[Federal Register Volume 79, Number 22 (Monday, February 3, 2014)]
[Notices]
[Pages 6272-6327]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2014-00271]



[[Page 6271]]

Vol. 79

Monday,

No. 22

February 3, 2014

Part II





Securities and Exchange Commission





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Public Company Accounting Oversight Board; Notice of Filing of Proposed 
Rules on Amendments To Conform the Board's Rules and Forms to the Dodd-
Frank Act and Make Certain Updates and Clarifications; Notice

  Federal Register / Vol. 79 , No. 22 / Monday, February 3, 2014 / 
Notices  

[[Page 6272]]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-71237; File No. PCAOB-2013-03)


Public Company Accounting Oversight Board; Notice of Filing of 
Proposed Rules on Amendments To Conform the Board's Rules and Forms to 
the Dodd-Frank Act and Make Certain Updates and Clarifications

January 6, 2014.
    Pursuant to Section 107(b) of the Sarbanes-Oxley Act of 2002 (the 
``Act''), notice is hereby given that on December 23, 2013, the Public 
Company Accounting Oversight Board (the ``Board'' or the ``PCAOB'') 
filed with the Securities and Exchange Commission (the ``Commission'') 
the proposed rules 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 rules from interested persons.

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

    On December 4, 2013, the Board adopted amendments to conform the 
Board's rules and forms to the Dodd-Frank Wall Street Reform and 
Consumer Protection Act (the ``Dodd-Frank Act'') and make certain 
updates and clarifications (collectively, the ``proposed rules''). The 
text of the proposed rules is set out below.

Amendments to Board Rules, Interim Quality Control Standards, and 
Ethics Code

    The Board is amending Sections 1, 2, 3, 4, 5, and 7 of its rules, 
Sections 1000.08(m) and 1000.43, Appendix I of the Interim Quality 
Control Standards, and its Ethics Code as set out below. Language 
deleted by these amendments is bracketed. Language that is added is set 
in Italic.

Rules of the Board

SECTION 1. GENERAL PROVISIONS

Rule 1001. Definitions of Terms Employed in Rules

    When used in the Rules, unless the context otherwise requires:
* * * * *
(a)(v) Audit
    The term ``audit'' means an examination of the financial 
statements, reports, documents, procedures, controls, or notices of any 
issuer, broker, or dealer by an independent public accounting firm in 
accordance with the rules of the Board or the Commission [(or, for the 
period preceding the adoption of applicable Rules of the Board under 
Section 103 of the Act, in accordance with then applicable generally 
accepted auditing standards for such purposes)], for the purpose of 
expressing an opinion on the financial [such] statements or providing 
an audit report.
    [Note: Effective [insert effective date of Rule 4020T], pursuant to 
Rule 4020T, when used in Rule 3502, Section 5 of the Rules of the 
Board, or the definition of ``disciplinary proceeding'' in Rule 
1001(d)(i), the term ``audit'' has the meaning provided in Section 110 
of the Act.]
(a)(vi) Audit Report
    The term ``audit report'' means a document, report, notice, or 
other record--
    (1) prepared following an audit performed for purposes of 
compliance by an issuer, broker, or dealer with the requirements of the 
securities laws; and
    (2) in which a public accounting firm either--
    (i) sets forth the opinion of that firm regarding a financial 
statement, report, notice, or other document, procedures, or controls; 
or
    (ii) asserts that no such opinion can be expressed.

    [Note: Effective [insert effective date of Rule 4020T], pursuant to 
Rule 4020T, when used in Rule 3502, Section 5 of the Rules of the 
Board, or the definition of ``disciplinary proceeding'' in Rule 
1001(d)(i), the term ``audit report'' has the meaning provided in 
Section 110 of the Act.]
(a)(vii) Audit Services
    (1) With respect to issuers, t[T]he term ``audit services'' means 
professional services rendered for the audit of an issuer's annual 
financial statements, and (if applicable) for the reviews of an 
issuer's financial statements included in the issuer's quarterly 
reports or services that are normally provided by the accountant in 
connection with statutory and regulatory filings or engagements for 
those fiscal years;[.]
    (2) With respect to brokers and dealers, the term ``audit 
services'' means professional services rendered for the audit of a 
broker's or dealer's annual financial statements, supporting schedules, 
supplemental reports, and for the report on either a broker's or 
dealer's compliance report or exemption report, as described in Rule 
17a-5(g) under the Exchange Act.
(f)(iii) Foreign Auditor Oversight Authority
    The term ``foreign auditor oversight authority'' means any 
governmental body or other entity empowered by a foreign government to 
conduct inspections of public accounting firms or otherwise to 
administer or enforce laws related to the regulation of public 
accounting firms.
* * * * *
(n)(i) Reserved
* * * * *
(o)(i) Other Accounting Services
    The term ``other accounting services'' means assurance and related 
services that are reasonably related to the performance of the audit or 
review of the [issuer's] client's financial statements, other than 
audit services.
* * * * *
    (p)(i) Person Associated With a Public Accounting Firm (and Related 
Terms)
    The terms ``person associated with a public accounting firm'' (or 
with a ``registered public accounting firm'' or ``applicant'') and 
``associated person of a public accounting firm'' (or of a ``registered 
public accounting firm'' or ``applicant'') mean any individual 
proprietor, partner, shareholder, principal, accountant, or 
professional employee of a public accounting firm, or any independent 
contractor or entity that, in connection with the preparation or 
issuance of any audit report--
    (1) shares in the profits of, or receives compensation in any other 
form from, that firm; or
    (2) participates as agent or otherwise on behalf of such accounting 
firm in any activity of that firm;
provided, however, that these terms do not include a person engaged 
only in clerical or ministerial tasks, or, for purposes of completing a 
registration application on Form 1, Part IX of an annual report on Form 
2, or Part IV of a Form 4 filed to succeed to the registration status 
of a predecessor, these terms do not include [or] a person whom the 
public accounting firm reasonably believes is a person primarily 
associated with another registered public accounting firm.

    Note: Section 2(a)(9)(C) of the Act provides that, for purposes of, 
among other things, Section 105 of the Act, and the Board's rules 
thereunder, the terms defined in Rule 1001(p)(i) shall include any 
person associated, seeking to become associated, or formerly associated 
with a public accounting firm, except that:

    (1) the authority to conduct an investigation of such person under 
Section 105(b) of the Act shall apply only with respect to any act or 
practice, or omission to act, by the person while such person was 
associated or seeking

[[Page 6273]]

to become associated with a registered public accounting firm; and
    (2) the authority to commence a disciplinary proceeding under 
Section 105(c)(1) of the Act, or impose sanctions against such person 
under Section 105(c)(4) of the Act, shall apply only with respect to:
    (i) conduct occurring while such person was associated or seeking 
to become associated with a registered public accounting firm; or
    (ii) non-cooperation, as described in Section 105(b)(3) of the Act, 
with respect to a demand in a Board investigation for testimony, 
documents, or other information relating to a period when such person 
was associated or seeking to become associated with a registered public 
accounting firm.
(p)(ii) Play a Substantial Role in the Preparation or Furnishing of an 
Audit Report
    The phrase ``play a substantial role in the preparation or 
furnishing of an audit report'' means--
    (1) to perform material services that a public accounting firm uses 
or relies on in issuing all or part of its audit report [with respect 
to any issuer], or
    (2) to perform the majority of the audit procedures with respect to 
a subsidiary or component of any issuer, broker, or dealer, the assets 
or revenues of which constitute 20% or more of the consolidated assets 
or revenues of such issuer, broker, or dealer necessary for the 
principal auditor [accountant] to issue an audit report [on the 
issuer].

    Note 1: For purposes of paragraph (1) of this definition, the term 
``material services'' means services, for which the engagement hours or 
fees constitute 20% or more of the total engagement hours or fees, 
respectively, provided by the principal auditor [accountant] in 
connection with the issuance of all or part of its audit report [with 
respect to any issuer]. The term does not include non-audit services 
provided to non-audit clients.

    Note 2: For purposes of paragraph (2) of this definition, the 
phrase ``subsidiary or component'' is meant to include any subsidiary, 
division, branch, office or other component of an issuer, broker, or 
dealer, regardless of its form of organization and/or control 
relationship with the issuer, broker, or dealer.

    Note 3: For purposes of determining ``20% or more of the 
consolidated assets or revenues'' under paragraph (2) of this Rule, 
this determination should be made at the beginning of the issuer's, 
broker's, or dealer's fiscal year using prior year information and 
should be made only once during the issuer's, broker's, or dealer's 
fiscal year.
* * * * *
(p)[(iii)](v) Party
    The term ``party'' means the interested division, any person named 
as a respondent in an order instituting proceedings or notice of a 
hearing, any applicant named in the caption of any order, or any person 
seeking Board review of a decision.
* * * * *
(p)(vi) Professional Standards
    The term ``professional standards'' means--
    (A) accounting principles that are--
    (i) established by the standard setting body described in section 
19(b) of the Securities Act [of 1933, as amended by the Act], or 
prescribed by the Commission under section 19(a) of the Securities Act 
[of 1933] or section 13(b) of the [Securities] Exchange Act [of 1934]; 
and
    (ii) relevant to audit reports for particular issuers, brokers, or 
dealers, or dealt with in the quality control system of a particular 
registered public accounting firm; and
    (B) auditing standards, standards for attestation engagements, 
quality control policies and procedures, ethical and competency 
standards, and independence standards (including rules implementing 
Title II of the Act) that the Board or the Commission determines--
    (i) relate to the preparation or issuance of audit reports for 
issuers, brokers, or dealers; and
    (ii) are established or adopted by the Board under section 103(a) 
of the Act, or are promulgated as rules of the Commission.

    [Note: Effective [insert effective date of Rule 4020T], pursuant to 
Rule 4020T, when used in Rule 3502, Section 5 of the Rules of the 
Board, or the definition of ``disciplinary proceeding'' in Rule 
1001(d)(i), the term ``professional standards'' has the meaning 
provided in Section 110 of the Act.]
* * * * *
(s)[(iii)](vi) Secretary
    The term ``Secretary'' means the Secretary of the Board.
(s)(iv) Suspension
    The term ``suspension'' means a temporary disciplinary sanction, 
which lapses by its own terms, prohibiting--
    (1) a registered public accounting firm from preparing or issuing, 
or participating in the preparation or issuance of, any audit report 
[with respect to any issuer]; or
    (2) a person from being associated with a registered public 
accounting firm.
* * * * *

SECTION 2. REGISTRATION AND REPORTING

Part 1--Registration of Public Accounting Firms

Rule 2100. Registration Requirements for Public Accounting Firms

    [Effective October 22, 2003 (or, for foreign public accounting 
firms, July 19, 2004),] E[e]ach public accounting firm that--
    (a) prepares or issues any audit report with respect to any issuer, 
broker, or dealer; or
    (b) plays a substantial role in the preparation or furnishing of an 
audit report with respect to any issuer, broker, or dealer must be 
registered with the Board.

    Note 1: As set forth in Section 106(a)(1) of the Act, registration 
with the Board pursuant to this Rule will not by itself provide a basis 
for subjecting a foreign public accounting firm to the jurisdiction of 
the U.S. federal or State courts, other than with respect to 
controversies between such firms and the Board.
    Note 2: The issuance of a consent to include an audit report for a 
prior period by a public accounting firm, which does not currently have 
and does not expect to have an engagement with an issuer, broker, or 
dealer to prepare or issue, or to play a substantial role in the 
preparation or furnishing of an audit report with respect to any 
issuer, broker, or dealer will not by itself require a public 
accounting firm to register under Rule 2100.

Rule 2106. Action on Applications for Registration.

(a) Standard for Approval.
    After reviewing the application for registration, any additional 
information provided by the applicant, and any other information 
obtained by the Board, the Board will determine whether approval of the 
application for registration is consistent with the Board's 
responsibilities under the Act to protect the interests of investors 
and to 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].
* * * * *

[[Page 6274]]

Rule 2107. Withdrawal from Registration

* * * * *
(d) Board Action
    Within 60 days of Board receipt of a completed Form 1-WD, the Board 
may order that withdrawal of registration be delayed for a period of up 
to eighteen months from the date of such receipt if the Board 
determines that such withdrawal would be inconsistent with the Board's 
responsibilities under the Act, including its responsibilities to 
conduct--
    (1) inspections to assess the degree of compliance of each 
registered public accounting firm and associated persons of that firm 
with the Act, the rules of the Board, the rules of the Commission, or 
professional standards, in connection with its performance of audits, 
issuance of audit reports, and related matters involving issuers, 
brokers, or dealers; or
* * * * *

SECTION 3. AUDITING AND RELATED PROFESSIONAL PRACTICE STANDARDS

Part 1--General Requirements

Rule 3101. Certain Terms Used in Auditing and Related Professional 
Practice Standards

* * * * *
    [(c) The documentation requirement in paragraph (a)(2) is effective 
for audits of financial statements or other engagements with respect to 
fiscal years ending on or after November 15, 2004.]

Rule 3200T. Interim Auditing Standards

    In connection with the preparation or issuance of any audit report, 
a registered public accounting firm, and its associated persons, shall 
comply with generally accepted auditing standards, as described in the 
AICPA Auditing Standards Board's Statement of Auditing Standards No. 
95, as in existence on April 16, 2003 (Codification of Statements on 
Auditing Standards, AU Sec.  150 (AICPA 2002)), to the extent not 
superseded or amended by the Board.
    [Note: Under Section 102(a) of the Act, public accounting firms are 
not required to be registered with the Board until 180 days after the 
date of the determination of the Commission under section 101(d) that 
the Board has the capacity to carry out the requirements of Title I of 
the Act (the ``mandatory registration date''). The Board intends that, 
during the period preceding the mandatory registration date, the 
Interim Auditing Standards apply to public accounting firms that would 
be required to be registered after the mandatory registration date and 
to associated persons of those firms, as if those firms were registered 
public accounting firms.]

[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.]

