rule creates a streamlined and straightforward mechanism for firms to communicate their desire to remain registered with the Board, by sending a single email.
• The rule now provides two months for registered firms that receive a final delinquency notice from the PCAOB to respond, before the Board can act to constructively remove the firm from its registered status.

Finally, it is important to note that firms removed from registered status, under the rule, are not barred from registering in the future.  

Before I conclude, I would like to recognize and thank the people who worked on this project:

From the Office of the General Counsel: Matt Goldin, Drew Dropkin, and Vince Meehan.

From the Office of Economic and Risk Analysis: Erik Durbin, Josh White, Hanna Lee, and Min Ren [Mihn Ran].

From the Division of Registration and Inspections: Carol Swaniker and Abena Glasgow.

I also want to thank John Abell, Bill Ryan, and Noah Berlin in the Division of Enforcement and Investigations for their assistance.

Finally, I want to thank the Securities and Exchange Commission staff, including the staff of the SEC’s Office of the Chief Accountant, for their support and assistance.

I support adoption of the Rule because it will help the Board identify firms that are no longer operational and maintain the integrity and accuracy of the information available to the public.