[Federal Register Volume 68, Number 215 (Thursday, November 6, 2003)]
[Notices]
[Pages 62860-62861]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-27992]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-48730; File No. PCAOB-2003-05]


Public Company Accounting Oversight Board; Order Approving 
Proposed Rules Relating to Compliance With Auditing and Related 
Professional Practice Standards and Advisory Groups

October 31, 2003.

I. Introduction

    On July 14, 2003, the Public Company Accounting Oversight Board 
(the ``Board'' or the ``PCAOB'') filed with the Securities and Exchange 
Commission (the ``Commission'') proposed rules PCAOB-2003-05 pursuant 
to Sections 101, 103 and 107 of the Sarbanes-Oxley Act of 2002 (the 
``Act'') \1\, relating to compliance with auditing and related 
professional practice standards and to advisory groups. Notice of the 
proposed rules was published in the Federal Register on September 26, 
2003.\2\ The Commission received two comment letters. For the reasons 
discussed below, the Commission is granting approval of the proposed 
rules.
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    \1\ 15 U.S.C. 7201, et seq.
    \2\ Release No. 34-48511 (September 22, 2003); 68 FR 55667 
(September 26, 2003).
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II. Description

    Section 103 of the Act directs the PCAOB to establish auditing and 
related attestation standards, quality control standards, and ethics 
standards to be used by registered public accounting firms in the 
preparation and issuance of audit reports as required by the Act or the 
rules of the Commission. Section 103 also gives the PCAOB authority to 
convene advisory groups to assist the Board in its establishment of 
auditing and related professional practice standards.
    In furtherance of these provisions, the PCAOB proposed rules to 
define the term ``auditing and related professional practice 
standards'' (``Standards'') to mean the standards established or

[[Page 62861]]

adopted by the Board under Section 103(a) of the Act. Also, while 
implicit in the Act, the Board's proposed rules codify the requirement 
that all registered public accounting firms must comply with the 
Board's Standards. Pursuant to its authority to convene advisory groups 
and in order to obtain the advice of a broad range of experts, the 
Board's proposed rules also provide general guidelines for the creation 
of advisory groups.
    The PCAOB adopted the proposed rules on June 30, 2003 and filed 
them with the Commission's Office of the Secretary on July 14, 2003. 
Pursuant to the requirements of Section 107(b) of the Act and Section 
19(b) of the Securities Exchange Act of 1934 (the ``Exchange Act''), 
the Commission published the proposed rules for public comment on 
September 26, 2003.
    The PCAOB's proposed rules include two rules (PCAOB Rules 3100 and 
3700) and a definition that would appear in Rule 1001. Proposed PCAOB 
Rule 1001(a)(viii) defines ``auditing and related professional practice 
standards'' as the auditing standards, related attestation standards, 
quality control standards, ethical standards, and independence 
standards (including any rules implementing Title II of the Act), and 
any other professional standards, that are established or adopted by 
the Board under Section 103 of the Act. Proposed Rule 3100 codifies the 
obligation of registered public accounting firms to comply with the 
Standards. While this obligation is implicit in Section 103(a)(1) of 
the Act, adoption of Rule 3100 would mean that any registered public 
accounting firm or person associated with such a firm that fails to 
adhere to applicable Standards could be the subject of a Board 
disciplinary proceeding. Proposed Rule 3700 establishes guidelines for 
the formation, composition, and other basic matters concerning advisory 
groups that will participate in the standards-setting process. Rule 
3700 also provides that the Board may establish ad hoc task forces, the 
members of which do not necessarily have to be members of an 
established advisory group.

III. Discussion

    In a comment letter dated October 17, 2003, the National 
Association of State Boards of Accountancy (``NASBA'') urged that the 
PCAOB, in its future rulemaking and oversight of public accounting 
firms, emphasize the importance of compliance with state regulatory 
requirements. As noted in the Commission's July 16, 2003 order \3\ 
approving the PCAOB's rules for registration of public accounting 
firms, we appreciate NASBA's efforts to work with the PCAOB on auditor 
regulation and oversight, and we believe that both the PCAOB and state 
regulatory bodies will benefit from continued close cooperation. The 
second comment letter, from the accounting firm of Deloitte & Touche 
(October 17, 2003), contained suggestions for greater openness in the 
activities of the PCAOB's standing advisory group, and requested more 
notice of Board meetings, advisory group meetings and public 
roundtables. The comments in this letter also did not appear to warrant 
changes in the proposed rules.
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    \3\ Release No. 34-48180 (July 10, 2003); 68 FR 43244 (July 21, 
2003). Technical corrections in Release No. 34-48180A (July 22, 
2003); 68 FR 44370 (July 28, 2003).
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    Section 103 of the Act directs the PCAOB to establish auditing and 
related professional practice standards and empowers the PCAOB to 
convene advisory groups to assist it in fulfilling its standards-
setting responsibilities. The proposed rules will facilitate the 
Board's exercise of its standards-setting authority and establish 
guidelines for the Board's use of advisory groups in connection with 
its standards-setting activities.

IV. Conclusion

    On the basis of the foregoing, the Commission finds that the 
proposed rules are consistent with the requirements of the Act and the 
securities laws and are necessary and appropriate in the public 
interest and for the protection of investors.
    It is therefore ordered, pursuant to Section 107 of the Act and 
Section 19(b)(2) of the Exchange Act, that the proposed rules (File No. 
PCAOB-2003-05) be and hereby are approved.

    By the Commission.

Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 03-27992 Filed 11-5-03; 8:45 am]
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