Rule 3300T. Interim Attestation Standards

    In connection with an engagement (i) described in the AICPA's 
Auditing Standards Board's Statement on Standards for Attestation 
Engagements No. 10 (Codification of Statements on Auditing Standards, 
AT Sec.  101.01 (AICPA 2002)) and (ii) related to the preparation or 
issuance of audit reports [for issuers], a registered public accounting 
firm, and its associated persons, shall comply with the AICPA Auditing 
Standards Board's Statements on Standards for Attestation Engagements, 
and related interpretations and Statements of Position, as in existence 
on April 16, 2003, to the extent not superseded or amended by the 
Board.

    [Note: The Board intends that, during the period preceding the 
mandatory registration date, the Interim Attestation Standards apply to 
public accounting firms that would be required to be registered after 
the mandatory registration date and to associated persons of those 
firms, as if those firms were registered public accounting firms.]

Rule 3400T. Interim Quality Control Standards

    A registered public accounting firm, and its associated persons, 
shall comply with quality control standards, as described in--
    (a) the AICPA's Auditing Standards Board's Statements on Quality 
Control Standards, as in existence on April 16, 2003 (AICPA 
Professional Standards, QC Sec. Sec.  20-40 (AICPA 2002)), to the 
extent not superseded or amended by the Board; and
    (b) the AICPA SEC Practice Section's Requirements of Membership 
(d), [(f)(first sentence),] (l), (m), (n)(1) and (o), as in existence 
on April 16, 2003 (AICPA SEC Practice Section Manual Sec.  1000.08(d), 
[(f),] (j), (m), (n)(1) and (o)), to the extent not superseded or 
amended by the Board.

    Note: The AICPA SEC Practice Section's Requirements of Membership 
only apply to those registered public accounting firms that were 
members of the AICPA SEC Practice Section on April 16, 2003.
    [Note: The second sentence of requirement (f) of the AICPA SEC 
Practice Section's Requirements of Membership provided for the AICPA's 
peer review committee to ``authorize alternative procedures'' when the 
requirement for a concurring review could not be met because of the 
size of the firm. This provision is not adopted as part of the Board's 
Interim Quality Control Standards. After the effective date of the 
Interim Quality Control Standards, requests for authorization of 
alternative procedures to a concurring review may, however, be directed 
to the Board.]

    [Note: The Board intends that, during the period preceding the 
mandatory registration date, the Interim Quality Control Standards 
apply to public accounting firms that would be required to be 
registered after the mandatory registration date and to associated 
persons of those firms, as if those firms were registered public 
accounting firms.]

Part 5--Ethics and Independence

Rule 3500T. Interim Ethics and Independence Standards

    (a) In connection with the preparation or issuance of any audit 
report, a

[[Page 6275]]

registered public accounting firm, and its associated persons, shall 
comply with ethics standards, as described in the AICPA's Code of 
Professional Conduct Rule 102, and interpretations and rulings 
thereunder, as in existence on April 16, 2003 (AICPA Professional 
Standards, ET Sec. Sec.  102 and 191 (AICPA 2002)), to the extent not 
superseded or amended by the Board.

    [Note: The Board intends that, during the period preceding the 
mandatory registration date, the Interim Ethics Standards apply to 
public accounting firms that would be required to be registered after 
the mandatory registration date and to associated persons of those 
firms, as if those firms were registered public accounting firms.]
    (b) In connection with the preparation or issuance of any audit 
report, a registered public accounting firm, and its associated 
persons, shall comply with independence standards--
    (1) as described in the AICPA's Code of Professional Conduct Rule 
101, and interpretations and rulings thereunder, as in existence on 
April 16, 2003 (AICPA Professional Standards, ET Sec. Sec.  101 and 191 
(AICPA 2002)), to the extent not superseded or amended by the Board; 
and
    (2) Standards Nos. 2 and 3, and Interpretation 99-1 of the 
Independence Standards Board, to the extent not superseded or amended 
by the Board.
    Note: The Board's Interim Independence Standards do not supersede 
the Commission's auditor independence rules. See Rule 2-01 of Reg. S-X, 
17 CFR 210.2-01. Therefore, to the extent that a provision of the 
Commission's rule is more restrictive--or less restrictive--than the 
Board's Interim Independence Standards, a registered public accounting 
firm must comply with the more restrictive rule.

Rule 3501. Definitions of Terms Employed in Section 3, Part 5 of the 
Rules

    When used in Section 3, Part 5 of the Rules, unless the context 
otherwise requires:
* * * * *
(a)(v) Audit Committee
    The term ``audit committee'' means a committee (or equivalent body) 
established by and among the board of directors of an entity for the 
purpose of overseeing the accounting and financial reporting processes 
of the entity and audits of the financial statements of the entity; if 
no such committee exists with respect to the entity, the entire board 
of directors of the entity. For audits of non-issuers, if no such 
committee or board of directors (or equivalent body) exists with 
respect to the entity, ``audit committee'' means the person(s) who 
oversee(s) the accounting and financial reporting processes of the 
entity and audits of the financial statements of the entity.
* * * * *
(i)(ii) Investment Company Complex
    (1) The term ``investment company complex'' includes--
* * * * *
    (iii) Any investment company or entity that would be an investment 
company but for the exclusions provided by section 3(c) of the 
Investment Company Act [of 1940] (15 U.S.C. Sec.  80a-(c)) that has an 
investment adviser or sponsor included in this definition by either 
paragraph (i) or (ii) of this definition.
* * * * *
Subpart 1--Independence

Rule 3520. Auditor Independence

    A registered public accounting firm and its associated persons must 
be independent of the firm's audit client throughout the audit and 
professional engagement period.

    Note 1: Under Rule 3520, a registered public accounting firm or 
associated person's independence obligation with respect to an audit 
client [that is an issuer] encompasses not only an obligation to 
satisfy the independence criteria applicable to the engagement set out 
in the rules and standards of the PCAOB, but also an obligation to 
satisfy all other independence criteria applicable to the engagement, 
including the independence criteria set out in the rules and 
regulations of the Commission under the federal securities laws.

    Note 2: Rule 3520 applies only to those associated persons of a 
registered public accounting firm required to be independent of the 
firm's audit client by standards, rules or regulations of the Board or 
Commission or other applicable independence criteria.

Rule 3523. Tax Services for Persons in Financial Reporting Oversight 
Roles

    A registered public accounting firm is not independent of an issuer 
[its] audit client if the firm, or any affiliate of the firm, during 
the professional engagement period provides any tax service to a person 
in a financial reporting oversight role at the issuer audit client, or 
an immediate family member of such person, unless--
    (a) the person is in a financial reporting oversight role at the 
issuer audit client only because he or she serves as a member of the 
board of directors or similar management or governing body of the audit 
client;
    (b) the person is in a financial reporting oversight role at the 
issuer audit client only because of the person's relationship to an 
affiliate of the entity being audited--
    (1) whose financial statements are not material to the consolidated 
financial statements of the entity being audited; or
    (2) whose financial statements are audited by an auditor other than 
the firm or an associated person of the firm; or
    (c) the person was not in a financial reporting oversight role at 
the issuer audit client before a hiring, promotion, or other change in 
employment event and the tax services are--
    (1) provided pursuant to an engagement in process before the 
hiring, promotion, or other change in employment event; and
    (2) completed on or before 180 days after the hiring or promotion 
event.

    Note: In an engagement for an issuer audit client whose financial 
statements for the first time will be required to be audited pursuant 
to the standards of the PCAOB, the provision of tax services to a 
person covered by Rule 3523 before the earlier of the date that the 
firm: (1) signed an initial engagement letter or other agreement to 
perform an audit pursuant to the standards of the PCAOB, or (2) began 
procedures to do so, does not impair a registered public accounting 
firm's independence under Rule 3523.

Rule 3524. Audit Committee Pre-approval of Certain Tax Services

    In connection with seeking audit committee pre-approval to perform 
for an issuer audit client any permissible tax service, a registered 
public accounting firm shall--
* * * * *

Rule 3525. Audit Committee Pre-approval of Non-audit Services Related 
to Internal Control Over Financial Reporting

    In connection with seeking audit committee pre-approval to perform 
for an issuer audit client any permissible non-audit service related to 
internal control over financial reporting, a registered public 
accounting firm shall--
* * * * *

[Rule 3600T. Interim Independence Standards.]

    [In connection with the preparation or issuance of any audit 
report, a registered

[[Page 6276]]

public accounting firm, and its associated persons, shall comply with 
independence standards]--
    [(a) as described in the AICPA's Code of Professional Conduct Rule 
101, and interpretations and rulings thereunder, as in existence on 
April 16, 2003 (AICPA Professional Standards, ET Sec. Sec.  101 and 191 
(AICPA 2002)), to the extent not superseded or amended by the Board; 
and]
    [(b) Standards Nos. 1, 2, and 3, and Interpretations 99-1, 00-1, 
and 00-2, of the Independence Standards Board, to the extent not 
superseded or amended by the Board.]

    [Note: The Board's Interim Independence Standards do not supersede 
the Commission's auditor independence rules. See, e.g., Rule 2-01 of 
Reg. S-X, 17 CFR 240.2-01. Therefore, to the extent that a provision of 
the Commission's rule is more restrictive--or less restrictive--than 
the Board's Interim Independence Standards, a registered public 
accounting firm must comply with the more restrictive rule.]

    [Note: The Board intends that, during the period preceding the 
mandatory registration date, the Interim Independence Standards apply 
to public accounting firms that would be required to be registered 
after the mandatory registration date and to associated persons of 
those firms, as if those firms were registered public accounting 
firms.]

Part 7--Establishment of Professional Standards

Rule 3700. Advisory Groups

* * * * *
(c) Selection of Members of Advisory Groups.
    Members of advisory groups will be selected by the Board, in its 
sole discretion, based upon nominations, including self-nominations, 
received from any person or organization.

    Note: The Board will announce, from time to time, periods during 
which it will receive nominations to an advisory group. During those 
periods, nominations may be submitted by any person or organization, 
including, but not limited to, any investor, any accounting firm, any 
issuer, broker, dealer, and any institution of higher learning.
* * * * *

SECTION 4. INSPECTIONS

Rule 4009. Firm Response to Quality Control Defects

* * * * *
    (d) The portions of the Board's inspection report that deal with 
criticisms of or potential defects in quality control systems that the 
firm has not addressed to the satisfaction of the Board shall be made 
public by the Board--
    (1) upon the expiration of the 12-month period described in 
paragraph (a) of this rule if the firm fails to make any submission 
pursuant to paragraph (a); or
    (2) upon the expiration of the period in which the firm may seek 
Commission review of any board determination made under paragraph (c) 
of this rule, if the firm does not seek Commission review of the Board 
determination; or
    (3) in the event the firm requests Commission review of the 
determination, upon completion of the Commission's processes related to 
that request unless otherwise directed by the Commission [unless 
otherwise directed by Commission order or rule, 30 days after the firm 
formally requests Commission review pursuant to Section 104(h)(1)(B) of 
the Act].

Rule 4020T. Interim Inspection Program Related to Audits of Brokers and 
Dealers

* * * * *
(b) Definitions
    When used in this rule, the term ``interim program,'' means the 
interim program of inspection described in paragraph (c). [When used in 
this rule, Rule 3502, Section 5 of the Rules of the Board, or the 
definition of ``disciplinary proceeding'' in Rule 1001(d)(i), the terms 
``audit,'' ``audit report,'' and ``professional standards'' have the 
meaning provided in Section 110 of the Act.]
* * * * *

SECTION 5. INVESTIGATIONS AND ADJUDICATIONS

Part 1--Inquiries and Investigations

Rule 5102. Testimony of Registered Public Accounting Firms and 
Associated Persons in Investigations

* * * * *
(c) Conduct of Examination
* * * * *
(4) Examinations of Registered Public Accounting Firms
    A registered public accounting firm subject to an accounting board 
demand shall designate one or more individuals who consent to testify 
on its behalf, and shall [may] set forth, for each individual 
designated, the matters on which the individual will testify. The 
individuals so designated shall testify as to matters known or 
reasonably available to the registered public accounting firm.
* * * * *

Rule 5105. Requests for Testimony or Production of Documents from 
Persons Not Associated With Registered Public Accounting Firms

(a) Testimony
    The Board, and the staff of the Board designated in an order of 
formal investigation, may issue an accounting board request for the 
testimony of any person, including any client of a registered public 
accounting firm, that the Board considers relevant or material to an 
investigation.
(1) Requests for Testimony
    An accounting board request for testimony pursuant to subparagraph 
(a) of this Rule shall--
* * * * *
    (iii) if the person to be examined is an issuer, broker, dealer, 
partnership, [an] association, [a] governmental agency, or other 
organized entity, provide a description with reasonable particularity 
of the matters on which examination is requested.
(2) Conduct of Examination and Transcript
    An examination requested pursuant to this Rule shall be conducted 
consistent with Rules 5102(c) and a transcript shall be prepared 
consistent with Rule 5102(d). If the person to be examined is an 
issuer, broker, dealer, [or a] partnership, [or] association, or 
governmental agency, the person to be examined shall designate one or 
more individuals who consent to testify on its behalf and [may] shall 
set forth, for each individual designated, the matters on which the 
individual will testify. The individuals so designated shall testify as 
to matters known or reasonably available to the organization.
(b) Documents
    The Board, and the staff of the Board designated in an order of 
formal investigation, may issue an accounting board request to any 
person, including any issuer, broker, or dealer for the production of 
any document that is relevant or material to an investigation, with 
appropriate notice, subject to the needs of the investigation. A 
request issued pursuant to this Rule shall set forth a reasonable time 
and place for production, subject to the needs of the investigation.
* * * * *

[[Page 6277]]

Rule 5108. Confidentiality of Investigatory Records

    (a) Informal inquiries and formal investigations, and any 
documents, testimony or other information prepared or received by or 
specifically for the Board or the staff of the Board in connection with 
such inquiries and investigations, shall be confidential in the hands 
of the Board, unless and until presented in connection with a public 
proceeding or released in accordance with Section 105(c) of the Act, 
and the Board's Rules thereunder; provided, however, that the Board may 
make such information available--
    (1) to the Commission; and
    (2) in the discretion of the Board, when determined by the Board to 
be necessary to accomplish the purposes of the Act or to protect 
investors, to the following--
    (a) the Attorney General of the United States;
    (b) the appropriate Federal functional regulator (as defined in 
section 509 of the Gramm-Leach-Bliley Act), other than the Commission, 
and the Director of the Federal Housing Finance Agency, with respect to 
an audit report for an institution subject to the jurisdiction of such 
regulator;
    (c) State attorneys general in connection with any criminal 
investigation; [and]
    (d) any appropriate State regulatory authority;
    (e) a self-regulatory organization, with respect to an audit report 
for a broker or dealer that is under the jurisdiction of such self-
regulatory organization; and
    (f) any foreign auditor oversight authority, concerning a public 
accounting firm with respect to which it has been empowered by a 
foreign government to inspect or otherwise enforce laws, if:
    (i) the foreign auditor oversight authority provides:
    (A) such assurances of confidentiality as the Board may request;
    (B) a description of the applicable information systems and 
controls of the foreign auditor oversight authority; and
    (C) a description of the laws and regulations of the foreign 
government of the foreign auditor oversight authority that are relevant 
to information access; and
    (ii) the Board determines that it is appropriate to share such 
information.
* * * * *

Rule 5110. Noncooperation with an Investigation

* * * * *
(b) Special and Expedited Procedures
    Disciplinary proceedings instituted solely pursuant to Rule 
5200(a)(3) for noncooperation with an investigation shall be subject to 
special and expedited procedures as described in Rules 5201(b)(3), 
5300(b), 5302(d), 5421(b), 5422(a)(2), 5422(d), 5445(b), and 
5460(a)(2)(ii).

