[Federal Register Volume 69, Number 236 (Thursday, December 9, 2004)]
[Notices]
[Pages 71443-71445]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E4-3568]


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

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-50794; File No. PCAOB-2004-08]


Public Company Accounting Oversight Board; Notice of Filing and 
Order Granting Accelerated Approval of Proposed Temporary Transitional 
Rule Relating to PCAOB Auditing Standard No. 2, ``An Audit of Internal 
Control Over Financial Reporting Performed in Conjunction With an Audit 
of Financial Statements''

December 3, 2004.
    Pursuant to Section 107(b) of the Sarbanes-Oxley Act of 2002 (the 
``Act''), notice is hereby given that on December 1, 2004, the Public 
Company Accounting Oversight Board (the ``Board'' or the ``PCAOB'') 
filed with the Securities and Exchange Commission (the ``Commission'') 
the proposed rule, described in Items I and II below, which items have 
been prepared by the Board. The Commission is publishing this notice to 
solicit comments on the proposed rule from interested persons and is 
approving the proposal on an accelerated basis.

I.Board's Statement of the Terms of Substance of the Proposed Rule

    On November 30, 2004, the Board adopted a temporary transitional 
provision for PCAOB Auditing Standard No. 2, ``An Audit of Internal 
Control Over Financial Reporting Performed in Conjunction With an Audit 
of Financial Statements.'' (PCAOB Rule 3201T). The proposed rule text 
is set out below.

SECTION 3. PROFESSIONAL STANDARDS
* * * * *
Part 1--General Requirements
* * * * *
Rule 3201T. Temporary Transitional Provision for PCAOB Auditing 
Standard No. 2, ``An Audit of Internal Control Over Financial Reporting 
Performed in Conjunction With an Audit of Financial Statements.''

    (a) Notwithstanding Auditing Standard No. 2, in connection with the 
audit of an issuer that does not file Management's annual report on 
internal control over financial reporting in reliance on SEC Release 
No. 34-50754, Order Under Section 36 of the Securities Exchange Act of 
1934 Granting an Exemption from Specified Provisions of Exchange Act 
Rules 13a-1 and 15d-1 (November 30, 2004), a registered public 
accounting firm and its associated persons need not:
    (1) Date the auditor's report on management's assessment of the 
effectiveness of internal control over financial reporting with the 
same date as the auditor's report on the issuer's financial statements, 
provided that the date of the auditor's report on management's 
assessment of the effectiveness of internal control over financial 
reporting is later than the date of the auditor's report on the 
issuer's financial statements; or
    (2) Add a paragraph to the auditor's separate report on the 
financial statements of an issuer that refers to a separate report on 
management's assessment of the effectiveness of internal control over 
financial reporting.
    (b) This temporary rule will expire on July 15, 2005.

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.

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

(a) Purpose
    The Board adopted the proposed rule in response to an exemptive 
order of the Commission (the Exemptive Order).\1\ The Exemptive Order 
allows certain issuers an additional 45 days to file Management's 
annual report on internal control over financial reporting, required by 
Item 308(a) of Regulation S-K, and the related Attestation report of 
the registered public accounting firm, required by Item 308(b) of 
Regulation S-K. The proposed rule would temporarily relieve auditors, 
in connection with the audit of an issuer relying on the Exemptive 
Order, from certain provisions of PCAOB Auditing Standard No. 2, An 
Audit of Internal Control Over Financial Reporting Performed in 
Conjunction With an Audit of Financial Statements (``Auditing Standard 
No. 2''). The proposed rule would permit eligible auditors to date a 
report on management's assessment of the effectiveness of internal 
control over financial reporting later than the date of the report on 
the same issuer's financial statements. The proposed rule would also 
permit these auditors to omit reference in the auditor's separate 
report on the issuer's financial statements to the auditor's report on 
management's

[[Page 71444]]

assessment of the effectiveness of internal control over financial 
reporting.
---------------------------------------------------------------------------

    \1\ Exchange Act Release No. 50754 (Nov. 30, 2004).
---------------------------------------------------------------------------

    Specifically, Rule 3201T consists of two paragraphs. Paragraph (a) 
provides that the proposed rule would apply to registered public 
accounting firms and their associated persons in connection with the 
audit of an issuer relying on the Exemptive Order. Such auditors are 
temporarily relieved from certain provisions of Auditing Standard No. 
2, described in subparagraphs (a)(1) and (a)(2). Subparagraph (a)(1) 
permits eligible auditors to date a report on management's assessment 
of the effectiveness of internal control over financial reporting later 
than the date of the report on the same issuer's financial statements. 
Subparagraph (a)(2) permits these auditors to omit reference in the 
auditor's separate report on the issuer's financial statements to the 
auditor's report on management's assessment of the effectiveness of 
internal control over financial reporting. Paragraph (b) provides that 
the rule expires on July 15, 2005.
(b) Statutory Basis
    The statutory basis for the proposed rule is Title I of the Act.

B.Board's Statement on Burden on Competition

    The Board does not believe that the proposed rule will result in 
any burden on competition that is not necessary or appropriate in 
furtherance of the purposes of the Act. The proposed rule would 
temporarily relieve auditors, in connection with the audit of an issuer 
relying on the Exemptive Order, from certain provisions of Auditing 
Standard No. 2.

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

    The Board determined that public comment was not practicable in 
light of the timing of the Exemptive Order and the imminence of the 
filing requirements at issue.

