[Federal Register Volume 68, Number 117 (Wednesday, June 18, 2003)]
[Notices]
[Pages 36614-36616]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-15355]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-48027; File No. PCAOB-2003-01]


Public Company Accounting Oversight Board; Notice of Filing of 
Proposed Bylaws and Amendment No. 1 Thereto

June 13, 2003.
    Pursuant to section 107(b) of the Sarbanes-Oxley Act of 2002 (the 
``Sarbanes-Oxley Act'' or ``Act''),\1\ notice is hereby given that on 
March 3, 2003, the Public Company Accounting Oversight Board (the 
``Board'' or the ``PCAOB'') filed with the Securities and Exchange 
Commission (the ``Commission'') the proposed rule as described in Items 
I, II, and III below, which items have been prepared by the Board. On 
April 30, 2003, the PCAOB filed Amendment No. 1 to the proposed rule. 
The Commission is publishing this notice to solicit comments on the 
proposed rule from interested persons.
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    \1\ 15 U.S.C. 7217(b).
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I. Board's Statement of the Terms of Substance of the Proposed Rule

    On January 9, 2003, the Board adopted its bylaws. On April 25, 
2003, the Board adopted an amendment to Article VI of the bylaws to 
specify the powers of the Chair. In general, the bylaws implement Title 
I of the Sarbanes-Oxley Act by establishing a principal office in 
Washington, DC, and by establishing the composition of a Governing 
Board, and the powers and duties of the Governing Board and officers. 
The bylaws are intended by the Board to be effective as of their 
initial adoption by a unanimous vote of the Board members. The Board is 
therefore proposing that the Commission approve the bylaws effective as 
of January 9, 2003.

II. Board's Statement of the Purpose of, and Statutory Basis for, the 
Proposed Rule

    In its filing with the Commission, the Board included statements 
concerning the purpose of, and basis for, the proposed rule and 
discussed any comments it received on the proposed rule. The text of 
these statements may be examined at the places specified in Item IV 
below. The Board has prepared summaries, set forth in sections A, B and 
C below, of the most significant aspects of such statements.

A. Board's Statement of the Purpose of, and Statutory Basis for, the 
Proposed Rule

    The Sarbanes-Oxley Act established the Board as a nonprofit 
corporation, subject to and with all the powers conferred upon a 
nonprofit corporation by the District of Columbia Nonprofit Corporation 
Act, to oversee the audits of public companies that are subject to the 
securities laws, and related matters, in order to protect the interests 
of investors and further the public interest in the preparation of 
informative, accurate, and independent audit reports for companies the 
securities of which are sold to, and held by and for, public investors.
    The Board's bylaws implement Title I of the Sarbanes-Oxley Act by 
establishing a principal office in Washington, DC, and by establishing 
the composition of a Governing Board, and the powers and duties of the 
Governing Board and officers. Among the provisions of the bylaws are 
rules for establishing a quorum and providing that an act approved by 
majority vote of the members of the Governing Board present at a 
meeting of the Board at which a quorum is present shall be an act of 
the Board. The bylaws also provide for including a recused Board member 
in the count for quorum purposes only in exigent circumstances, in 
which the Board is required to act within a limited period of time or 
in which the public interest or the protection of investors otherwise 
prevents the deferral of action until a quorum of non-recused members 
is available.
    The Board's bylaws also provide that the Governing Board shall hold 
at least one public meeting each month, on the first Tuesday of the 
month (the ``Regular Public Meeting'') or at such other time as the 
Chair shall determine. The bylaws require the Board to adopt a written 
Open Meeting Policy defining the circumstances under which meetings of 
the Board will be open to the public and to include in that Open 
Meeting Policy procedures to ensure that the public is informed, at 
least five calendar days in advance, of the time, location, and general 
topics scheduled for discussion at each Regular Public Meeting. The 
bylaws also permit the Governing Board to hold additional meetings 
(``Special Meetings''), which may be public or non-public (in 
accordance with the Open Meeting Policy), as it deems necessary or 
appropriate to further the purposes of the Sarbanes-Oxley Act. The 
bylaws require that the Open Meeting Policy set forth procedures for 
providing the public with reasonable notice of public Special Meetings, 
and they permit the Governing Board to meet by telephone, provided 
that, in the case of a public meeting, at least one Board member is 
present at the location specified in the meeting notice.
    The bylaws provide that the Chair shall also be the President and 
Chief Executive Officer of the Corporation and that the other Governing 
Board members shall also be Vice Presidents of the Corporation. Section 
6.2 of the bylaws provides that the other officers of the Corporation 
shall include a Secretary, Treasurer, General Counsel, Chief Auditor, 
Chief Administrative Officer, Director of Inspections and Registration, 
Director of Investigations and Enforcement, and such other officers as 
the Governing Board may establish in accordance with such rules of the 
Board as may be adopted for establishing officers.
    Section 6.3 of the bylaws provides that the Chief Executive Officer 
is responsible for, and has authority over, the management and 
administration of the Corporation, including: (i) Responsibility and 
authority for the appointment, dismissal, and supervision of personnel 
(other than Board members and personnel