Rule 5112. Coordination and Referral of Investigations

* * * * *
(b) Board Referrals of Investigations
    The Board may refer any investigation:
    (1) to the Commission; [and,]
    (2) to a self-regulatory organization, in the case of an 
investigation that concerns an audit report for a broker or dealer that 
is under the jurisdiction of such self-regulatory organization; and
    (3) in the case of an investigation that concerns an audit report 
for an institution that is subject to the jurisdiction of any other 
Federal functional regulator (as defined in section 509 of the Gramm-
Leach-Bliley Act) or the Director of the Federal Housing Finance 
Agency, to such regulator.
* * * * *

Part 2--Disciplinary Proceedings

Rule 5200. Commencement of Disciplinary Proceedings

(a) Grounds for Commencement of Disciplinary Proceedings
    The Board may commence a disciplinary proceeding when--
* * * * *
    (2) it appears to the Board, as the result of an investigation or 
otherwise, that a hearing is warranted to determine whether a 
registered public accounting firm, or any person who is, or at the time 
of the alleged failure reasonably to supervise was, a supervisory 
person of such firm, [the supervisory personnel of such a firm,] has 
failed reasonably to supervise an associated person, either as required 
by the Rules of the Board relating to auditing or quality control 
standards, or otherwise, with a view to preventing violations of this 
Act, the Rules of the Board, the provisions of the securities laws 
relating to the preparation and issuance of audit reports and the 
obligations and liabilities of accountants with respect thereto, 
including the rules of the Commission under the Act, or professional 
standards, and that such associated person has committed[s] a violation 
of the Act, or of any [of] such rules, laws, or standards;
* * * * *

Rule 5201. Notification of Commencement of Disciplinary Proceedings

* * * * *
(b) Content of Order Instituting Proceedings
    An order instituting proceedings issued pursuant to subparagraph 
(a) shall include a short and plain statement of the matters of fact 
and law to be considered and determined with respect to each person 
charged, including--
* * * * *
    (3) in the case of a proceeding instituted solely pursuant to Rule 
5200(a)(3), [(i)] the conduct alleged to constitute the failure to 
cooperate with an investigation[; and (ii) a hearing date].
* * * * *

Rule 5204. Determinations in Disciplinary Proceedings

(a) Burden of Proof
    In any disciplinary proceeding instituted pursuant to Rule 
5200(a)(1), Rule 5200(a)(2), or Rule 5200(a)(3), the interested 
division shall bear the burden of proving an alleged violation or 
failure to supervise by a preponderance of the evidence. A respondent 
raising an affirmative defense shall bear the burden of proving that 
affirmative defense by a preponderance of the evidence.
(b) Initial Decision of a Hearing Officer
* * * * *
    Note: Unless the Board has directed otherwise, the Board expects 
hearing officers in proceedings instituted pursuant to Rule 5200(a)(1) 
or Rule 5200(a)(2) to prepare initial decisions within 60 days after 
the deadline for filing post-hearing briefs or other submissions; the 
Board expects hearing officers in proceedings instituted solely 
pursuant to Rule 5200(a)(3) to prepare initial decisions within 30 days 
after the deadline for filing post-hearing briefs; and the Board 
expects hearing officers in proceedings pursuant to Rule 5500 to 
prepare initial decisions within 45 days after the deadline for filing 
post-hearing briefs or other submissions.
* * * * *

Rule 5205. Settlement of Disciplinary Proceedings Without a 
Determination After Hearing

* * * * *

[[Page 6278]]

(c) Consideration of Offers of Settlement
* * * * *
    Note: In a hearing on disapproval of registration, an offer of 
settlement will be considered and handled by the Director of 
Registration and Inspections in accordance with Rule 5205[6] as if the 
Director of Registration and Inspections were the Director of 
Enforcement and Investigations.

Part 3--Disciplinary Sanctions

Rule 5300. Sanctions
(a) Sanctions in Proceedings Instituted Pursuant to Rule 5200(a)(1) or 
Rule 5200(a)(2)
    If the Board finds, based on all of the facts and circumstances, 
that a registered public accounting firm or associated person thereof 
has engaged in any act or practice, or omitted to act, in violation of 
the Act, the Rules of the Board, the provisions of the securities laws 
relating to the preparation and issuance of audit reports and the 
obligations and liabilities of accountants with respect thereto, 
including the rules of the Commission issued under the Act, or 
professional standards, the Board may impose such disciplinary or 
remedial sanctions as it determines appropriate, subject to the 
applicable limitations under Section 105(c)(5) of the Act, including--
* * * * *
    (4) a civil money penalty for each such violation, in an amount not 
to exceed the maximum amount authorized by Sections 105(c)(4)(D)(i) and 
105(c)(4)(D)(ii) of the Act, including penalty inflation adjustments 
published in the Code of Federal Regulations at 17 CFR part 201, 
subpart E; [equal to--]
    [(i) not more than $100,000 for a natural person or $2,000,000 for 
any other person; and]
    [(ii) in any case to which Section 105(c)(5) of the Act applies, 
not more than $750,000 for a natural person or $15,000,000 for any 
other person;]
* * * * *
(b) Sanctions in Proceedings Instituted Pursuant to Rule 5200(a)(3)
* * * * *
    Note 1: Rule 5300 does not preclude the imposition of any sanction, 
on consent, in the context of a settlement, notwithstanding that the 
sanction is not listed in the Rule.

    Note 2: The maximum penalty amounts authorized by the Act are 
periodically adjusted for inflation by the Commission, pursuant to the 
Federal Civil Penalties Inflation Adjustment Act of 1990, as amended by 
the Debt Collection Improvement Act of 1996, and vary depending upon 
the date the violation occurs. The maximum penalty amounts are 
published at 17 CFR Sec.  201 Subpart E.

Part 4--Rules of Board Procedure

General

Rule 5407. Filing of Papers: Signature Requirement and Effect

    Following the issuance of an order instituting proceedings, [every 
filing of] a party who represents himself or herself shall sign his or 
her individual name and state the date and his or her address and 
telephone number on every filing. Every filing of a[A] party 
represented by counsel shall be signed by at least one counsel of 
record in his or her name and shall state that counsel's business 
address and telephone number.
* * * * *

Prehearing Rules

Rule 5420. Stay Requests

(a) Leave To Participate To Request a Stay
    The Board or the hearing officer may grant leave to participate on 
a limited basis only to an authorized representative of the Commission, 
an authorized representative of the United States Department of 
Justice, an authorized representative of a United States Attorney, an 
appropriate state regulatory authority, an appropriate self-regulatory 
organization, or an authorized representative of any criminal 
prosecutorial authority of any State or any other political subdivision 
of a State for the purpose of requesting a stay during the pendency of 
a Commission investigation or proceeding, a criminal investigation or 
prosecution, a self-regulatory organization, or a state regulatory 
proceeding, arising out of the same or similar facts that are at issue 
in the pending Board or disciplinary proceeding. Motions for leave to 
participate shall be in writing, shall set forth the nature and extent 
of the movant's interest in the proceeding, and, except where good 
cause for late filing is shown, shall be filed not later than 20 days 
prior to the date fixed for the commencement of the hearing. A stay 
granted pursuant to this Rule may be granted for such a period and upon 
such conditions as the Board or the hearing officer deems appropriate.
(b) Stay to Protect Ongoing Commission Investigation
    Upon a showing that a stay requested pursuant to this Rule is 
necessary to protect an ongoing Commission investigation, the motion 
for the stay shall be granted.
(c) Other Stays
    Upon a showing that such a stay is in the public interest or for 
the protection of investors, the motion for the stay shall be favored.

Rule 5421. Answer to Allegations

* * * * *
(b) When to File
    Unless additional time is granted by the hearing officer or the 
Board, a party filing an answer as provided in paragraph (a) of this 
Rule shall do so within 20 days after service upon the party of an 
order instituting proceedings pursuant to Rule 5200(a)(1), Rule 
5200(a)(2), or Rule 5500, and within 5 days after service upon the 
party of an order instituting proceedings solely pursuant to Rule 
5200(a)(3). If the order instituting proceedings is amended, the Board 
or the hearing officer may require that an amended answer be filed and, 
if such an answer is required, shall specify a date for the filing 
thereof.
* * * * *

Rule 5422. Availability of Documents for Inspection and Copying

(a) Documents to be Available for Inspection and Copying
* * * * *
(2) Proceedings Commenced Solely Pursuant to Rule 5200(a)(3)
* * * * *
(b) Documents That May Be Withheld
    (1) The interested division may decline to make available for 
inspection and copying--
    (i) any document prepared by, a member of the Board or of the 
Board's staff, or persons retained by the Board or Board staff to 
provide services in connection with the investigation, disciplinary 
proceeding, or hearing on disapproval of registration, provided that 
the document [that] has not been disclosed to any person other than 
Board members, Board staff, or persons retained by the Board or Board 
staff as described above [to provide services in connection with the 
investigation, disciplinary proceeding, or hearing on disapproval of 
registration];
    (ii) any document accessed from generally available public sources, 
such as legal research or other subscription databases, databases of 
securities filings, databases of periodicals, and public Web sites, 
except to the extent that the interested division intends to introduce 
such documents as evidence;

[[Page 6279]]

    (iii) any other document that is privileged, including any other 
document protected by the attorney work product doctrine;
    (iv[ii]) any document that would disclose the identity of a 
confidential source; and
    ([i]v) any other document that the staff identifies for the hearing 
officer's consideration as to whether the document may be withheld as 
not relevant to the subject matter of the proceeding or otherwise for 
good cause shown.
* * * * *
(c) Procedures Concerning Withheld Documents
    (1) The interested division shall, at the time it makes documents 
available to a respondent under this rule, provide the respondent with 
a log of documents withheld pursuant to paragraph (b)(1)(iii) of this 
Rule. The log shall provide the same information that a person would be 
required to supply to the Board under Rule 5106 in connection with a 
privilege assertion. On a motion by any respondent, a hearing officer 
may, in his or her discretion, require the interested division to 
submit any document listed on the log for inspection by the hearing 
officer in camera. A hearing officer may order that any such document 
be made available to a respondent for inspection and copying only if 
the hearing officer determines that the document is not a document 
described in paragraph (b)(1)(iii).
    (2) The interested division shall, at the time it makes documents 
available to a respondent under this rule, provide the hearing officer 
and each respondent with a list of documents withheld pursuant to 
paragraph (b)(1)(iv[ii]) or (b)(1)([i]v) of this Rule and a brief 
description of the reason for withholding each document. The list 
provided to the respondent may be redacted as necessary to protect 
interests related to the interested division's reason for withholding 
the document. The hearing officer may require the interested division 
to submit any such document for inspection by the hearing officer in 
camera. The hearing officer may order that any such document be made 
available to the respondent for inspection and copying only if the 
hearing officer determines that--
    (i) with respect to any document withheld pursuant to paragraph 
(b)(1)(iv[ii])--
    (A) producing the document would not have the effect of identifying 
a confidential source; or
    (B) the document contains material, exculpatory evidence, provided, 
however, that to the extent such evidence can be disclosed without 
disclosing the identity of a confidential source, such identity shall 
not be disclosed.
    (ii) with respect to any document withheld pursuant to paragraph 
(b)(1)([i]v)--
    (A) the document is relevant to the subject matter of the 
proceeding and no good cause exists for withholding it; or
    (B) the document contains material, exculpatory evidence.
(d) Timing of Inspection and Copying
    Unless otherwise ordered by the Board or the hearing officer, the 
interested division shall make documents available for inspection and 
copying to any respondent who is not in default under Rule 5409 no 
later than 14 days after the institution of proceedings pursuant to 
Rule 5200(a)(1), Rule 5200(a)(2), or Rule 5500, and no later than 7 
days after proceedings have been instituted solely pursuant to Rule 
5200(a)(3).
* * * * *

Rule 5426. Prior Sworn Statements of Nonparty Witnesses in Lieu of Live 
Testimony

    At a hearing, any person wishing to introduce a prior, sworn 
statement of a nonparty witness otherwise admissible in the proceeding, 
in lieu of live testimony may make a motion setting forth the reasons 
therefor. If only part of a statement is offered in evidence, the 
hearing officer may require that all relevant portions of the statement 
be introduced. If all of a statement is offered in evidence, the 
hearing officer may require that portions not relevant to the 
proceeding be excluded. A motion to introduce a prior sworn statement 
of a nonparty witness in lieu of live testimony may be granted if--
* * * * *

Rule 5427. Motion for Summary Disposition

(a) For Interested Division
    After a party has filed an answer and documents have been made 
available to that respondent for inspection and copying pursuant to 
Rule 5422, or after service of a motion for summary disposition by the 
respondent, the interested division may make a motion for summary 
disposition of any or all allegations of the order instituting 
proceedings [the proceedings] with respect to that respondent.
(b) For Respondent
    A respondent party may at any time make a motion for summary 
disposition of any or all allegations of the order instituting 
proceedings [the proceeding] with respect to that respondent.
(c) Pre-motion Conference Required
    A party seeking summary disposition shall request and attend a pre-
motion conference with the hearing officer before filing its motion for 
summary disposition.
(1) Due-date for Filing
    At the pre-motion conference, the hearing officer will schedule a 
due-date for the submission of the motion for summary disposition and 
may, but is not required to, schedule a due-date for the submission of 
a response to the motion for summary disposition [judgment].
(2) Review and Decide Procedure
    If the hearing officer has not scheduled a due-date for a response 
to the motion for summary disposition [judgment], upon review of the 
motion the hearing officer may decide to deny the motion or to require 
a response to the motion. A hearing officer shall not grant a motion 
for summary disposition until after the due-date for filing a response 
to the motion has passed.
* * * * *

Rule 5442. Evidence: Objections and Offers of Proof

(a) Objections
    Objections to the admission or exclusion of evidence must be made 
on the record and shall be in short form, stating the grounds relied 
upon. Exceptions to any ruling thereon by the hearing officer need not 
be noted at the time of the ruling. Such exceptions will be deemed 
waived on appeal to the Board, however, unless raised--
    (1) pursuant to interlocutory review in accordance with Rule 5461;
    (2) in a proposed finding or conclusion filed in a post-hearing 
brief or other submission filed pursuant to Rule 5445; or
    (3) in a petition for Board review of an initial decision filed in 
accordance with Rule 5460.
* * * * *

Rule 5445. Post-hearing Briefs and Other Submissions

* * * * *
    (b) In any proceeding instituted solely pursuant to Rule 
5200(a)(3), the hearing officer may, in his or her discretion, render 
an initial decision without allowing for post-hearing briefs or other

[[Page 6280]]

submissions, or may allow for such briefs or other submissions 
according to an expedited schedule.

