[Federal Register Volume 79, Number 33 (Wednesday, February 19, 2014)]
[Notices]
[Pages 9511-9512]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2014-03556]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-71525; File No. PCAOB-2013-02]
Public Company Accounting Oversight Board; Order Granting
Approval of Proposed Rules, Auditing Standard No. 17, Auditing
Supplemental Information Accompanying Audited Financial Statements, and
Related Amendments to PCAOB Standards
February 12, 2014.
I. Introduction
On October 30, 2013, the Public Company Accounting Oversight Board
(the ``Board'' or the ``PCAOB'') filed with the Securities and Exchange
Commission (the ``Commission''), pursuant to Section 107(b) \1\ of the
Sarbanes-Oxley Act of 2002 (the ``Sarbanes-Oxley Act'') and Section
19(b) \2\ of the Securities Exchange Act of 1934 (the ``Exchange
Act''), proposed rules to adopt Auditing Standard No. 17, Auditing
Supplemental Information Accompanying Audited Financial Statements, and
related amendments to PCAOB standards (collectively, the ``Proposed
Rules''). The Proposed Rules were published for comment in the Federal
Register on November 15, 2013.\3\ At the time the notice was issued,
the Commission designated a longer period to act on the Proposed Rules,
until February 13, 2014.\4\ The Commission received one comment letter
in response to the notice.\5\ This order approves the Proposed Rules.
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\1\ 15 U.S.C. 7217(b).
\2\ 15 U.S.C. 78s(b).
\3\ See Release No. 34-70843 (November 8, 2013), 78 FR 68872
(November 15, 2013).
\4\ Ibid.
\5\ See letter to the Commission from Deloitte & Touche LLP,
dated December 5, 2013 (``Deloitte Letter'').
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II. Description of the Proposed Rules
Auditing Standard No. 17, which would supersede PCAOB interim
auditing standard AU section 551, Reporting on Information Accompanying
the Basic Financial Statements in Auditor-Submitted Documents, applies
when the auditor of the company's financial statements is engaged to
perform audit procedures and report on supplemental information that
accompanies financial statements audited pursuant to PCAOB standards.
Such supplemental information includes:
Supporting schedules that brokers and dealers are required
to file pursuant to Exchange Act Rule 17a-5; \6\
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\6\ See 17 CFR 240.17a-5.
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Supplemental information (i) required to be presented
pursuant to the rules and regulations of a regulatory authority and
(ii) covered by an independent public accountant's report on that
information in relation to financial statements that are audited in
accordance with PCAOB standards; or
Information that is (i) ancillary to the audited financial
statements, (ii) derived from the company's accounting books and
records, and (iii) covered by an independent public accountant's report
on that information in relation to the financial statements that are
audited in accordance with PCAOB standards.
Historically, when auditors reported on supplemental information,
they often expressed their opinions on the supplemental information
``in relation to'' the basic financial statements taken as a whole.\7\
Audit procedures regarding that supplemental information generally have
been performed in conjunction with the audit of the financial
statements. The auditor's report on supplemental information under AU
sec. 551 is rooted in the concept that the supplemental information is
fairly presented ``in relation to'' the financial statements as a
whole. The Proposed Rules retain the existing ``in relation to''
language in the auditor's report; however, they also update the report
to describe the auditor's responsibilities for the supplemental
information.
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\7\ See AU sec. 551.12.
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The Proposed Rules establish procedural and reporting
responsibilities for the auditor regarding supplemental information
accompanying financial statements. Specifically, the Proposed Rules
establish:
Requirements that the auditor perform audit procedures to
test the supplemental information;
Requirements that the auditor evaluate the supplemental
information, which include evaluating (1) whether the supplemental
information, including its form and content, is fairly stated, in all
material respects, in relation to the financial statements as a whole,
and (2) whether the supplemental information is presented in
conformity, in all material respects, with the relevant regulatory
requirements or other applicable criteria;
Requirements that promote enhanced coordination between
the work performed on the supplemental information with work performed
on the financial statement audit and, if applicable, other engagements,
such as an attestation engagement for brokers and dealers; and
Reporting requirements that clearly articulate the
auditor's responsibilities when reporting on supplemental information.
As part of the Proposed Rules, the Board adopted conforming
amendments to several PCAOB standards, including superseding PCAOB
interim auditing standard AU section 551.
The Proposed Rules would be effective for audit procedures and
reports on supplemental information that accompanies financial
statements for fiscal years ending on or after June 1, 2014.
III. Comment Letters
As noted above, the Commission received one comment letter
concerning the Proposed Rules. The commenter expressed unqualified
support for the Proposed Rules, noting that they are consistent with
the Commission's amended Rule 17a-5 and are necessary to enable
auditors of brokers and dealers to comply with the requirements
therein.\8\ The commenter further noted that the requirements for
auditors included in the Proposed Rules are
[[Page 9512]]
consistent with the goal of improving the confidence of investors and
other stakeholders in the quality and consistency of supplemental
information.\9\
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\8\ See Deloitte Letter.