III. 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 Act. Comments may 
be submitted by any of the following methods:

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/pcaob.shtml); or
     Send an E-mail to [email protected]. Please include 
File Number PCAOB-2004-08 on the subject line.

Paper Comments

     Send paper comments in triplicate to Jonathan G. Katz, 
Secretary, Securities and Exchange Commission, 450 Fifth Street, NW., 
Washington, DC 20549-0609.
    All submissions should refer to File Number PCAOB-2004-08. This 
file number should be included on the subject line if e-mail is used. 
To help the Commission process and review your comments more 
efficiently, please use only one method. The Commission will post all 
comments on the Commission's Internet Web site (http://www.sec.gov/rules/pcaob.shtml). 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 Section, 
450 Fifth Street, NW., Washington, DC 20549. Copies of such filing also 
will be available for inspection and copying at the principal office of 
PCAOB. All comments received will be posted without change; we do not 
edit personal identifying information from submissions. You should 
submit only information that you wish to make available publicly. All 
submissions should refer to File Number PCAOB-2004-08 and should be 
submitted on or before January 10, 2005.

IV. Commission's Finding and Order Granting Accelerated Approval of 
Proposed Rule

    The PCAOB's proposed rule is intended to address auditing issues 
attendant to the separate Commission Exemptive Order dated November 30, 
2004. Pursuant to Commission rules adopted under the Securities 
Exchange Act of 1934 (``Exchange Act''), an accelerated filer is 
generally required to submit an annual report on Form 10-K within 75 
calendar days after the end of such issuer's fiscal year. Regulation S-
K under the Exchange Act requires that an accelerated filer's Form 10-K 
include, among other things, a management assessment on internal 
control over financial reporting and an attestation report on that 
assessment by a registered public accounting firm.\2\ The Commission's 
Exemptive Order granted an exemption from these requirements for a 
period of 45 days to accelerated filers with less than $700 million in 
common equity market value outstanding as of the end of the second 
quarter of 2004 whose fiscal years end on or between November 15, 2004 
and February 28, 2005. The PCAOB's proposed rule would exempt 
registered public accounting firms from compliance with (i) the 
concurrent reporting date requirement of Auditing Standard No. 2 with 
respect to audits of issuers exempt under the Commission's Exemptive 
Order and (ii) the requirement to add a paragraph to the auditor's 
report on the financial statements that refers to the auditor's report 
on management's assessment of the effectiveness of internal control 
over financial reporting.
---------------------------------------------------------------------------

    \2\ Item 308(a) and 308(b), respectively, of Regulation S-K.
---------------------------------------------------------------------------

    As noted in the Commission's Exemptive Order, the Commission had 
become increasingly concerned that many smaller accelerated filers may 
not be in a position to meet the Form 10-K deadline. Accordingly, to 
ensure that there is a continuing and orderly flow of annual report 
information to investors and the U.S. capital markets, and to ensure 
that certain annual report filers and their registered public 
accounting firms are able to file complete and accurate reports 
regarding the effectiveness of the filers' internal control over 
financial reporting, the Commission determined that the exemptions were 
necessary and appropriate in the public interest and consistent with 
the protection of investors. The PCAOB's proposed rule is consistent 
with the substance and purpose of the Commission's order exempting 
smaller accelerated filers from the Form 10-K report deadline and it 
will assist auditors of issuers seeking to rely on the Exemptive Order. 
The proposed rule is a temporary measure and does not modify the 
substance of Auditing Standard No. 2 as originally approved by the 
Commission.
    On the basis of the foregoing, the Commission finds that the 
proposed rule is consistent with the requirements of Sections 103 and 
107(b) of the Act and the securities laws and is necessary and 
appropriate in the public interest and for the protection of investors.
    The Commission also finds good cause to approve the proposed rule 
on an accelerated basis.\3\ The Commission

[[Page 71445]]

believes that the proposed rule is an important component of the relief 
provided in the Exemptive Order, and that together the proposed rule 
and the Exemptive Order would benefit both smaller accelerated filers 
and registered public accounting firms by providing the additional time 
necessary to produce complete, thorough and accurate audits of the 
internal control structure and procedures of affected filers. The 
Commission believes that it is in the public interest to approve the 
proposed rule on an accelerated basis in order to achieve the goals set 
forth in the Commission's Exemptive Order and to avoid any confusion 
resulting from inconsistencies between Auditing Standard No. 2 and the 
Commission's Exemptive Order.
---------------------------------------------------------------------------

    \3\ Section 107(b)(4) of the Act states that paragraphs (1) 
through (3) of section 19(b) of the Exchange Act, with certain 
amendments, govern Commission approval of the rules of the Board. 
Section 19(b)(2) of the Exchange Act provides for the Commission to 
approve rules on an accelerated basis if ``the Commission finds good 
cause for so doing and publishes its reasons for so finding.''
---------------------------------------------------------------------------

    Accordingly, the Commission finds that there is good cause, 
consistent with sections 103 and 107 of the Act, and section 19(b) of 
the Exchange Act, to approve the rule on an accelerated basis.

V.Conclusion

    It is therefore ordered, pursuant to Section 107 of the Act and 
Section 19(b)(2) of the Exchange Act that the proposed rule (File No. 
PCAOB-2004-08) be and hereby is approved on an accelerated basis.

    By the Commission.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. E4-3568 Filed 12-8-04; 8:45 am]
BILLING CODE 8010-01-P