Appeals to the Board

Rule 5460. Board Review of Determinations of Hearing Officers

(a) Petition for Review of Initial Decision by Hearing Officers
    Any party to a hearing may obtain Board review of an initial 
decision by filing a petition for review that--
    (1) sets forth specific findings and conclusions of the initial 
decision as to which exception is taken, together with the supporting 
reasons for each exception; and
    (2) is filed--
    (i) in a proceeding instituted pursuant to Rule 5200(a)(1), Rule 
5200(a)(2), or Rule 5500, within 30 days after service of the initial 
decision on the petitioner or within 10 days after the filing of a 
petition for review by another party, whichever is later; or
    (ii) in a proceeding instituted solely pursuant to Rule 5200(a)(3), 
within 10 days after service of the initial decision on the petitioner.
* * * * *
(e) Summary Affirmance
    The Board may summarily affirm an initial decision based upon the 
petition for review [and any response thereto], without further 
briefing, if it finds that no issue raised in the petition for review 
warrants further consideration by the Board.

    Note: For purposes of Rule 5460(a), with respect to any party that 
has entered an appearance and provided an electronic mail address as 
required by Rule 5401, service of the initial decision is deemed to 
occur on the date the Secretary transmits the initial decision to that 
electronic mail address.

Rule 5462. Briefs Filed with the Board

(a) Briefing Schedule Order
    Upon a timely and valid petition for review, or upon its own timely 
motion to review an initial decision, other than review ordered 
pursuant to Rule 5469, the Board shall issue a briefing schedule order 
directing the parties to file opening briefs and specifying particular 
issues, if any, as to which briefing should be limited or directed. 
Unless otherwise provided, opening briefs shall be filed within 40 days 
of the date of the briefing schedule order. Opposition briefs shall be 
filed within 30 days after the date opening briefs are due. Reply 
briefs may be filed within 14 days after the date opposition briefs are 
due. No briefs in addition to those specified in the briefing schedule 
order may be filed except with leave of the Board. The briefing 
schedule order shall be issued--
    (1) at the time the Board orders review on its own initiative 
pursuant to Rule 5460(b), or orders interlocutory review on its own 
motion pursuant to Rule 5461(a)[0]; or
    (2) within 21 days, or such longer time as provided by the Board, 
after--
    (i) the last day permitted for filing a petition for review 
pursuant to Rule 5460(a)[204(d)];
    (ii) certification of a ruling for interlocutory review pursuant to 
Rule 5461(b).
* * * * *

SECTION 7. FUNDING

Rule 7103. Assessment of Accounting Support Fees.

* * * * *
(c) Petition for Correction
    Any issuer, broker, or dealer who disagrees with the class in which 
it has been placed, or with the calculation by which its share of the 
accounting support fee was determined, may petition the Board for a 
correction of the share of the accounting support fee it was allocated. 
Any such petition shall include an explanation of the nature of the 
claimed mistake in classification or calculation in writing and must be 
filed with the Board, on or before the 60th day after the invoice is 
sent, or within such longer period as the Board allows for good cause 
shown. After a review of such a petition, the Board will determine 
whether the allocation is consistent with Section 109 of the Act and 
the Board's rules thereunder and provide the issuer, broker, or dealer 
a written explanation of its decision. The provisions of Rule 7104 
shall be suspended while such a petition is pending before the Board.
* * * * *

Rule 7104. Collection of Accounting Support Fees.

* * * * *
(b) Determination of Payment of Accounting Support Fees by Registered 
Accounting Firm
* * * * *
    [Note 3: For purposes of Rule 7104, the term ``audit'' means an 
examination of the financial statements, reports, documents, 
procedures, controls, or notices of any issuer, broker, or dealer by an 
independent public accounting firm in accordance with the rules of the 
Board or the Commission, for the purpose of expressing an opinion on 
the financial statements or providing an audit report. For purposes of 
Rule 7104, the term ``audit report'' means a document, report, notice, 
or other record (1) prepared following an audit performed for purposes 
of compliance by an issuer, broker, or dealer with the requirements of 
the securities laws; and (2) in which a public accounting firm either 
(i) sets forth the opinion of that firm regarding a financial 
statement, report, notice, or other document, procedures, or controls; 
or (ii) asserts no such opinion can be expressed.]
* * * * *

Quality Control--Interim Standards

SEC Practice Section (SECPS)--Requirements of Membership

SECPS Sec.  1000.08(m)--Notification of the Commission of Resignations 
and Dismissals from Audit Engagements for Commission Registrants

    (1) When the member firm has been the auditor for an SEC registrant 
(as defined in Appendix D, SECPS Sec.  1000.38) that is required to 
file current reports on Form 8-K and has resigned, declined to stand 
for re-election or been dismissed, report the fact that the client-
auditor relationship has ceased directly in writing to the former SEC 
client, with a simultaneous copy to the Office of the Chief Accountant 
of the Securities and Exchange Commission, unless the former client 
reports the change in auditors in a timely filed Form 8-K. \fn4\ Such 
report shall be sent to the former SEC client and to the Office of the 
Chief Accountant by the end of the fifth business day following the 
member firm's determination that the client-auditor relationship has 
ended, if the issuer has not reported the change in auditors to the SEC 
in a timely filed Form 8-K.
    (2) When the member firm has been the auditor for an SEC registrant 
(as defined in Appendix D, SECPS Sec.  1000.38) that is not required to 
file current reports on Form 8-K and has resigned, declined to stand 
for re-election or been dismissed, report the fact that the client-
auditor relationship has ceased directly in writing to the former SEC 
client, with a simultaneous copy to the Office of the Chief Accountant 
of the Securities and Exchange Commission.\fn5\ Such report shall be 
sent to the former SEC client and to the Office of the Chief Accountant 
by the end of the fifth business day following the member firm's 
determination that the client-auditor relationship has ended, 
irrespective of whether or not the registrant has reported the change 
in

[[Page 6281]]

auditors in a timely filed [Form 8-K] report.
    Fn4 See Appendix I, SECPS Sec.  1000.43, for standard form of such 
report.
    Fn5 See Appendix I, SECPS Sec.  1000.43, for standard form of such 
report.

.43 APPENDIX I--STANDARD FORM OF LETTER CONFIRMING THE CESSATION OF THE 
CLIENT-AUDITOR RELATIONSHIP

(Date)
Mr. John Doe
Chief Financial Officer
XYZ Corporation
    Anytown, USA
Dear Mr. Doe:
    This is to confirm that the client-auditor relationship between XYZ 
Corporation (Commission File Number X-XXXX) and Able Baker & Co. has 
ceased.
Sincerely,
Able Baker & Co.
    CC: Office of the Chief Accountant, SECPS Letter File, Securities 
and Exchange Commission
[email protected]
[Mail Stop 9-5]
100 F Street NE.,
[450 Fifth Street NW.,]
Washington, D.C. 20549
    The SEC has indicated that member firms may satisfy the SECPS 
notification requirements by e-mailing [faxing] a copy of the SECPS 
letter to the SEC-Office of the Chief Accountant ([202-942-9656; Attn: 
SECPS Letter File/Mail Stop 9-5] [email protected]). A copy of the 
[fax log] e-mail should be retained by the sender as documentation of 
timely filing [and a back-up copy of the letter should be sent by 
regular mail to the SEC]. The SEC strongly encourages sending the 
notification letter by [fax and will accept the date of the fax as the 
notification date] e-mail to [email protected]. The SEC staff will 
accept the date the e-mail is received as the notification date. If [a 
fax] e-mail transmission is not available, alternatively, by order of 
preference, the SECPS notification letter may be sent to the SEC via 
(1) fax to (202) 772-9252, (2) U.S. Postal Service overnight delivery, 
([2]3) commercial overnight courier, or ([3]4) certified mail, ``return 
receipt requested.''
    The exact name of the registrant[,] and the Commission File Number 
as it appears on the cover page of the Form 10-K[, and the complete SEC 
address, as shown above,] should be used in the e-mail [letter and on 
the envelop]. If the cessation of the client-auditor relationship 
affects multiple SEC registrants (e.g., a parent with publicly-
registered subsidiaries, series of mutual funds), the exact name of 
each registrant and each Commission File Number should be set forth in 
the SECPS [letter] e-mail.
* * * * *

Ethics Code

EC2. Definitions
* * * * *
(e) Honoraria
    The term ``honoraria'' means anything with more than a nominal 
value, whether provided in cash or otherwise, and which is provided in 
exchange for a speech, panel participation, publication or lecture. 
Neither the waiver of conference fees nor acceptance of a modest 
speakers-only meal constitutes ``honoraria.'' [Note:] Items and meals 
which are provided to all conference participants[, including 
speakers,] are not [provided ``in exchange for'' a speech and thus not] 
considered to be ``honoraria.''
(f) Practice
    The term ``practice'' means--
    (1) knowingly acting as an agent or attorney for, or otherwise 
representing any other person in any formal or informal appearance 
before the Board or Commission with respect to Board-related matters; 
or
    (2) making any oral or written communication on behalf of any other 
person to, and with the intent to influence, the Board or Commission 
with respect to Board-related matters.

    Note: For purposes of this definition, participating in the 
financial reporting process as the officer or director of an issuer, 
broker, or dealer or participating in an audit of the financial 
statements of an issuer, broker, or dealer does not, in and of itself, 
constitute practice before the Board or the Commission.
* * * * *
EC5. Investments
* * * * *
    (d) Board members and professional staff shall [annually] disclose 
their holdings, and the holdings of their spouses, spousal equivalents, 
and dependents, in securities of issuers (including exchange-traded 
options and futures) to the Ethics Officer.
    (1) [For initial disclosures, statements shall be filed with the 
Ethics Officer w] Within the first 60 days of commencement of service 
with the Board; and [, or 60 days from the effective date of this Code, 
whichever is later.]
    (2) On an annual basis, on May 1 or another date that may be 
prescribed by the Ethics Officer. [Subsequent disclosures shall be 
filed with the Ethics Officer on May 1, commencing the first year 
following the initial disclosure.]
    (3) Disclosure statements by Board Members shall be made available 
to the public.
    (4) Disclosure statements by professional staff shall remain 
confidential.
* * * * *
EC7. Gifts, Reimbursements, Honoraria and Other Things of Value
* * * * *
    (b) No Board member or staff shall accept payment for or 
reimbursement of official travel-related expenses from any 
organization, except--
    (1) for travel that is in direct connection with the employee's 
participation in an educational forum; and
    (2) the educational forum is principally sponsored by and the 
travel-related expenses are paid or reimbursed by--
    (A) a federal, state or local governmental body, or an association 
of such bodies,
    (B) an accredited institution of higher learning,
    (C) an organization exempt from taxation under 501(c)(3) of the 
Internal Revenue Code, provided such organization is not principally 
funded from one or more public accounting firms, [or] issuers, brokers, 
or dealers, or
    (D) institutions equivalent to those in EC 7(b)(2)(A)-(C) outside 
the United States.
EC8. Disqualification
    (a) If a Board member or professional staff becomes, or reasonably 
should become, aware of facts which would lead a reasonable person to 
believe that he or she, or his or her spouse, spousal equivalent, or 
dependents, may have a financial or personal interest [or other similar 
relationship] which might affect or reasonably create the appearance of 
affecting his or her independence or objectivity with respect to the 
Board's function or activities, then he or she shall, at the earliest 
possible date--
    (1) disclose such circumstances and facts, as set forth in 
subsection (b); and
    (2) recuse himself or herself from further Board functions or 
activities involving or affecting the financial [interest] or personal 
interest [relationship].
* * * * *
EC12. Post-Employment Restrictions
(a) Negotiating Prospective Employment
    (1) Board members and professional staff may not negotiate 
prospective

[[Page 6282]]

employment with a public accounting firm, [or] issuer, broker, or 
dealer, without first disclosing (pursuant to the procedures in Section 
EC8(b)) the identity of the prospective employer and recusing himself 
or herself from all Board matters directly affecting that prospective 
employer.
    (2) For purposes of this section, ``negotiating prospective 
employment'' means participating in an employment interview; discussing 
an offer of employment; or accepting an offer of employment, even if 
the precise terms are still to be developed. Submitting a resume or job 
application to a group of employers or receiving an unsolicited inquiry 
of interest that is rejected, do not alone constitute ``negotiating 
prospective employment.''
* * * * *

Amendments to Board Forms

    The amended Form 1, Form 1-WD, Form 2, Form 3, and Form 4 are set 
forth below.

