[Federal Register Volume 69, Number 226 (Wednesday, November 24, 2004)]
[Notices]
[Pages 68434-68435]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E4-3310]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-50688; File No. PCAOB-2004-08]


Public Company Accounting Oversight Board; Order Approving 
Proposed Conforming Amendments to PCAOB Interim Standards Resulting 
From the Adoption of PCAOB Auditing Standard No. 2, ``An Audit of 
Internal Control Over Financial Reporting Performed in Conjunction With 
an Audit of Financial Statements''

November 17, 2004.

I. Introduction

    On September 16, 2004, the Public Company Accounting Oversight 
Board (the ``Board'' or the ``PCAOB'') filed with the Commission 
proposed Conforming Amendments to PCAOB Interim Standards Resulting 
From the Adoption of PCAOB Standard No. 2, ``An Audit of Internal 
Control Over Financial Reporting Performed in Conjunction With an Audit 
of Financial Statements'' (``Conforming Amendments''), pursuant to the 
Sarbanes-Oxley Act of 2002 (the ``Act'') \1\ and Section 19(b) of the 
Securities Exchange Act of 1934 (the ``Exchange Act''). The Conforming 
Amendments would change and add to the interim standards certain text, 
including references, to assist auditors in performing integrated 
audits of financial statements and internal control and would apply 
certain concepts developed in Auditing Standard No. 2 to assist an 
auditor engaged solely to audit the financial statements. Notice of the 
proposed Conforming Amendments was published in the Federal Register on 
October 13, 2004,\2\ and the Commission received two comment letters. 
For the reasons discussed below, the Commission is granting approval of 
the proposed Conforming Amendments.
---------------------------------------------------------------------------

    \1\ Sections 101, 103 and 107 of the Act.
    \2\ Release No. 34-50495 (October 5, 2004); 69 FR 60913 (October 
13, 2004).
---------------------------------------------------------------------------

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. Section 103(a)(3) 
of the Act also states that the Board may adopt any statement of 
auditing or related professional practice standards developed by a 
professional group of accountants as interim or transitional standards, 
with the Board retaining full authority to modify, supplement, revise 
or subsequently amend, modify or repeal, in whole or in part, any such 
statements. Pursuant to this authority, the PCAOB adopted the auditing 
and related professional practice standards of the American Institute 
of Certified Public Accountants, as they existed on April 16, 2003, as 
interim or transitional standards (the ``interim standards'').\4\
---------------------------------------------------------------------------

    \3\ Section 101(a) of the Act.
    \4\ The Commission approved the PCAOB's action in Release No. 
34-47745, Order Regarding Section 103(a)(3)(B) of the Sarbanes-Oxley 
Act of 2002, (April 25, 2003).
---------------------------------------------------------------------------

    The proposed Conforming Amendments specifically identify changes to 
the interim standards as a result of adopting PCAOB Auditing Standard 
No. 2. The identification of such changes is intended to help auditors 
comply with the Board's standards, as well as to eliminate potential 
confusion and inconsistencies in interpretation with respect to the 
affected portions of the Board's interim standards.
    The Conforming Amendments also supersede AT Section 501, Reporting 
on an Entity's Internal Control Over Financial Reporting (``AT 501'') 
\5\ and SAS No. 60, Communication of Internal Control Related Matters 
Noted in an Audit (``SAS No. 60'').\6\ AT 501 provides guidance for 
performing an attestation engagement to issue an examination report on 
the effectiveness of an entity's internal control over financial 
reporting as of a point in time. The Board believes

[[Page 68435]]

that Auditing Standard No. 2 is a superior standard to its predecessor 
attestation standard, AT 501, and the proposal would supersede AT 501, 
effective immediately upon approval of the Conforming Amendments by the 
Commission. SAS No. 60 provides guidance in identifying and 
communicating conditions that relate to a company's internal control 
observed during an audit of the financial statements. SAS No. 60 for 
integrated audits (i.e., audits of both financial statements and 
internal control over financial reporting) would be replaced by 
portions of Auditing Standard No. 2, and the proposal also would amend 
SAS 60 as it applies to financial statement only audits.
---------------------------------------------------------------------------

    \5\ Statements on Standards for Attestation Engagements (``AT'') 
are codified into the AICPA Professional Standards, volume 1.
    \6\ Statements on Auditing Standards (``SAS'') are codified into 
the AICPA Professional Standards, volume 1.
---------------------------------------------------------------------------

    The proposed Conforming Amendments have multiple effective dates. 
The amendments that affect integrated audits for accelerated filers 
would be effective for fiscal years ending on or after November 15, 
2004 (i.e., at the same time as Auditing Standard No. 2 for integrated 
audits of accelerated filers that are subject to the Commission's rules 
implementing Section 404 \7\ of the Act). Those amendments that affect 
audits of financial statements only and those that affect integrated 
audits of non-accelerated filers subject to the Commission's rules 
implementing Section 404 of the Act would be effective for fiscal years 
ending on or after July 15, 2005. Finally, the superseding of AT 501 
would be effective immediately upon approval by the Commission.
---------------------------------------------------------------------------

    \7\ See Release No. 33-8238 (June 5, 2003) [68 FR 36636] and 
Release No. 33-8392 (February 24, 2004) [69 FR 9722].
---------------------------------------------------------------------------

III. Discussion

    The Commission's comment period on the Proposed Standard ended on 
November 3, 2004, with the Commission receiving two comment letters. 
The comment letters came from two registered public accounting firms.
    Both commenters expressed support for Commission approval of the 
Conforming Amendments.

IV. Conclusion

    On the basis of the foregoing, the Commission finds that proposed 
Conforming Amendments 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 Conforming 
Amendments to PCAOB Interim Standards Resulting From the Adoption of 
PCAOB Standard No. 2, ``An Audit of Internal Control Over Financial 
Reporting Performed in Conjunction With an Audit of Financial 
Statements'' (File No. PCAOB-2004-08), be and hereby are approved.

    By the Commission.
J. Lynn Taylor,
Assistant Secretary.
 [FR Doc. E4-3310 Filed 11-23-04; 8:45 am]
BILLING CODE 8010-01-P