Thank you, Acting Chair DesParte. I am pleased to support the adoption of PCAOB Rule 6100, Board Determinations Under the Holding Foreign Companies Accountable Act.
The Sarbanes-Oxley Act mandates that the Board inspect PCAOB-registered firms and investigate possible violations of applicable laws and professional standards by those firms and their associated persons. This mandate applies with equal force to registered firms in the United States and those in foreign jurisdictions. It serves to promote audit quality and to enhance the quality of financial reporting by public companies and registered broker-dealers, which serve to protect investors and further the public interest.
For many years, the Board has worked effectively with its foreign counterparts to fulfill its statutory mandate, and the Board continues to benefit greatly from such cross-border cooperation. In a few jurisdictions, however, authorities have taken positions that prevent the Board from obtaining the access it needs to conduct its mandated oversight activities.
Congress recognized those obstacles when it enacted the Holding Foreign Companies Accountable Act (“HFCAA” or “Act”). The Act requires the Board to determine when it is unable to inspect or investigate completely registered public accounting firms located in a foreign jurisdiction because of a position taken by one or more authorities in that jurisdiction. The HFCAA also mandates the actions the Securities and Exchange Commission shall take after the Board makes such a determination.
The Act does not specify the process the Board should follow when making determinations under the HFCAA or require the Board to adopt a rule governing those determinations. By filling that gap, the adoption of Rule 6100 should provide several important benefits. First, Rule 6100 establishes a conceptual framework for the Board’s determinations under the HFCAA that is consistent with the core principles that have previously guided the Board’s approach to international cooperation. In addition, the rule addresses other facets of the Board’s determinations, including, for example, the content of the Board’s determinations; the format in which Board reports accompanying determinations under the HFCAA will be made available to the public and to registered firms subject to those determinations; and the manner in which determinations under the HFCAA may be reaffirmed, modified, or vacated. By doing so, Rule 6100 should promote transparency and consistency in the processes for determinations made by the Board and also reduce regulatory uncertainty.
The final rule has also benefited from the public comments received on the Board’s May 2021 rulemaking proposal. After considering those comments, the Board has made several changes to Rule 6100 as originally proposed. These revisions include more clearly identifying the firms to which the Board’s determinations under the HFCAA will apply in a separate appendix to a Board report and specifying that the Board will reassess each determination that is in effect at least annually. These provisions, along with the other elements of the framework in the final rule, should help ensure that the Commission’s actions under the Act are based on determinations by the Board that reflect the current status of the PCAOB’s ability to inspect and investigate firms completely in a foreign jurisdiction.
I join my fellow Board members in thanking the PCAOB staff in the various offices and divisions who worked very diligently and thoughtfully on this project, especially those in the Office of the General Counsel, the Office of International Affairs, the Office of Economic and Risk Analysis, and the Office of the Chief Auditor. Thank you also to the SEC staff for their insights and support.