FORMS

Form 1--Application for Registration

General Instructions

    1. The definitions in the Board's rules apply to this form. 
Italicized terms in the instructions to this form are defined in the 
Board's rules. See Rule 1001.
    2. Any public accounting firm applying to the Board for 
registration pursuant to Section 102 of the Act must file this form 
with the Board. See Rule 2101.
    3. In addition to these instructions, the rules contained in 
Section 2 of the Board's rules govern applications for registration. 
Please read these rules and the instructions carefully before 
completing this form.
    4. Unless otherwise directed by the Board, applicants must submit 
this form, and all exhibits to the form, to the Board electronically by 
completing the Web-based version of Form 1. Form 1 is available on the 
Board's Web site at: http://www.pcaobus.org/Registration/index.aspx. 
See Rule 2101.
    5. This form must be accompanied by a registration fee in 
accordance with Section 102(f) of the Act. The amount of the required 
fee is available at http://www.pcaobus.org/Registration/index.aspx. An 
application for registration will not be deemed received by the Board 
until the registration fee has been paid. See Rule 2102.
    6. An applicant may request confidential treatment of any portion 
of its application for registration that has not otherwise been 
publicly disclosed and that either contains information reasonably 
identified by the applicant as proprietary information or that is 
protected from public disclosure by applicable laws related to 
confidentiality of proprietary, personal, or other information. An 
applicant that requests confidential treatment must identify the 
portion of the application that it desires to keep confidential, and 
include, as Exhibit 99.1 to the application for registration, a 
representation that, to the applicant's knowledge, the information for 
which confidential treatment is requested has not otherwise been 
publicly disclosed, and a detailed explanation of the grounds on which 
the information is considered proprietary or a detailed explanation of 
the basis for asserting that the information is protected by law from 
public disclosure and a copy of the specific provision of law that the 
applicant claims protects the information from public disclosure. If 
the Firm fails to include Exhibit 99.1, or includes an Exhibit 99.1 
that fails to comply with Rule 2300(c)(2), the request for confidential 
treatment may be denied solely on the basis of that failure. The Board 
will normally grant confidential treatment requests for information 
concerning non-public disciplinary proceedings. The Board will 
determine whether or not to grant other confidential treatment requests 
on a case-by-case basis. See Rule 2300(c).
    7. If an applicant is prohibited by the law(s) of a non-U.S. 
jurisdiction from submitting to the Board information requested by all 
or a part of an Item to this form, the applicant shall so indicate by 
making a notation under the relevant item number of the form and 
furnishing, as Exhibit 99.2 to the application for registration, the 
following information: (i) a copy of the relevant portion of the 
conflicting non-U.S. law, (ii) a legal opinion that submitting the 
information would cause the applicant to violate the conflicting non-
U.S. law; and (iii) an explanation of the applicant's efforts to seek 
consents or waivers to eliminate the conflict, if the withheld 
information could be provided to the Board with a consent or waiver, 
and a representation that the applicant was unable to obtain such 
consents or waivers to eliminate the conflict.
    8. Where this form requires disclosure of a sum of money, such 
amount must be stated in U.S. dollars and rounded to the nearest 
thousand. If such amount was received or paid in a currency other than 
U.S. dollars, the amount must be converted to U.S. dollars.
    9. Where this form requires non-historical (i.e., current) 
information, applicants may submit the information as of a date not 
earlier than 90 days prior to submission of the application. Such 
information will be deemed current for purposes of this form.
    10. Information submitted as part of this form, including any 
exhibit to this form, must be in the English language.

PART I--Identity of the Applicant

Item 1.1 Name of Applicant
    State the legal name of the applicant; if different, also state the 
name or names under which the applicant (or any predecessor for which 
the applicant is the successor in interest with respect to the entity's 
liabilities) issues audit reports, or has issued any audit report 
during the five years prior to the date of this application.
Item 1.2 Applicant Contact Information
    State the physical address (and, if different, mailing address) of 
the applicant's headquarters office. State the telephone number and 
facsimile number of the applicant's headquarters office. If available, 
state the Web site address of the applicant.
Item 1.3 Primary Contact and Signatories
    State the name, title, physical business address (and, if 
different, business mailing address), telephone number, fax number, and 
email address of a partner or authorized officer of the applicant who 
will serve as the applicant's primary contact with the Board regarding 
this application. Provide the same information for every person whose 
signature appears in Part VIII or Part IX of this form, if any of those 
persons are different from the primary contact.
Item 1.4 Applicant's Form of Organization
    State the applicant's legal form (e.g., proprietorship, 
partnership, limited liability partnership) and the jurisdiction (e.g., 
the state of the United States or comparable non-U.S. jurisdiction) 
under the law of which the applicant is organized or exists.
Item 1.5 Applicant's Offices
    If the applicant has more than one office, furnish, as Exhibit 1.5, 
the physical address (and, if different, mailing address) of each of 
the applicant's offices.
Item 1.6 Associated Entities of Applicant
    State the name and physical address (and, if different, mailing 
address) of all associated entities of the applicant that engage in the 
practice of public accounting or preparing or issuing audit reports, or 
comparable reports prepared

[[Page 6283]]

for clients that are not issuers. Do not include any person listed in 
Item 7.1.
Item 1.7 Applicant's Licenses
    List every license or certification number issued to the applicant 
authorizing it to engage in the business of auditing or accounting. For 
each such license or certification number, furnish the name of the 
issuing state, agency, board, or other authority.

Part II--Listing of Applicant's Public Company Audit Clients and 
Related Fees

Item 2.1 Issuers for Which Applicant Prepared Audit Reports During the 
Preceding Calendar Year
    List the names of all issuers for which the applicant prepared or 
issued any audit report dated during the calendar year preceding the 
calendar year in which this application is filed. In addition to the 
issuer's name, this list must include, with respect to each issuer--
    a. The issuer's business address (as shown on its most recent 
filing with the Commission), and CIK number.
    b. The date of the audit report.
    c. The total amount of fees billed for audit services for the 
issuer's fiscal year for which the audit report was issued.
    d. The total amount of fees billed for other accounting services 
for the issuer's fiscal year for which the audit report was issued.
    e. The total amount of fees billed for non-audit services for the 
issuer's fiscal year for which the audit report was issued.

    Note: Only fees billed by the principal auditor (i.e., the public 
accounting firm that issued the audit report) need be disclosed in 
response to this Item. To the extent not previously disclosed or known 
by the applicant, estimated amounts may be used in responding to this 
Item. For investment company issuers, the fees disclosed in response to 
paragraphs (c)-(e) of this Item should include all fees for services 
rendered to the issuer, to the issuer's investment adviser (not 
including any sub-adviser whose role is primarily portfolio management 
and is subcontracted with or overseen by another investment adviser), 
and to any entity controlling, controlled by, or under common control 
with, the adviser that provides ongoing services to the issuer.
Item 2.2 Issuers for Which Applicant Prepared Audit Reports During the 
Current Calendar Year
    List the names of all issuers for which the applicant prepared or 
issued any audit report dated during the current calendar year. (Do not 
include audit reports the applicant expects to prepare or issue during 
this calendar year, but that have not yet been issued. These are called 
for in Item 2.3 below.) In addition to the issuer's name, include, with 
respect to each issuer--
    a. The issuer's business address (as shown on its most recent 
filing with the Commission), and CIK number.
    b. The date of the audit report.
    c. The total amount of fees billed for audit services for the 
issuer's fiscal year for which the audit report was issued.
    d. The total amount of fees billed for other accounting services 
for the issuer's fiscal year for which the audit report was issued.
    e. The total amount of fees billed for non-audit services for the 
issuer's fiscal year for which the audit report was issued.

    Note: Only fees billed by the principal auditor (i.e., the public 
accounting firm that issued the audit report) need be disclosed in 
response to this Item. To the extent not previously disclosed or known 
by the applicant, estimated amounts may be used in responding to this 
Item. For investment company issuers, the fees disclosed in response to 
paragraphs (c)-(e) of this Item should include all fees for services 
rendered to the issuer, to the issuer's investment adviser (not 
including any sub-adviser whose role is primarily portfolio management 
and is subcontracted with or overseen by another investment adviser), 
and to any entity controlling, controlled by, or under common control 
with, the adviser that provides ongoing services to the issuer.
Item 2.3 Issuers for Which Applicant Expects to Prepare Audit Reports 
During the Current Calendar Year
    List the names of all issuers for which the applicant expects to 
prepare or issue any audit report dated during the calendar year in 
which this application is filed. In addition to the issuer's name, 
include, with respect to each issuer, the issuer's business address (as 
shown on its most recent filing with the Commission), and CIK number.

    Note: An applicant may presume that it is expected to prepare or 
issue an audit report for an issuer (i) if it has been engaged to do 
so, or (ii) if it issued an audit report during the preceding calendar 
year for an issuer, absent an indication from the issuer that it no 
longer intends to engage the applicant.
Item 2.4 Issuers for Which Applicant Played, or Expects to Play, a 
Substantial Role in Audit
    For applicants that did not prepare or issue an audit report dated 
during the preceding or current calendar year, and that do not expect 
to prepare or issue an audit report dated during the current calendar 
year, list the names of all issuers for which the applicant played, or 
expects to play, a substantial role in the preparation or furnishing of 
an audit report dated during the preceding or current calendar year. In 
addition to the issuer's name, this list must include, with respect to 
each issuer--
    a. The issuer's business address (as shown on its most recent 
filing with the Commission), and CIK number.
    b. The name of the public accounting firm that issued, or is 
expected to issue, the audit report.
    c. The date of the audit report, if it has been issued.
    d. The type of substantial role played by the applicant with 
respect to the audit report.

    Note: Applicants that disclosed the name of an issuer in response 
to any of Items 2.1-2.3 need not respond to this Item. In responding to 
the part of this Item that asks about issuers for which the applicant 
expects to play a substantial role in the preparation or furnishing of 
an audit report, an applicant may conclude that it is expected to play 
a substantial role in the preparation or furnishing of an audit report 
for an issuer (i) if it has been engaged to do so, or (ii) if it played 
a substantial role in the preparation and furnishing of an audit report 
during the preceding calendar year, absent an indication from the 
issuer or principal accounting firm that it no longer intends to engage 
the applicant.

Part III--Listing of Applicant's Broker or Dealer Audit Clients and 
Related Fees

Item 3.1 Brokers and Dealers for Which Applicant Prepared Audit Reports 
During the Preceding Calendar Year
    List the names of all brokers and dealers for which the applicant 
prepared or issued any audit report dated during the calendar year 
preceding the calendar year in which this application is filed. In 
addition to the broker's or dealer's name, this list must include, with 
respect to each broker or dealer--
    a. The broker's or dealer's business address, and the broker's or 
dealer's CRD number, and CIK number, if any.
    b. The date of the audit report.
    c. The total amount of fees billed for audit services for the 
broker's or dealer's fiscal year for which the audit report was issued.
    d. The total amount of fees billed for other accounting services 
for the

[[Page 6284]]

broker's or dealer's fiscal year for which the audit report was issued.
    e. The total amount of fees billed for non-audit services for the 
broker's or dealer's fiscal year for which the audit report was issued.

    Note: Only fees billed by the principal auditor (i.e., the public 
accounting firm that issued the audit report) need be disclosed in 
response to this Item. To the extent not previously disclosed or known 
by the applicant, estimated amounts may be used in responding to this 
Item.
Item 3.2 Brokers and Dealers for Which Applicant Prepared Audit Reports 
During the Current Calendar Year
    List the names of all brokers or dealers for which the applicant 
prepared or issued any audit report dated during the current calendar 
year. (Do not include audit reports the applicant expects to prepare or 
issue during this calendar year, but that have not yet been issued. 
These are called for in Item 3.3 below.) In addition to the broker's or 
dealer's name, include, with respect to each broker or dealer--
    a. The broker's or dealer's business address, and the broker's or 
dealer's CRD number, and CIK number, if any.
    b. The date of the audit report.
    c. The total amount of fees billed for audit services for the 
broker's or dealer's fiscal year for which the audit report was issued.
    d. The total amount of fees billed for other accounting services 
for the broker's or dealer's fiscal year for which the audit report was 
issued.
    e. The total amount of fees billed for non-audit services for the 
broker's or dealer's fiscal year for which the audit report was issued.

    Note: Only fees billed by the principal auditor (i.e., the public 
accounting firm that issued the audit report) need be disclosed in 
response to this Item. To the extent not previously disclosed or known 
by the applicant, estimated amounts may be used in responding to this 
Item.
Item 3.3 Brokers and Dealers for Which Applicant Expects to Prepare 
Audit Reports During the Current Calendar Year
    List the names of all brokers and dealers for which the applicant 
expects to prepare or issue any audit report dated during the calendar 
year in which this application is filed. In addition to the broker's or 
dealer's name, include, with respect to each broker or dealer, the 
broker's or dealer's business address, and the broker's or dealer's CRD 
number, and CIK number, if any.

    Note: An applicant may conclude that it is expected to prepare or 
issue an audit report for a broker or dealer (i) if it has been engaged 
to do so, or (ii) if it issued an audit report during the preceding 
calendar year for a broker or dealer, absent an indication from the 
broker or dealer that it no longer intends to engage the applicant.
Item 3.4 Brokers and Dealers for Which Applicant Played, or Expects to 
Play, a Substantial Role in Audit
    For applicants that did not prepare or issue an audit report dated 
during the preceding or current calendar year, and that do not expect 
to prepare or issue an audit report dated during the current calendar 
year, list the names of all brokers and dealers for which the applicant 
played, or expects to play, a substantial role in the preparation or 
furnishing of an audit report dated during the preceding or current 
calendar year. In addition to the broker's or dealer's name, this list 
must include, with respect to each broker or dealer--
    a. The broker's or dealer's business address, and the broker's or 
dealer's CRD number, and CIK number, if any.
    b. The name of the public accounting firm that issued, or is 
expected to issue, the audit report.
    c. The date of the audit report, if it has been issued.
    d. The type of substantial role played by the applicant with 
respect to the audit report.