[[Page 36615]]

employed regularly and full-time within the immediate offices of the 
Board members); (ii) the distribution of business among such personnel 
and among organizational units of the Corporation; (iii) the use and 
expenditure of funds (including the procurement of goods and services); 
and (iv) the development (for Board review) of strategic policy 
initiatives.
    The bylaws also provide that in carrying out any of the 
responsibilities under the provisions of section 6.3 of the bylaws, the 
Chief Executive Officer shall be governed by the general policies of 
the Governing Board and by such rules and decisions as the Governing 
Board may lawfully make. The bylaws also provide that the appointment 
by the Chief Executive Officer of the officers of the Corporation 
designated in and established under section 6.2 shall be subject to the 
approval of, and made in consultation with, the Governing Board. The 
bylaws also provide that the dismissal of the officers of the 
Corporation designated in and established under section 6.2 shall be 
made in consultation with the Governing Board, except that when the 
Board determines that the dismissal arises out of a conflict regarding 
the general policies of the Governing Board, it is also subject to the 
approval of the Governing Board.
    The bylaws also provide that each Board member has the 
responsibility and authority for the appointment, dismissal, and 
supervision of personnel employed regularly and full-time within the 
immediate office of the Board member. The Board member's responsibility 
and authority for these persons would be subject to the Governing 
Board's overall personnel policies.
    The bylaws also provide that the Chief Executive Officer has the 
responsibility and authority to develop, and present to the Board for 
approval, an annual budget as well as mid-year adjustments, if any. The 
bylaws further provide that there is reserved to the Governing Board 
its responsibility and authority with respect to determining the 
distribution of funds according to major programs and purposes, 
including those related to salary schedules and other conditions of 
employment.
    The bylaws also provide that no contract entered into by or on 
behalf of the Corporation shall personally obligate any employee, 
officer, or Governing Board member, including the employee, officer or 
Governing Board member authorizing or executing such a contract. 
Further, unless otherwise prohibited by law, the bylaws provide for the 
Corporation to indemnify employees, officers, and Governing Board 
members, and any former employees, officers, or Governing Board 
members, against any and all expenses and liabilities actually and 
necessarily incurred by him or her, or imposed on him or her, in 
connection with any claim, action, suit, or proceeding (whether actual 
or threatened, civil, criminal, administrative, or investigative, 
including appeals), to which he or she may be or is made a party by 
reason of being or having been an employee, officer, or Board member, 
except that there shall be no indemnification in relation to matters as 
to which the Board finds that the employee, officer, or Board member 
acted in bad faith or engaged in willful misconduct in the performance 
of a duty to the Corporation. Amounts paid in indemnification of 
expenses and liabilities may include, but shall not be limited to, 
counsel and other related fees, costs and disbursements, and judgments, 
fines and penalties against, and amounts paid in settlement by, such 
employee, officer, or Board member. The bylaws further permit the 
Corporation to advance expenses to, or where appropriate to itself, at 
its expense, undertake the defense of any employee, officer, or Board 
member, so long as the employee, officer, or Board member undertakes to 
repay or reimburse such expense if it should be ultimately determined 
that he or she is not entitled to indemnification under the bylaws.
    The bylaws also permit the Governing Board to purchase insurance on 
behalf of any employee, officer, or Governing Board member against any 
liability which may be asserted against or incurred by him or her which 
arises out of such person's status as an employee, officer, or Board 
member, whether or not the Corporation would have the power to 
indemnify such person against that liability under law.
    The bylaws permit the Governing Board to adopt such rules of the 
Corporation as it deems necessary or appropriate to discharge its 
responsibilities under the Sarbanes-Oxley Act. The bylaws also prohibit 
any capital expenditure or investment without the approval of the 
Board, except as expressly delegated by the Governing Board. Finally, 
the bylaws require the Governing Board to retain an accounting firm to 
annually audit the Corporation's financial records, which firm shall 
not perform any other services, except tax services, for the 
Corporation.
    In the event that the Commission approves the Board's bylaws, the 
Board seeks that they be approved so as to be retroactively effective 
as of January 9, 2003.

B. Board's Statement on Burden on Competition

    The proposed rule does not impose any burden on competition.

C. Board's Statement on Comments on the Proposed Rule Received From 
Members, Participants or Others

    The Board has not solicited, and does not intend to solicit, 
comments on this proposed rule. The Board has not received any 
unsolicited written comments.

III. Date of Effectiveness of the Proposed Rule and Timing for 
Commission Action

    Within 35 days of the date of publication of this notice in the 
Federal Register or within such longer period (i) as the Commission may 
designate up to 90 days of such date if it finds such longer period to 
be appropriate and publishes its reasons for so finding or (ii) as to 
which the Board consents the Commission will:
    (a) by order approve such proposed rule; or
    (b) institute proceedings to determine whether the proposed rule 
should be disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views and 
arguments concerning the foregoing, including whether the proposed rule 
is consistent with the requirements of Title I of the Sarbanes-Oxley 
Act and the Exchange Act. Persons making written submissions should 
file six copies thereof with the Secretary, Securities and Exchange 
Commission, 450 Fifth Street, NW., Washington, DC 20549-0609. Copies of 
the submission, all subsequent amendments, all written statements with 
respect to the proposed rule that are filed with the Commission, and 
all written communications relating to the proposed rule change between 
the Commission and any person, other than those that may be withheld 
from the public in accordance with the provisions of 5 U.S.C. 552, will 
be available for inspection and copying in the Commission's Public 
Reference Room in Washington, DC. Copies of such filing will also be 
available for inspection and copying at the principal office of the 
PCAOB. All submissions should refer to File No. SR-PCAOB-2003-01 and 
should be submitted by July 9, 2003.


[[Page 36616]]


    By the Commission.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 03-15355 Filed 6-17-03; 8:45 am]
BILLING CODE 8010-01-P