[Federal Register Volume 69, Number 98 (Thursday, May 20, 2004)]
[Notices]
[Pages 29149-29150]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-11400]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-49707; File No. PCAOB-2003-10]


Public Company Accounting Oversight Board; Order Approving 
Proposed Auditing Standard No. 1, References in Auditors' Reports to 
the Standards of the Public Company Accounting Oversight Board 
(``Auditing Standard No. 1'')

May 14, 2004.

I. Introduction

    On December 23, 2003, the Public Company Accounting Oversight Board 
(the ``Board'' or the ``PCAOB'') filed with the Securities and Exchange 
Commission (the ``Commission'') proposed Auditing Standard No. 1, 
References in Auditors'' Reports to the Standards of the Public Company 
Accounting Oversight Board (``Auditing Standard No. 1'') pursuant to 
sections 101, 103 and 107 of the Sarbanes-Oxley Act of 2002 (the 
``Act'').\1\ Auditing Standard No. 1 would require registered public 
accounting firms to refer to the standards of the PCAOB in their audit 
reports, rather than to U.S. generally accepted auditing standards, or 
``GAAS,'' as is currently the case. Notice of the proposed standard was 
published in the Federal Register on April 9, 2004,\2\ and the 
Commission received five comment letters. For the reasons discussed 
below, the Commission is granting approval of the proposed standard. 
Simultaneously with this order, the Commission also is issuing an 
interpretive release to address certain implementation issues relating 
to Auditing Standard No. 1.
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    \1\ 15 U.S.C. 7201, et seq.
    \2\ Release No. 34-49528 (April 6, 2004).
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II. Description

    The Act establishes the PCAOB to oversee the audits of public 
companies and related matters, to protect investors, and to further the 
public interest in the preparation of informative, accurate and 
independent audit reports.\3\ Section 103(a) 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. The Board has 
defined the term ``auditing and related professional practice 
standards'' to mean the standards established or adopted by the Board 
under section 103(a) of the Act.
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    \3\ Section 101(a) of the Act.
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    The Board's proposed Auditing Standard No. 1 requires that an 
auditor's report issued in connection with any engagement performed in 
accordance with the auditing and related professional practice 
standards of the PCAOB state that the engagement was performed in 
accordance with ``the standards of the Public Company Accounting 
Oversight Board (United States).'' The auditor also must include

[[Page 29150]]

in its report the city and state (or city and country, in the case of 
non-U.S. auditors) from which the auditor's report was issued.
    Audit reports currently are required to state that the audits that 
supported those reports were performed in accordance with generally 
accepted auditing standards.\4\ The PCAOB adopted those generally 
accepted auditing standards, including their respective effective 
dates, as they existed on April 16, 2003, as interim PCAOB standards. 
Therefore, changing the reference from ``generally accepted auditing 
standards'' to ``the standards of the Public Company Accounting 
Oversight Board (United States)'' does not change the substantive 
procedures performed by an auditor. Because GAAS and the standards of 
the PCAOB are one and the same for PCAOB-registered public accounting 
firms, the PCAOB believes that a reference to GAAS in auditors' reports 
would no longer be appropriate or necessary.
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    \4\ Item 2-02 (b) of Regulation S-X.
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III. Discussion

    The Commission received five comment letters in response to its 
request for comments on Auditing Standard No. 1. Several commenters 
sought clarification with respect to certain implementation issues. One 
of the issues they raised is addressed in the Commission interpretive 
release discussed below. The Commission staff is aware of the other 
issues and will consider whether any guidance is needed in the future. 
One commenter recommended that the PCAOB undertake a near-term project 
to make conforming amendments to other standards affected by Auditing 
Standard No. 1, and another suggested changes to the form of auditor's 
report that were not related to the topic of this standard. We are 
forwarding these comments to the PCAOB for its consideration in future 
standard setting. Two commenters repeated an earlier suggestion to the 
PCAOB that the auditor's report should specify that the audit was 
conducted in accordance with the auditing standards of the PCAOB rather 
than using a reference that included all PCAOB standards, including 
quality control, ethics and independence standards. In response to the 
earlier comments, the PCAOB declined to limit the categories of 
standards that might be applicable to an audit, and the Commission 
concurs with that position.
    In order to address certain issues relating to implementation of 
Auditing Standard No. 1, the Commission is issuing an interpretive 
release simultaneously with the issuance of this order. The Commission 
believes that publication of the interpretive release will assist the 
PCAOB, registrants, auditors and investors by, among other things, 
addressing certain transitional implementation issues and clarifying 
the impact of Auditing Standard No. 1 on existing references in 
Commission rules and regulations to ``generally accepted auditing 
standards.''

IV. Conclusion

    On the basis of the foregoing, the Commission finds that the 
proposed Auditing Standard No. 1 is consistent with the requirements of 
the Act and the securities laws and is necessary and appropriate in the 
public interest and for the protection of investors.
    It is thefore ordered, pursuant to section 107 of the Act and 
section 19(b)(2) of the Securities Exchange Act of 1934, that proposed 
Auditing Standard No. 1, References in Auditors' Reports to the 
Standards of the Public Company Accounting Oversight Board (File No. 
PCAOB-2003-10) be and hereby is approved.

    By the Commission.
J. Lynn Taylor,
Assistant Secretary.
[FR Doc. 04-11400 Filed 5-19-04; 8:45 am]
BILLING CODE 8010-01-P