    Note: Applicants that disclosed the name of a broker or dealer in 
response to any of Items 3.1-3.3 need not respond to this Item. In 
responding to the part of this Item that asks about brokers and dealers 
for which the applicant expects to play a substantial role in the 
preparation or furnishing of an audit report, an applicant may conclude 
that it is expected to play a substantial role in the preparation or 
furnishing of an audit report for a broker or dealer (i) if it has been 
engaged to do so, or (ii) if it played a substantial role in the 
preparation and furnishing of an audit report during the preceding 
calendar year, absent an indication from the broker or dealer or 
principal accounting firm that it no longer intends to engage the 
applicant.

Part IV--Statement of Applicant's Quality Control Policies

Item 4.1 Applicant's Quality Control Policies
    Furnish, as Exhibit 4.1, a narrative, summary description, in a 
clear, concise and understandable format, of the quality control 
policies of the applicant for its accounting and auditing practices, 
including procedures used to monitor compliance with independence 
requirements.

Part V--Listing of Certain Proceedings Involving the Applicant

Item 5.1 Certain Criminal, Civil and Administrative Proceedings
    a. Indicate whether or not the applicant or any associated person 
of the applicant is a defendant or respondent--
    1. in any pending criminal proceeding, or was a defendant in any 
such proceeding in which a judgment was rendered against the applicant 
or such person, whether by plea or after trial, during the previous 
five years;
    2. in any pending civil or alternative dispute resolution 
proceeding initiated by a governmental entity (including a non-U.S. 
jurisdiction) arising out of the applicant's or such person's conduct 
in connection with an audit report, or a comparable report prepared for 
a client that is not an issuer, broker, or dealer, or was a defendant 
or respondent in any such proceeding in which a judgment or award was 
rendered against the applicant or such person, whether by consent or 
otherwise, during the previous five years;
    3. in any pending administrative or disciplinary proceeding arising 
out of the applicant's or such person's conduct in connection with an 
audit report, or a comparable report prepared for a client that is not 
an issuer, broker, or dealer or was a respondent in any such proceeding 
in which a finding of violation was rendered, or a sanction entered, 
against the applicant or such person, whether by consent or otherwise, 
during the previous five years. Administrative or disciplinary 
proceedings include those of the Commission; the Board; any other 
federal, state, or non-U.S. agency, board, or administrative or 
licensing authority; and any professional association or body. 
Investigations that have not resulted in the commencement of a 
proceeding need not be included;

    Note: Foreign public accounting firm applicants need only disclose 
such proceedings for the applicant and any proprietor, partner, 
principal, shareholder, officer, or manager of the applicant who 
provided at least ten hours of audit services for any issuer, broker, 
or dealer during the last calendar year.
    b. In the event of an affirmative response to Item 5.1.a, furnish 
the following information with respect to each such proceeding:
    1. The name, filing date, and case or docket number of the 
proceeding.

[[Page 6285]]

    2. The name and address of the court, tribunal, or body in which 
such proceeding was filed.
    3. The names of all defendants or respondents in such proceeding 
who are also the applicant, any person listed in Part VII, or any 
person associated with the applicant at the time that the events in 
question occurred.
    4. The name of the issuer, broker, or dealer, or other client that 
was the subject of the audit report or comparable report.
    5. With respect to each person named in Item 5.1.b.3, the statutes, 
rules, or other requirements such person was found to have violated 
(or, in the case of a pending proceeding, is charged with having 
violated).
    6. With respect to each person named in Item 5.1.b.3, the outcome 
of the proceeding, including any sentence or sanction imposed. (If no 
judgment or award has yet been rendered, enter the word ``pending.'')
    c. Indicate whether or not any employee, partner, shareholder, 
principal, member, or owner of the applicant, or any person or entity 
with which the applicant has a contractual or other arrangement to 
receive consulting or other professional services, is currently subject 
to a Board disciplinary sanction suspending or barring the person from 
being an associated person of a registered public accounting firm.
    d. Indicate whether or not the applicant or any employee, partner, 
shareholder, principal, member, or owner of the applicant, or any 
person or entity with which the applicant has a contractual or other 
arrangement to receive consulting or other professional services, is 
currently subject to a (1) Commission order suspending or denying the 
privilege of appearing or practicing before the Commission, or (2) 
court-ordered injunction prohibiting appearance or practice before the 
Commission.
    e. In the event of an affirmative response to Item 5.1.c or Item 
5.1.d, furnish the following with respect to each such person:
    1. The name of the person (including the applicant) subject to the 
order or sanction.
    2. If other than the applicant, a description of the person's job 
title and duties performed for the applicant.
    3. The date of the relevant order and an indication whether it was 
a Board order, a Commission order, or a court order.
    4. If a court order, the name of the court and the name and case or 
docket number of the proceeding.
Item 5.2 Pending Private Civil Actions
    a. Indicate whether or not the applicant or any associated person 
of the applicant is a defendant or respondent in any pending civil 
proceeding or alternative dispute resolution proceeding initiated by a 
non-governmental entity involving conduct in connection with an audit 
report, or a comparable report prepared for a client that is not an 
issuer, broker, or dealer.
    b. In the event of an affirmative response to Item 5.2.a, furnish 
the following information with respect to each such proceeding:
    1. The name, filing date, and case or docket number of the 
proceeding.
    2. The name and address of the court, tribunal or body in which 
such proceeding was filed.
    3. The names of all defendants or respondents in such proceeding 
who are also the applicant, any person listed in Part VII, or any 
person associated with the applicant at the time that the events in 
question occurred.
    4. The name of the issuer, broker, or dealer, or other client that 
was the subject of the audit report or comparable report.
    5. With respect to each person named in Item 5.2.b.3, the statutes, 
rules, or other requirements such person is alleged to have violated.

    Note: Foreign public accounting firm applicants need only disclose 
such proceedings for the applicant and any proprietor, partner, 
principal, shareholder, officer, or manager of the applicant who 
provided at least ten hours of audit services for any issuer, broker, 
or dealer during the last calendar year.
Item 5.3 Applicant's Discretionary Statement Regarding Proceedings 
Involving the Applicant's Audit Practice
    With respect to any case or proceeding listed in response to Items 
5.1 or 5.2, the applicant may, at its discretion, furnish, as Exhibit 
5.3, a statement or statements describing the proceeding and the 
reasons that, in the applicant's view, such proceeding should not be a 
basis for the denial of its application for registration.

Part VI--Listing of Filings Disclosing Accounting Disagreements With 
Public Company Audit Clients and Issues With Broker or Dealer Audit 
Clients

Item 6.1 Existence of Disagreements With Issuers
    a. Indicate whether or not the applicant has been the former 
accountant with respect to any disclosure of a disagreement with an 
issuer made by such issuer during the current or preceding calendar 
year in a filing with the Commission pursuant to Item 304(a)(1)(iv) of 
Regulation S-K, 17 CFR 229.304(a)(1)(iv).
    b. Indicate whether or not the applicant has been the former 
accountant with respect to any filing made by an issuer during the 
current or preceding calendar year with the Commission containing a 
letter submitted by the applicant to the Commission pursuant to Item 
304(a)(3) of Regulation S-K, 17 CFR 229.304(a)(3), in which the 
applicant stated that it disagreed with a statement of the issuer in 
response to Item 304(a).
Item 6.2 Listing of Disagreements With Issuers
    In the event of an affirmative response to Items 6.1.a or 6.1.b, 
furnish the following information with respect to each such filing:
    a. The name of the issuer.
    b. The name and date of the filing containing the disclosure of the 
disagreement or the applicant's letter.
Item 6.3 Copies of Filings
    Furnish, as Exhibit 6.3, a copy of every filing described in Item 
6.2.
Item 6.4 Existence of Issues With Brokers or Dealers
    Indicate whether or not the applicant has been the former 
accountant with respect to a notice of any issues relating to any 
matter of accounting principles or practices, financial statement 
disclosure, auditing scope or procedure, or compliance with applicable 
rules of the Commission made by a broker or dealer during the current 
or preceding calendar year in a filing with the Commission pursuant to 
Rule 17a-5(f)(3)(v)(B), 17 CFR Sec.  240.17a-5(f)(3)(v)(B).
Item 6.5 Listing of Issues With Brokers or Dealers
    In the event of an affirmative response to Item 6.4, furnish the 
following information with respect to each such filing:
    a. The name of the broker or dealer, and the broker's or dealer's 
CRD number, and CIK number, if any.
    b. The name and date of the filing containing the notice.
Item 6.6 Copies of Filings
    Furnish, as Exhibit 6.6, a copy of every filing described in Item 
6.5.

[[Page 6286]]

Part VII--Roster of Associated Accountants

Item 7.1 Listing of Accountants Associated With Applicants
    List the names of all accountants associated with the applicant who 
participate in or contribute to the preparation of audit reports. For 
each such person, list every license or certification number (if any) 
authorizing him or her to engage in the business of auditing or 
accounting. For each such license or certification number, furnish the 
name of the issuing state, agency, board, or other authority.

    Note: For purposes of this Item, applicants that are not foreign 
public accounting firms must list all accountants who are persons 
associated with the applicant and who provided at least ten hours of 
audit services for any issuer, broker, or dealer during the last 
calendar year. Applicants that are foreign public accounting firms must 
list all accountants who are a proprietor, partner, principal, 
shareholder, officer, or manager of the applicant and who provided at 
least ten hours of audit services for any issuer, broker, or dealer 
during the last calendar year.
Item 7.2 Number of Firm Personnel
    State the--
    a. Total number of accountants employed by the applicant.
    b. Total number of certified public accountants, or accountants 
with comparable licenses from non-U.S. jurisdictions, employed by the 
applicant.
    c. Total number of personnel employed by the applicant.

Part VIII--Consents of Applicant

Item 8.1 Consent To Cooperate With the Board and Statement of 
Acceptance of Registration Condition
    Furnish, as Exhibit 8.1, a statement, signed on behalf of the 
applicant by an authorized partner or officer of the applicant in 
accordance with Rule 2104, in the following form--
    a. [Name of applicant] consents to cooperate in and comply with any 
request for testimony or the production of documents made by the Public 
Company Accounting Oversight Board in furtherance of its authority and 
responsibilities under the Sarbanes-Oxley Act of 2002.
    b. [Name of applicant] agrees to secure and enforce similar 
consents from each of its associated persons as a condition of their 
continued employment by or other association with the firm.
    c. [Name of applicant] understands and agrees that cooperation and 
compliance, as described in the firm's consent in paragraph (a), and 
the securing and enforcement of such consents from its associated 
persons in accordance with paragraph (b), shall be a condition to the 
continuing effectiveness of the registration of the firm with the 
Public Company Accounting Oversight Board.

    Note 1: Other than the insertion of the name of the applicant in 
paragraphs (a), (b), and (c) of this Item, Exhibit 8.1 must be in the 
exact words contained in this instruction. The consents required by 
paragraph (b) of this Item must be in the exact words of Note 2 below 
and must be secured by the applicant not later than 45 days after 
submitting this application or, for persons who become associated 
persons of the firm subsequent to the submission of this application, 
at the time of the person's association with the firm. Consents 
required by paragraph (b) of this Item are not required to be furnished 
as an exhibit to this form.

    Note 2: Other than the insertion of the name of the associated 
person, the consents required by paragraph (b) of this Item must state: 
[Name of associated person] consents to cooperate in and comply with 
any request for testimony or the production of documents made by the 
Public Company Accounting Oversight Board in furtherance of its 
authority and responsibilities under the Sarbanes-Oxley Act of 2002. 
[Name of associated person] understands and agrees that this consent is 
a condition of their continued employment by or other association with 
[name of applicant].

    Note 3: For applicants that are foreign public accounting firms, 
the term ``associated persons'' as used in this Item means all 
accountants who are a proprietor, partner, principal, shareholder, 
officer, or manager of the applicant and who provided at least ten 
hours of audit services for any issuer broker, or dealer during the 
last calendar year.

Part IX--Signature of Applicant

Item 9.1 Signature of Partner or Authorized Officer
    The application must be signed on behalf of the applicant by an 
authorized partner or officer of the applicant in accordance with Rule 
2104. The signer must certify that he or she has reviewed the 
application; that the application is, based on the signer's knowledge, 
complete and does not contain any untrue statement of a material fact 
or omit to state a material fact necessary to make the statements made, 
in light of the circumstances under which such statements were made, 
not misleading, and that the signer is authorized to execute the 
application on behalf of the applicant. The signature must be 
accompanied by the name of the signer, the capacity in which the signer 
signed the application, and the date of signature.

Part X--Exhibits

    To the extent applicable under the foregoing instructions, each 
application must be accompanied by the following exhibits:

Exhibit 1.5 Listing of Offices
Exhibit 4.1 Statement of Quality Control Policies
Exhibit 5.3 Discretionary Statements Regarding Proceedings Involving 
Audit Practice
Exhibit 6.3 Securities and Exchange Commission Filings Disclosing 
Accounting Disagreements With Public Company Audit Clients
Exhibit 6.6 Securities and Exchange Commission Filings Disclosing 
Issues With Brokers or Dealers
Exhibit 8.1 Consent of Applicant for Registration
Exhibit 99.1 Request for Confidential Treatment
Exhibit 99.2 Evidence of Conflicting Non-U.S. Law

    Note: Where an exhibit consists of more than one document, each 
document must be numbered consecutively (e.g., Exhibit 4.1.1, Exhibit 
4.1.2, Exhibit 4.1.3, etc.), and the applicant must provide a list of 
the title or description of each document comprising the exhibit.
* * * * *

Form 1-WD

Request for Leave To Withdraw From Registration

General Instructions

    1. The definitions in the Board's rules apply to this form. 
Italicized terms in the instructions to this form are defined in the 
Board's rules. See Rule 1001.
    2. Any registered public accounting firm seeking to withdraw from 
registration with the Board must file this form with the Board.
    3. In addition to these instructions, the Board's Rule 2107 governs 
applications for leave to withdraw from registration. Please read Rule 
2107 and the instructions carefully before completing this form.
    4. Unless otherwise directed by the Board, a registered public 
accounting firm seeking to withdraw from registration must submit this 
form to the Board electronically by completing the Web-based version of 
Form 1-WD. The

[[Page 6287]]

date of such submission shall be deemed the date of Board receipt of 
the Form.
    5. Pursuant to Rule 2107, any Form 1-WD filed with the Board shall 
be non-public. A registered public accounting firm may submit with Form 
1-WD a request for Board notification in the event that the Board is 
requested by subpoena or other legal process to disclose the Form 1-WD. 
The Board will make reasonable attempts to honor any such request, 
although the Board will make public the fact that the firm has 
requested to withdraw from registration.
    6. Information submitted as part of this form must be in the 
English language.

