The Securities and Exchange Commission has
That can occur when an auditing firm fails to file annual reports with the PCAOB on Form 2 and pay annual fees for at least two consecutive reporting years. The board adopted the
"We thank our SEC colleagues for their review and approval of this rule amendment," said Chair Erica Williams in a statement Thursday. "The amendment approved today will not only make registration information more useful for investors, audit committees, and other stakeholders, it will also help our organization use its staff time and resources more efficiently and effectively. We also thank the commenters who provided us with valuable perspectives on this amendment. We look forward to monitoring its impact."
The rule amendment includes a 60-day waiting period before finalizing a firm's withdrawal, giving firms an opportunity to send notice of their intention to remain registered.
One of the sticking points among commenters involved audits of so-called emerging growth companies, and the SEC agreed with the PCAOB's position on the need to audit them. The board said that EGCs are likely to be newer companies, with audit committees that have more limited experience in managing the process for finding and selecting a PCAOB-registered public accounting firm.
"Removal of consecutively delinquent firms, that are likely to be non-existent, non-operational, or no longer wish to be registered, could help reduce the search costs associated with making this decision," said the SEC. "Further, the PCAOB indicated that it had no reason to believe that registered firms providing services to EGCs will incur costs that are greater than those incurred by firms providing services to non-EGCs, which are, in either case, likely to be incremental for operating firms that wish to remain registered. The PCAOB also noted that commenters agreed that the proposals generally should apply to audits of EGCs and that excluding the application of the proposals from audits of EGCs would be inconsistent with protecting the public interest."
The SEC found the rule amendment would establish an efficient procedural mechanism for the board to remove from registration firms that have ceased to exist, are non-operational, or no longer wish to remain registered.
"We agree that, as the PCAOB explains, the presence of continuously delinquent firms on the PCAOB's list of registered firms hinders several regulatory objectives, including its ability to maintain an accurate public record of registered public accounting firms in operation and that wish to remain registered; to ensure that the information required on annual reports is being reported to the public and the PCAOB; to collect mandatory annual fees; and to efficiently use PCAOB staff time and resources," said the SEC. "The amendment will provide the PCAOB with an efficient mechanism to achieve these regulatory goals, while, through various procedural safeguards, balancing the need for reasonable and fair notice to firms that do indeed wish to maintain their registration."
The rule change could be withdrawn by the incoming Trump administration, which has warned against any last-minute regulatory changes by the outgoing Biden administration. PCAOB member Christina Ho cited that as one reason why she opposed the rule amendment.
Outgoing SEC chair Gary Gensler, who
"I'm pleased to support this rule because it helps the PCAOB maintain an accurate public record of registered firms," he said in a statement Thursday. "The new rule states that if a firm currently registered with the PCAOB fails to both file their required annual reports and pay their annual fees for two years in a row, a formal process to withdraw their registration would begin. If a firm isn't filing statutory annual reports or paying their dues, it's logical to presume the firm is inactive. Thus, it's appropriate not to let such firms market themselves to the public as being registered with the PCAOB."
"I'm glad to see, though, that the new standard includes a 60-day waiting period before finalizing a firm's withdrawal," Gensler added. "During this time, firms will have an opportunity to send notice of their intention to remain registered."
He pointed out that there are 1,544 public accounting firms currently registered with the PCAOB. Of these, however, 80 did not file annual reports on Form 2 and did not pay annual fees for 2022 and 2023. None of the 80 firms have issued an audit report for any public company issuer between Jan. 1, 2021, and Aug. 31, 2024.
