SEC OKs Amendments to PCAOB Audit Inspection Rules

Jul 21st 2016
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The US Securities and Exchange Commission (SEC) has approved amendments to audit inspection rules that were proposed by the Public Company Accounting Oversight Board (PCAOB).

The amendments took effect on July 11 and make the following changes to PCAOB Rule 4003:

“Substantial role only” firms. The triennial inspection requirement for registered public accounting firms that play a substantial role in audits but don’t issue audit reports – referred to as “substantial role only” firms – has been replaced with a requirement to inspect at least 5 percent of such firms.

So, Rule 4003(b) is amended to delete references to “substantial role only” firms. Rule 4003(h) is added to require that the board will inspect at least 5 percent of such firms annually. Rule 4003(d) is amended to remove references to “substantial role only” firms.

Inspections of firms that haven’t issued audit reports in two consecutive years. Rule 4003(b) will continue to require inspections of any registered public accounting firm that issues an audit report of an issuer. But Rule 4003(e) is added to allow the PCAOB the discretion to forego the inspection of a firm that hasn’t issued any audit reports in two consecutive years.

The term “audit report” and consents to use previously issued reports. Rule 4003(d) is amended to add “with respect to an issuer” to qualify the term “audit report.” The addition clarifies that the amendments apply only to audits of issuers because after the original rule was adopted, the Dodd-Frank Act amended the Sarbanes-Oxley Act to establish PCAOB oversight of broker-dealer audits. Rule 4003(b) is amended to state that a firm’s consent to use an issuer’s previous audit report doesn’t require an inspection solely because of that.

The SEC was required to determine if the amendments also applied to emerging growth companies because Section 103(a)(3)(C) of the Sarbanes-Oxley Act states that rules adopted by the PCAOB after April 5, 2012, should not apply to audits of those companies unless the SEC determines that applying 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.”

The SEC determined that the Rule 4003 amendments apply to audits of emerging growth companies as a matter of public interest.


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