Part I--Identity of the Registered Public Accounting Firm

Item 1.1 Name of the Firm Requesting Leave to Withdraw
    State the legal name of the firm requesting leave to withdraw; if 
different, also state the name or names under which the firm (or any 
predecessor) issues audit reports, or has issued any audit report 
during the period of the firm's registration with the Board.
Item 1.2 Firm Contact Information
    State the physical address (and, if different, mailing address) of 
the firm's headquarters office. State the telephone number and 
facsimile number of the firm's headquarters office.
Item 1.3 Primary Contact and Signatories
    State the name, title, physical business address (and, if 
different, business mailing address), telephone number, facsimile 
number, and email address of a partner or authorized officer of the 
firm who will serve as the firm's primary contact with the Board 
regarding this application. Provide the same information for every 
person whose signature appears in Part III or Part V of the form, if 
any of those persons are different from the primary contact.

Part II--Description of Ongoing Regulatory or Law Enforcement 
Proceedings

Item 2.1 Description of Ongoing Regulatory or Law Enforcement 
Proceedings
    Identify all ongoing federal, state, or local investigative, 
disciplinary, regulatory, criminal, or other law enforcement 
proceedings that are known to the firm, including to any of the firm's 
partners or officers, and that address in whole or in part (1) conduct 
of the firm or (2) audit-related conduct of any of the firm's 
associated persons. For each such proceeding, state--
    a. The identity of the federal, state, or local authority 
conducting the proceeding;
    b. The caption or other identifying information of the proceeding;
    c. The date that the firm or a partner or officer of the firm first 
became aware of the proceeding;
    d. The firm's understanding of the current status of the 
proceeding; and
    e. The conduct of the firm and the firm's associated persons that 
the proceeding addresses.

Part III--Certification of Nonparticipation in Audits

Item 3.1 Statement of Nonparticipation in Audits
    Furnish a statement, dated and signed on behalf of the firm by an 
authorized partner or officer of the firm, in the following form--
    On behalf of [name of firm], I certify that [name of firm] is not 
currently, and will not during the pendency of its request for leave to 
withdraw be, engaged in the preparation or issuance of, or playing a 
substantial role in the preparation or furnishing of, an audit report, 
other than to issue a consent to the use of an audit report for a prior 
period.

    Note: Other than the insertion of the name of the firm the 
statement must be in the exact words contained in this instruction.

Part IV--Reasons for Seeking Leave To Withdraw (Optional)

Item 4.1 Description of Reasons for Seeking Leave To Withdraw
    Describe, if you choose to do so, the reason or reasons that the 
firm seeks leave to withdraw from registration.

Part V--Signature of Firm Seeking Leave To Withdraw

Item 5.1 Signature of Authorized Partner or Officer
    The request for leave to withdraw from registration must be signed 
on behalf of the firm by an authorized partner or officer of the firm. 
The signer must certify that he or she has reviewed the application; 
that the application is, based on the signer's knowledge, complete and 
does not contain any untrue statement of a material fact or omit to 
state a material fact necessary to make the statement made, in light of 
the circumstances under which such statements were made, not 
misleading, and that the signer is authorized to execute the 
application on behalf of the firm. The signature must be accompanied by 
the title of the signer and the date of the signature.
* * * * *

Form 2--Annual Report Form

General Instructions

    1. Submission of this Report. A registered public accounting firm 
must use this Form to file with the Board the annual report required by 
Section 102(d) of the Act and Rule 2200 and to file any amendments to 
an annual report. Unless otherwise directed by the Board, the Firm must 
file this Form, and all exhibits to this Form, electronically with the 
Board through the Board's Web-based system.
    2. Defined Terms. The definitions in the Board's rules apply to 
this Form. Italicized terms in the instructions to this Form are 
defined in the Board's rules. In addition, as used in the instructions 
to this Form, the term ``the Firm'' means the registered public 
accounting firm that is filing this Form with the Board.
    3. When Report is Considered Filed. Annual reports on this Form are 
required to be filed each year on or before June 30, subject to the 
qualification in Rule 2201 concerning any firm that has its application 
for registration approved by the Board in the period between and 
including April 1 and June 30. An annual report is considered filed 
when the Firm has submitted to the Board a Form 2 in accordance with 
Rule 2200 that includes the signed certification required in Part X of 
Form 2.
    4. Period Covered by this Report. Annual reports on this Form shall 
cover a 12-month period from April 1 to March 31, subject to the 
qualification in Part VIII of Form 2 relating to the first annual 
report filed by a firm that becomes registered after December 31, 2009. 
In the instructions to this Form, this is the period referred to as the 
``reporting period.''
    5. Amendments to this Report. Amendments shall not be filed to 
update information in a filed Form 2 that was correct at the time the 
Form was filed, but only to correct information that was incorrect at 
the time the Form was filed or to provide information that was omitted 
from the Form and was required to be provided at the time the Form was 
filed. When filing a Form 2 to amend an earlier filed Form 2, the Firm 
must supply not only the corrected or supplemental information, but 
must include in the amended Form 2 all information, affirmations, and 
certifications that were

[[Page 6288]]

required to be included in the original Form 2. The Firm may access the 
originally filed Form 2 through the Board's Web-based system and make 
the appropriate amendments without needing to re-enter all other 
information.

    Note: The Board will designate an amendment to an annual report as 
a report on ``Form 2/A.''

    6. Rules Governing this Report. In addition to these instructions, 
the rules contained in Part 2 of Section 2 of the Board's rules govern 
this Form. Please read these rules and the instructions carefully 
before completing this Form.
    7. Requests for Confidential Treatment. The Firm may, by marking 
the Form in accordance with the instructions provided, request 
confidential treatment of any information submitted in Part VI, Part 
VII, or Exhibit 99.3 of this Form that has not otherwise been publicly 
disclosed and that either contains information reasonably identified by 
the Firm as proprietary information or that is protected from public 
disclosure by applicable laws related to confidentiality of 
proprietary, personal, or other information. See Rule 2300. Foreign 
registered public accounting firms may also request confidential 
treatment for Item 3.2 and Exhibit 3.2, though U.S. firms may not do 
so. If the Firm requests confidential treatment, it must identify the 
information in Part VI, Part VII, or Exhibit 99.3 (or, for a foreign 
registered public accounting firm, Item 3.2 and Exhibit 3.2) that it 
desires to keep confidential, and include, as Exhibit 99.1 to this 
Form, a representation that, to the Firm's knowledge, the information 
for which confidential treatment is requested has not otherwise been 
publicly disclosed, and a detailed explanation of the grounds on which 
the information is considered proprietary or a detailed explanation of 
the basis for asserting that the information is protected by law from 
public disclosure and a copy of the specific provision of law that the 
Firm claims protects the information from public disclosure. If the 
Firm fails to include Exhibit 99.1, or includes an Exhibit 99.1 that 
fails to comply with Rule 2300(c)(2), the request for confidential 
treatment may be denied solely on the basis of the failure. The Board 
will normally grant confidential treatment requests for information 
concerning non-public disciplinary proceedings. The Board will 
determine whether or not to grant other confidential treatment requests 
on a case-by-case basis. See Rule 2300(c).
    8. Assertions of Conflicts with Non-U.S. Law. If the Firm is a 
foreign registered public accounting firm, the Firm may, unless 
otherwise directed by the Board pursuant to Rule 2207(e), decline to 
provide certain information and affirmations required by this Form if 
the Firm could not provide such information or affirmations without 
violating non-U.S. law and the Firm proceeds in accordance with Rule 
2207. The Firm may withhold responsive information and affirmations on 
that basis from any Part of the Form other than Parts I, II, and X and 
Items 3.1.a, 3.1.b, 3.1.d, and 4.1. If the firm withholds responsive 
information or affirmations, the Firm must indicate, in accordance with 
the instructions in the relevant Part of the Form, the particular Items 
with respect to which the Firm has withheld responsive information or a 
required affirmation. The Firm may not use the Form to make any general 
assertion that a particular requirement may conflict with non-U.S. law, 
but only to indicate that, on the basis of an asserted conflict, the 
Firm has in fact withheld from this Form required information or a 
required affirmation.
    9. Language. Information submitted as part of this Form, including 
any exhibit to this Form, must be in the English language.

Part I--Identity of the Firm and Contact Persons

    In Part I, the Firm should provide information that is current as 
of the date of the certification in Part X.
Item 1.1 Name of the Firm
    a. State the legal name of the Firm.
    b. If different than its legal name, state the name or names under 
which the Firm issues audit reports, or issued any audit report during 
the reporting period.
    c. If the Firm's legal name at the beginning of the reporting 
period was different than the name provided under Item 1.1.a, state 
that legal name and any other legal name the Firm had during the 
reporting period. Include the legal name of any registered public 
accounting firm that merged into, or was acquired by, the Firm during 
the reporting period.
Item 1.2 Contact Information of the Firm
    a. State the physical address (and, if different, mailing address) 
of the Firm's headquarters office.
    b. State the telephone number and facsimile number of the Firm's 
headquarters office. If available, state the Web site address of the 
Firm.
Item 1.3 Primary Contact With the Board
    State the name, business title, physical business address (and, if 
different, business mailing address), business telephone number, 
business facsimile number, and business email address of a partner or 
authorized officer of the Firm who will serve as the Firm's primary 
contact with the Board, including for purposes of the annual report 
filed on this Form and any special reports filed on Form 3.

Part II--General Information Concerning This Report

Item 2.1 Reporting Period
    State the reporting period covered by this report.

    Note: The reporting period, which the Firm should enter in Item 
2.1, is the period beginning on April 1 of the year before the year in 
which the annual report is required to be filed and ending March 31 of 
the year in which the annual report is required to be filed. That is 
the period referred to where this Form refers to the ``reporting 
period.'' Note, however, the special instruction at the beginning of 
Part VIII concerning the first annual report filed by certain firms.
Item 2.2 Amendments
    If this is an amendment to a report previously filed with the 
Board--
    a. Indicate, by checking the box corresponding to this item, that 
this is an amendment.
    b. Identify the specific Item numbers of this Form (other than this 
Item 2.2) as to which the Firm's response has changed from that 
provided in the most recent Form 2 or amended Form 2 filed by the Firm 
with respect to the reporting period.

Part III--General Information Concerning the Firm

Item 3.1 The Firm's Practice Related to the Registration Requirement
    a. Indicate whether the Firm issued any audit report with respect 
to an issuer during the reporting period.
    b. In the event of an affirmative response to Item 3.1.a, indicate 
whether the issuers with respect to which the Firm issued audit reports 
during the reporting period were limited to employee benefit plans that 
file reports with the Commission on Form 11-K.
    c. In the event of a negative response to Item 3.1.a, indicate 
whether the Firm played a substantial role in the preparation or 
furnishing of an audit report with respect to an issuer during the 
reporting period.
    d. Indicate whether the Firm issued any audit report with respect 
to any

[[Page 6289]]

broker or dealer during the reporting period.
    e. In the event of a negative response to Item 3.1.d, indicate 
whether the Firm played a substantial role in the preparation or 
furnishing of an audit report with respect to a broker or dealer during 
the reporting period.
Item 3.2 Fees Billed to Issuer Audit Clients
    a. Of the total fees billed by the Firm to all clients for services 
that were rendered in the reporting period, state the percentage (which 
may be rounded, but no less specifically than to the nearest five 
percent) attributable to fees billed to issuer audit clients for--
    1. Audit services;
    2. Other accounting services;
    3. Tax services; and
    4. Non-audit services.
    b. Indicate, by checking the appropriate box, which of the 
following two methods the Firm used to calculate the percentages 
reported in Item 3.2.a--
    1. The Firm used as a denominator the total fees billed to all 
clients for services rendered during the reporting period and used as 
numerators (for each of the four categories) total fees billed to 
issuer audit clients for the relevant services rendered during the 
reporting period.
    2. The Firm used as a denominator the total fees billed to all 
clients in the Firm's fiscal year that ended during the reporting 
period and used as numerators (for each of the four categories) total 
issuer audit client fees as determined by reference to the fee amounts 
disclosed to the Commission by those clients for each client's fiscal 
year that ended during the reporting period (including, for clients who 
have not made the required Commission filings, the fee amounts required 
to be disclosed).
    c. If the Firm has used a reasonable method to estimate the 
components of the calculations described in Item 3.2.b, rather than 
using the specific data, check this box and attach Exhibit 3.2 briefly 
describing the reasons for doing so and the methodology used in making 
those estimates.

    Note: In responding to Item 3.2, careful attention should be paid 
to the definitions of the italicized terms, which are found in Board 
Rules 1001(i)(iii) (issuer), 1001(a)(v) (audit), 1001(a)(vii) (audit 
services), 1001(o)(i) (other accounting services), 1001(t)(i) (tax 
services), and 1001(n)(ii) (non-audit services). The definitions of the 
four categories of services correspond to the Commission's descriptions 
of the services for which an issuer must disclose fees paid to its 
auditor. Compare the descriptions of services in Item 9(e) of 
Commission Schedule 14A (17 CFR 240.14a-101) under the headings ``Audit 
Fees,'' ``Audit-Related Fees,'' ``Tax Fees,'' and ``All Other Fees'' 
with, respectively, the Board's definitions of Audit Services, Other 
Accounting Services, Tax Services, and Non-Audit Services.
Item 3.3 Foreign Registered Public Accounting Firm's Designation of 
U.S. Agent
    a. If the Firm is a foreign registered public accounting firm that 
has designated to the Commission or Board an agent in the United States 
upon whom the Commission or the Board may serve any request to the Firm 
under Section 106 of the Act or any process, pleading, or other papers 
in any action against the Firm to enforce Section 106 of the Act, check 
here and enter the name and address of the designated agent.
    b. If the Firm is a foreign registered public accounting firm and 
did not check the box for Item 3.3.a, indicate by checking ``yes'' or 
``no'' whether the Firm has, since July 21, 2010, (1) performed 
material services upon which another registered public accounting firm 
relied in the conduct of an audit or interim review, (2) issued an 
audit report, (3) performed audit work, or (4) performed interim 
reviews.