\9\ Ibid.
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IV. The PCAOB's EGC Request
Section 103(a)(3)(C) of the Sarbanes-Oxley Act provides that any
additional rules adopted by the PCAOB subsequent to April 5, 2012 do
not apply to the audits of emerging growth companies (``EGCs''), unless
the Commission determines that the application of such additional
requirements is necessary or appropriate in the public interest, after
considering the protection of investors and whether the action will
promote efficiency, competition, and capital formation.\10\ Having
considered those factors, and as explained further below, the
Commission finds that applying the Proposed Rules to audits of EGCs is
necessary or appropriate in the public interest.
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\10\ Section 103(a)(3)(C) of the Sarbanes-Oxley Act, as amended
by Section 104 of the Jumpstart Our Business Startups Act (the
``JOBS Act''). The term ``emerging growth company'' is defined in
Section 3(a)(80) of the Exchange Act.
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The PCAOB has proposed application of its Proposed Rules to audits
of all issuers, as applicable, including EGCs; and the PCAOB requested
that the Commission make the determination to the extent necessary
required by Section 103(a)(3)(C). To assist the Commission in making
its determination, the PCAOB prepared and submitted to the Commission
its own EGC analysis. The PCAOB's EGC analysis includes discussions of:
(1) The economic baseline for consideration of the Proposed Rules; (2)
the PCAOB's consideration of alternatives; (3) economic considerations;
and (4) characteristics of EGCs. In its analysis, the PCAOB noted that,
according to its research, the PCAOB is not aware of EGCs for which
auditors would be required to apply the Proposed Rules, but that
issuers may voluntarily file supplemental information to which the
standard could apply.
The PCAOB's EGC analysis was included in the Commission's public
notice soliciting comment on the Proposed Rules. No comments were
received on the analysis. Based on the analysis submitted, we believe
the information in the record is sufficient for us to make the EGC
determination in relation to this standard. Specifically, the PCAOB's
EGC analysis discussed its approach to developing the new standard and
its consideration of alternatives, as well as the characteristics of
EGCs and economic considerations. The Commission also takes note, in
particular, of the PCAOB's analysis which explained that the PCAOB is
not aware of EGCs for which auditors would be required to apply the
Proposed Rules, and the only entities that are currently required to
file supplemental information to which Auditing Standard No. 17 would
apply are: (1) Brokers and dealers pursuant to Rule 17a-5; and (2) Form
11-K \11\ filers that elect to file plan financial statements and
schedules prepared in accordance with the financial reporting
requirements of the Employee Retirement Income Security Act of
1974.\12\ Nonetheless, audited supplemental information can be provided
by an EGC voluntarily. Although electing to do so is rare, the
Commission believes that the Proposed Rules represent an improvement
over PCAOB interim auditing standard AU section 551 for auditing and
reporting on such information and should therefore be applied in such
circumstances. Applying the same standard to audits of EGCs who
voluntarily file supplemental information would be efficient for
issuers and auditors and because of its scalability should not
disproportionately affect EGCs.\13\ Approving the Proposed Rules for
audits of EGCs also ensures that PCAOB standards continue to include
appropriate direction for auditors when engaged to audit supplemental
information.
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\11\ 17 CFR 249.311. Form 11-K is used for annual reports
pursuant to Exchange Act Section 15(d) with respect to employee
stock purchase, savings and similar plans.
\12\ 29 U.S.C. 1001 et seq. (1974).
\13\ To the extent the Commission considers in the future to
amend filing requirements to require any new supplemental
information to which the Proposed Rules would be applicable, the
application of such requirements to EGCs could be considered in
connection with any such rulemaking.
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V. Conclusion
The Commission has carefully reviewed and considered the Proposed
Rules and the information submitted therewith by the PCAOB, including
the PCAOB's EGC analysis and the comment letter received. In connection
with the PCAOB's filing and the Commission's review,
A. The Commission finds that the Proposed Rules are consistent with
the requirements of the Sarbanes-Oxley Act and the securities laws and
are necessary or appropriate in the public interest or for the
protection of investors; and
B. Separately, the Commission finds that the application of the
Proposed Rules to EGC audits is necessary or appropriate in the public
interest, after considering the protection of investors and whether the
action will promote efficiency, competition, and capital formation.
It is therefore ordered, pursuant to Section 107 of the Act and
Section 19(b)(2) of the Exchange Act, that the Proposed Rules (File No.
PCAOB-2013-02) be and hereby are approved.
By the Commission.
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-03556 Filed 2-18-14; 8:45 am]
BILLING CODE 8011-01-P