Sign up! PCAOB outlines firm registration guidelines

by Ken Rankin

Washington - The Public Company Accounting Oversight Board voted to require registration of all public accounting firms - foreign as well as domestic - as a prerequisite for issuing audit reports on U.S. corporations. The vote agreed to be flexible with non-U.S. accountants, providing foreign auditors an additional 180 days to comply with the new guidelines.

Firms bracing for PCAOB fee structureWashington - The Big Four and other major firms will pay heavily for the privilege of being regulated by the new Public Company Accounting Oversight Board, thanks to a sliding-scale fee plan being developed by the board in order to generate income from the audit firms that it registers.
Although the PCAOB has not yet established the precise fee structure for accounting firm registrants who wish to audit publicly held U.S. corporations, it did unveil a glimpse of the system under consideration with regard to its 2003 operating budget.
"The board contemplates that the amount of an applicant's fee will be determined by a formula, and that registration fees will vary with the size of the applicant and the number of its issuer audit clients," the PCAOB said in briefing papers made public during that meeting.
Under the sliding-scale fee structure, the nation's major accounting firms could be asked to shoulder the lion's share of the cost of registering and regulating auditors by the PCAOB.
The board decided to apply a similar sliding-scale fee structure to corporations registered with the Securities and Exchange Commission - an approach that will require "large cap" companies to shell out as much as $1 million annually to support the board.
Under that plan, companies with more than $25 million of average monthly market capitalization will pay fees to fund the board's operations. Meanwhile, mutual funds exceeding $250 million in net asset value also will be charged - at rates lower than corporations, however.
Under the fiscal 2003 budget approved during the meeting, the board anticipates that almost all of its projected $68 million in revenues for the current year will come from those "accounting support fees" paid by corporations.
The bills for these fees will be mailed this month and the first collections will occur in June. (The oversight board's budget anticipates that 97 percent of SEC registrants will pay these bills.)
Although the PCAOB will also begin collecting substantial registration fees from audit firms starting this summer, that income was not included in the board's 2003 budget because the exact fee structure has not yet been determined. Fees collected from accounting firms this year "will be factored in to the determination of (and will reduce) the accounting support fee for the year 2004," the PCAOB explained.
Officials at the board said that they expect to agree on final details of the auditor registration fee structure soon, and will disclose the details to accounting firms "before the registration system is operational" in late June or early July.
The PCAOB's budget also reflects some seed money - more than $15 million - supplied by the government to cover the board's startup costs. "The board intends to fully repay the advances during the third quarter of 2003, if not before," officials said.
The biggest line item in the PCAOB's 2003 budget is payroll, with $28.9 million earmarked for salaries, benefits and payroll taxes. This amount reflects the board's "ambitious hiring plans," which call for the PCAOB to grow "from an initial headcount of eight in January, to 216 by the end of the year."
- Ken Rankin

The extra six months would allow U.S. regulators to resolve a series of prickly compliance concerns raised by foreign auditors and government officials, PCAOB member Daniel L. Goelzer said during a meeting in late April at which the board approved the rules.Although he joined the other three PCAOB members in approving plans for requiring registration of non-U.S. accounting firms, Goelzer characterized that issue as “the most controversial matter that the board has dealt with during the past four months.”

“We must be prepared to work with our foreign counterparts to find ways to accomplish our goals without subjecting foreign firms to unnecessary burdens or conflicting requirements,” he said. “The proposed 180-day deferral of foreign firm registration will afford us the opportunity to explore ways of accomplishing that goal with non-U.S. accounting oversight bodies.”

Acting chairman Charles D. Niemeier agreed that the registration of foreign firms is one of the “very hard issues” facing the board, but concluded that “our mandate to protect investors” under the Sarbanes-Oxley accounting reform law left the PCAOB with no justification for exempting non-U.S. firms.

While he acknowledged the “need to avoid unnecessary administrative burdens on public accounting firms arising from the oversight of multiple jurisdictions,” Niemeier said, “I firmly believe that auditors who participate in the preparation or issuance of audit reports for U.S. issuers should be governed by the same rules and oversight requirements.”

The board did leave a bit of wiggle room for foreign audit firms that find themselves subject to home-country legal restrictions that prohibit them from disclosing information sought by the PCAOB.

In response to concerns raised by non-U.S. accountants during a “roundtable meeting” with PCAOB members earlier this spring, the board said that it would allow accountants to withhold information if they could document that disclosure would violate non-U.S. laws.

The board’s new registration rules - which are still subject to approval by the Securities and Exchange Commission - also include provisions that:

● Entitle accounting firms to a hearing before the PCAOB if the board determines that the registration application is inaccurate or incomplete;

● Confirm that the information in these registration applications will be made publicly available “as soon as practicable” after the board approves or rejects them;

● Allow both foreign and domestic firms to request “confidential treatment of any portion of an application that contains non-public personal or proprietary information;”

● Eliminate a controversial requirement in the proposed version of the rule that would have required accounting firms to provide additional financial information about their revenue sources; and,

● Narrow the types of criminal, civil and administrative proceedings that accounting firms must disclose in their registration applications.

Under the timetable established by the PCAOB, an electronic “Web-based” registration system is expected to be ready to receive applications from accounting firms “in late June or early July 2003.” Domestic firms that wish to audit U.S. companies will have until “approximately October 24, 2003,” to complete the registration process, while foreign firms will have until “approximately April 26, 2004.”

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