Washington (July 29, 2003) -- Accounting firms that register with the Public Company Accounting Oversight Board starting next month 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 Monday, firms targeted for investigation by PCAOB as well as those facing disciplinary proceedings will not be granted freedom to unilaterally withdraw from registration.
The Sarbanes-Oxley accounting reform law requires accounting firms to register with PCAOB in order to perform audit services for public 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 PCAOB) will be granted within 60 days, under the proposed rule. But enforcement officials at the board are concerned that audit firms 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 Monday, accounting firms facing disciplinary action will be automatically barred from discontinuing registration with the board, and PCAOB will have authority to delay other requests for registration withdrawal by as much as two years.
Additionally, the proposal allows PCAOB to publicly identify any audit firm whose request for registration withdrawal has been delayed.
During a special meeting 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 PCAOB go uncorrected for one year.
Separate rules that were tentatively approved by the board propose subjecting major accounting firms to annual inspections by PCAOB, while smaller 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.
-- Ken Rankin
