by Ken Rankin

Washington - Accounting firms that register with the Public Company Accounting Oversight Board won’t necessarily be allowed to withdraw that registration at a later date, even if they cease their auditing activities.

Under a new rule proposed by the board, firms targeted for investigation by the PCAOB, as well as those facing disciplinary proceedings, would not be granted the freedom to unilaterally withdraw from registration.

The Sarbanes-Oxley corporate reform law, which recently marked its first anniversary, requires accounting firms to register with the PCAOB in order to perform audit services for publicly held companies.

In order to avoid discouraging smaller accounting firms from discontinuing their auditing activities, PCAOB officials are committed to making both the registration process and the procedures for withdrawing that registration “as painless as possible.”

Generally, requests from firms to withdraw from registration (and regulation by the PCAOB) will be granted within 60 days, under the proposed rule. But enforcement officials at the board are concerned that audit firms that are under investigation for wrongdoing will use registration withdrawal as an escape hatch to avoid PCAOB fines or other sanctions.

Under the rule proposed for public comment, accounting firms facing disciplinary action will be automatically barred from discontinuing registration with the board, and the PCAOB would have the authority to delay other requests for registration withdrawal by as much as two years.

Additionally, the proposal allows the PCAOB to publicly identify any audit firm whose request for registration withdrawal has been delayed.

During a meeting last month in Washington, the board also proposed new rules for conducting investigations and disciplinary proceedings against registered accounting firms and accountants. Under that proposal, disciplinary hearings involving accountants will be non-public, and the identities of firms accused of wrongdoing will not be disclosed unless the “criticisms or defects” identified by the PCAOB go uncorrected for one year.

The board would be able to issue reports outlining any problems that are discovered as a result of the inspections of the firms, while keeping the identity of the firm anonymous for the agreed-upon time frame of one year to correct the violations.

The board has the power to levy fines on, censure or suspend accounting firms, and also is empowered to appoint an independent monitor to ensure that a firm achieves compliance.

This year, the board will implement inspections of the Big Four firms.

Separate rules that were tentatively approved by the board propose to subject major accounting firms to annual inspections by the PCAOB, while smaller accounting firms with fewer than 100 audit clients will undergo inspections once every three years.

The proposed rules are subject to public comment and to approval by the Securities and Exchange Commission.

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