The Public Company Accounting Oversight Board adopted a
It would apply when firms fail to file annual reports on PCAOB Form 2 and pay annual fees for at least two consecutive reporting years. Via Form 2, registered auditing firms give the PCAOB important information such as each audit client for which that firm issued any audit reports during a reporting period.
“Firm registration is a cornerstone of the PCAOB’s operations,” said PCAOB chair Erica Williams in a statement at the PCAOB’s meeting Thursday. “Firms are required by the Sarbanes-Oxley Act to register with the PCAOB in order to perform audits of publicly traded companies and SEC-registered broker-dealers or to play a substantial role in those audits. In addition to registering, filing an annual report through what’s called Form 2, allows the PCAOB to keep track of the firms who are eligible to perform those audits and to understand which audits, if any, they are performing. In turn, the PCAOB then uses that information for many purposes, including planning its inspections program, which inspects over 800 issuer audits in more than 30 jurisdictions around the world each year.”
The PCAOB noted that as of Aug. 31, 2024, 80 registered firms have not filed annual reports and have not paid annual fees for both the 2022 and 2023 reporting years.
“These firms include, for example, sole proprietorships that remain registered even though the sole proprietor has died; firms that registered with the board years ago but now appear to be defunct; and small firms, often in foreign countries, that cannot be reached through the primary contact person designated by the firm,” said Williams.
Those delinquencies obstruct the PCAOB’s ability to maintain an accurate list of registered firms that wish to maintain their registrations; ensure that Form 2 information is being reported to the public; collect mandatory annual fees; and use PCAOB staff time and resources efficiently.
“The amendment adopted today will not only make registration information more useful for investors, audit committees and other stakeholders, it will also improve the efficiency and effectiveness of our organization,” Williams stated.
The rule amendment would treat a PCAOB-registered firm’s failures both to file annual reports with the PCAOB and to pay annual fees to the PCAOB for at least two consecutive reporting years as a constructive request for leave to withdraw from PCAOB registration; and deem the firm’s registration withdrawn.
After the PCAOB issued the proposal in February of this year that included the amendment, the board received feedback from various commenters. While those commenters were generally supportive of the proposed amendment, the PCAOB also made changes to address stakeholder feedback. For example, the February proposal originally included a 30-day period for firms to send an email to the PCAOB’s Registration staff to stop the withdrawal process. In response to stakeholder input, the 30-day period was extended to 60 days. The February proposal also included a proposed new Rule 2400 regarding false or misleading statements concerning PCAOB registration and oversight. The PCAOB said it’s continuing to consider next steps regarding proposed Rule 2400.
PCAOB board member Christina Ho said during the meeting she had originally supported the proposal, but now has reservations about the timing.
‘Notwithstanding my support today for this ‘good housekeeping’ rule, I am deeply concerned about the possibility of the PCAOB adopting in the weeks ahead a series of ‘midnight regulations’ that could overwhelm the institutional review process, both here and at the Securities and Exchange Commission, that helps ensure that regulations have been carefully considered, are based on sound evidence, and can justify their costs,” she stated. “Moreover, correspondence from at least one member of a relevant committee of Congress has called on the federal financial regulatory agencies to suspend the proposal or promulgation of any regulations before the end of the current Administration. Modernizing our standards and rules is important, but if we rush to get things done before any changes in the composition of the Commission, we could end up wasting taxpayer dollars by adopting ill-considered rules and running our professional staff ragged while at the same time undermining the democratic process.”
Another PCAOB board member, George Botic, expressed his support for the rule amendment. “One area of focus for me over the past year has been the need for increased transparency,” he stated. “I believe that improved transparency and accessibility of PCAOB oversight activities on our website, in particular registration and inspection information, will help to better inform and equip investors, audit committee members, academics, and other stakeholders to not only understand our work but also to make better informed decisions. While I am hopeful for more efforts in this regard, I have been pleased with our work to date. Hand in hand with promoting transparency comes the responsibility to do our best to ensure that the information on the PCAOB’s website is not only accurate, but also useful and informative to a wide variety of stakeholders.”
The amendment is subject to approval by the Securities and Exchange Commission. If it’s approved by the SEC, the amended rule will take effect initially for annual reports and annual fees that are due in 2025, so a registered firm that doesn’t file an annual report and doesn’t pay an annual fee for both the 2025 and 2026 reporting years could be deemed withdrawn from registration under Rule 2107(h) starting in the fall of 2026.
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