    Note: If the Firm checks ``yes'' for Item 3.3.b, the Firm must 
immediately provide to the Commission or the Board the designation 
required by Section 106(d)(2) of the Act.

    Note: If the Firm checks ``no'' for Item 3.3.b, and the Firm later 
performs any of the activities identified in Section 106(d)(2) of the 
Act, the Firm must immediately provide to the Commission or the Board 
the designation required by Section 106(d)(2) of the Act.

    Note: If the Firm has previously designated an agent for service to 
the Commission or Board, the Firm must immediately communicate any 
change in the name or address of the agent to the Commission or Board.

Part IV--Audit Clients and Audit Reports

Item 4.1 Audit Reports Issued by the Firm for Issuers
    a. Provide the following information concerning each issuer for 
which the Firm issued any audit report(s) during the reporting period--
    1. The issuer's name;
    2. The issuer's CIK number, if any; and
    3. The date(s) of the audit report(s).
    b. If the Firm identified any issuers in response to Item 4.1.a., 
indicate, by checking the box corresponding to the appropriate range 
set out below, the total number of Firm personnel who exercised the 
authority to sign the Firm's name to an audit report, for an issuer, 
during the reporting period. If the Firm checks the box indicating that 
the number is in the range of 1-9, provide the exact number.

1-9
10-25
26-50
51-100
101-200
More than 200

    Note: In responding to Item 4.1(a), careful attention should be 
paid to the definition of issuer. The Firm should not, for example, 
overlook the fact that investment companies may be issuers, or that 
employee benefit plans that file reports on Commission Form 11-K are 
issuers.

    Note: In responding to Item 4.1, do not list any issuer more than 
once. For each issuer provide in Item 4.1.a.3 the audit report dates 
(as described in AU 530, Dating of the Independent Auditor's Report) of 
all such audit reports for that issuer including each date of any dual-
dated audit report.

    Note: In responding to Item 4.1.a.3, it is not necessary to provide 
the date of any consent to an issuer's use of an audit report 
previously issued for that issuer, except that, if such consents 
constitute the only instances of the Firm issuing audit reports for a 
particular issuer during the reporting period, the Firm should include 
that issuer in Item 4.1 and include the dates of such consents and 
indicate whether the dates provided correspond to the issuance of a 
consent to the use of a previously-issued audit report in Item 4.1.a.3.
Item 4.2 Issuer Audit Reports With Respect to Which the Firm Played a 
Substantial Role During the Reporting Period
    a. If no issuers are identified in response to Item 4.1.a, but the 
Firm played a substantial role in the preparation or furnishing of an 
audit report for an issuer that was issued during the reporting period, 
provide the following information concerning each issuer with respect 
to which the Firm did so--
    1. The issuer's name;
    2. The issuer's CIK number, if any;
    3. The name of the registered public accounting firm that issued 
the audit report(s);
    4. The end date(s) of the fiscal period(s) covered by the financial 
statements that were the subject of the audit report(s); and

[[Page 6290]]

    5. A description of the substantial role played by the Firm with 
respect to the audit report(s).

    Note: If the Firm identifies any issuer in response to Item 4.1, 
the Firm need not respond to Item 4.2.

    Note: In responding to Item 4.2, do not list any issuer more than 
once.
Item 4.3 Audit Reports Issued by the Firm for Brokers or Dealers
    a. Provide the following information concerning each audit report 
issued for a broker or dealer during the reporting period--
    1. The broker's or dealer's name;
    2. The broker's or dealer's CRD number, and CIK number, if any; and
    3. The date of the audit report(s).
    b. If the Firm identified any brokers or dealers in response to 
Item 4.3.a., indicate, by checking the box corresponding to the 
appropriate range set out below, the total number of Firm personnel who 
exercised the authority to sign the Firm's name to an audit report, for 
a broker or dealer, during the reporting period. If the Firm checks the 
box indicating that the number is in the range of 1-9, provide the 
exact number.

1-9
10-25
26-50
51-100
101-200
More than 200

    Note: For each audit report provide in Item 4.3.a.3 the audit 
report dates (as described in AU 530, Dating of the Independent 
Auditor's Report) including each date of any dual-dated audit report.
Item 4.4 Broker or Dealer Audit Reports With Respect to Which the Firm 
Played a Substantial Role During the Reporting Period
    If no brokers or dealers are identified in response to Item 4.3.a, 
but the Firm played a substantial role in the preparation or furnishing 
of an audit report for a broker or dealer that was issued during the 
reporting period, provide the following information concerning each 
broker or dealer with respect to which the Firm did so--
    a. The broker's or dealer's name;
    b. The broker's or dealer's CRD number, and CIK number, if any;
    c. The name of the registered public accounting firm that issued 
the audit report(s);
    d. The end date(s) of the fiscal period(s) covered by the financial 
statements that were the subject of the audit report(s); and
    e. A description of the substantial role played by the Firm with 
respect to the audit report(s).

    Note: If the Firm identifies any broker or dealer in response to 
Item 4.3, the Firm need not respond to Item 4.4.

    Note: In responding to Item 4.4, do not list any broker or dealer 
more than once.

Part V--Offices and Affiliations

    In Part V, the Firm should provide information that is current as 
of the last day of the reporting period.
Item 5.1 Firm's Offices
    List the physical address and, if different, the mailing address, 
of each of the Firm's offices.
Item 5.2 Audit-Related Memberships, Affiliations, or Similar 
Arrangements
    a. State whether the Firm has any:
    1. Membership or affiliation in or with any network, arrangement, 
alliance, partnership or association that licenses or authorizes audit 
procedures or manuals or related materials, or the use of a name in 
connection with the provision of audit services or accounting services;
    2. Membership or affiliation in or with any network, arrangement, 
alliance, partnership or association that markets or sells audit 
services or through which joint audits are conducted; or
    3. Arrangement, whether by contract or otherwise, with another 
entity through or from which the Firm employs or leases personnel to 
perform audit services.
    b. If the Firm provides an affirmative response to Item 5.2.a, 
identify, by name and address, the entity with which the Firm has each 
such relationship, and provide a brief description of each such 
relationship.

    Note: Item 5.2.b does not require information concerning every 
other entity that is part of the network, arrangement, alliance, 
partnership or association, but only information concerning the 
network, arrangement, alliance, partnership, or association itself, or 
the principal entity through which it operates.

Part VI--Personnel

    In Part VI, the Firm should provide information that is current as 
of the last day of the reporting period.
Item 6.1 Number of Firm Personnel
    Provide the following numerical totals--
    Total number of the Firm's accountants;
    Total number of the Firm's certified public accountants (include in 
this number all accountants employed by the Firm with comparable 
licenses from non-U.S. jurisdictions); and
    Total number of the Firm's personnel.

Part VII--Certain Relationships

Item 7.1 Individuals With Certain Disciplinary or Other Histories
    a. Other than a relationship required to be reported in Item 5.1 of 
Form 3, and only if the Firm has not previously identified the 
individual and the sanction or Commission order on Form 1, Form 2, or 
Form 3, state whether, as of the end of the reporting period, the Firm 
has any employee, partner, shareholder, principal, member, or owner who 
was the subject of a Board disciplinary sanction or a Commission order 
under Rule 102(e) of the Commission's Rules of Practice, entered within 
the five years preceding the end of the reporting period and without 
that sanction or order having been vacated on review or appeal, and who 
provided at least ten hours of audit services for any issuer, broker, 
or dealer during the reporting period.
    b. If the Firm provides an affirmative response to Item 7.1.a, 
provide--
    1. The name of each such individual;
    2. A description of the nature of the relationship;
    3. The date that the Firm entered into the relationship; and
    4. The date of the relevant order and an indication whether it was 
a Board order or a Commission order.
Item 7.2 Entities With Certain Disciplinary or Other Histories
    a. Other than a relationship required to be reported in Item 5.2 of 
Form 3, and only if the Firm has not previously reported the 
information on Form 1, Form 2, or Form 3, state whether, as of the end 
of the reporting period, the Firm was owned or partly owned by an 
entity that was the subject of (a) a Board disciplinary sanction 
entered within the five years preceding the end of the reporting 
period, which has not been vacated on review or appeal, suspending or 
revoking that entity's registration or disapproving that entity's 
application for registration, or (b) a Commission order under Rule 
102(e) of the Commission's Rules of Practice entered within the five 
years preceding the end of the reporting period, which has not been 
vacated on appeal, suspending or denying the privilege of appearing or 
practicing before the Commission.
    b. If the Firm provides an affirmative response to Item 7.2.a, 
provide--
    1. The name of each such entity;
    2. A description of the nature of the relationship;

[[Page 6291]]

    3. The date that the Firm entered into the relationship; and
    4. The date of the relevant order and an indication whether it was 
a Board order or a Commission order.
Item 7.3 Certain Arrangements To Receive Consulting or Other 
Professional Services
    a. Other than a relationship required to be reported in Item 5.3 of 
Form 3, state whether the Firm received, or entered into a contractual 
or other arrangement to receive, from any individual or entity meeting 
the criteria described in Items 7.1.a. or 7.2.a, consulting or other 
professional services related to the Firm's audit practice or related 
to services the Firm provides to issuer, broker, or dealer audit 
clients.
    b. If the Firm provides an affirmative response to Item 7.3.a, 
provide--
    1. The name of each such individual or entity;
    2. A description of the nature of the relationship;
    3. The date that the Firm entered into the relationship;
    4. A description of the services provided or to be provided to the 
Firm by the individual or entity; and
    5. The date of the relevant order and an indication whether it was 
a Board order or a Commission order.

PART VIII--Acquisition of Another Public Accounting Firm or Substantial 
Portions of Another Public Accounting Firm's Personnel

    If the Firm became registered on or after December 31, 2009, the 
first annual report that the Firm files must provide this information 
for the period running from the date used by the Firm for purposes of 
General Instruction 9 of Form 1 (regardless of whether that date was 
before or after the beginning of the reporting period) through March 31 
of the year in which the annual report is required to be filed.
Item 8.1 Acquisition of Another Public Accounting Firm or Substantial 
Portions of Another Public Accounting Firm's Personnel
    a. State whether the Firm acquired another public accounting firm.
    b. If the Firm provides an affirmative response to Item 8.1.a, 
provide the name(s) of the public accounting firm(s) that the Firm 
acquired.
    c. State whether the Firm, without acquiring another public 
accounting firm, took on as employees, partners, shareholders, 
principals, members, or owners 75% or more of the persons who, as of 
the beginning of the reporting period, were the partners, shareholders, 
principals, members, or owners of another public accounting firm.
    d. If the Firm provides an affirmative response to Item 8.1.c, 
provide the name of the other public accounting firm and the number of 
the other public accounting firm's former partners, shareholders, 
principals, members, owners, and accountants that joined the Firm.

Part IX--Affirmation of Consent

Item 9.1 Affirmation of Understanding of, and Compliance With, Consent 
Requirements
    Whether or not the Firm, in applying for registration with the 
Board, provided the signed statement required by Item 8.1 of Form 1, 
affirm that--
    a. The Firm has consented to cooperate in and comply with any 
request for testimony or the production of documents made by the Board 
in furtherance of its authority and responsibilities under the 
Sarbanes-Oxley Act of 2002;
    b. The Firm has secured from each of its associated persons, and 
agrees to enforce as a condition of each such person's continued 
employment by or other association with the Firm, a consent indicating 
that the associated person consents to cooperate in and comply with any 
request for testimony or the production of documents made by the Board 
in furtherance of its authority under the Sarbanes-Oxley Act of 2002, 
and that the associated person understands and agrees that such consent 
is a condition of his or her continued employment by or other 
association with the Firm; and
    c. The Firm understands and agrees that cooperation and compliance, 
as described in Item 9.1.a, and the securing and enforcing of consents 
from its associated persons as described in Item 9.1.b, is a condition 
to the continuing effectiveness of the registration of the Firm with 
the Board.

    Note 1: The affirmation in Item 9.1.b shall not be understood to 
include an affirmation that the Firm has secured such consents from any 
associated person that is a registered public accounting firm.

    Note 2: The affirmation in Item 9.1.b shall not be understood to 
include an affirmation that the Firm has secured such consents from any 
associated person that is a foreign public accounting firm in 
circumstances where that associated person asserts that non-U.S. law 
prohibits it from providing the consent, so long as the Firm possesses 
in its files documents relating to the associated person's assertion 
about non-U.S. law that would be sufficient to satisfy the requirements 
of subparagraphs (2) through (4) of Rule 2207(c) if that associated 
person were a registered public accounting firm filing a Form 2 and 
withholding this affirmation. This exception to the affirmation in Item 
9.1.b does not relieve the Firm of its obligation to enforce 
cooperation and compliance with Board demands by any such associated 
person as a condition of continued association with the Firm.

    Note 3: If the Firm is a foreign registered public accounting firm, 
the affirmations in Item 9.1 that relate to associated persons shall be 
understood to encompass every accountant who is a proprietor, partner, 
principal, shareholder, officer, or audit manager of the Firm and who 
provided at least ten hours of audit services for any issuer during the 
reporting period.

Part X--Certification of the Firm

Item 10.1 Signature of Partner or Authorized Officer
    This Form must be signed on behalf of the Firm by an authorized 
partner or officer of the Firm including, in accordance with Rule 2204, 
both a signature that appears in typed form within the electronic 
submission and a corresponding manual signature retained by the Firm. 
The signer must certify that--
    a. the signer is authorized to sign this Form on behalf of the 
Firm;
    b. the signer has reviewed this Form;
    c. based on the signer's knowledge, the Firm has filed a special 
report on Form 3 with respect to each event that occurred before the 
end of the reporting period and for which a special report on Form 3 is 
required under the Board's rules;
    d. based on the signer's knowledge, this Form does not contain any 
untrue statement of a material fact or omit to state a material fact 
necessary to make the statements made, in light of the circumstances 
under which such statements were made, not misleading; and
e. either--
    1. based on the signer's knowledge, the Firm has not failed to 
include in this Form any information or affirmation that is required by 
the instructions to this Form, or
    2. based on the signer's knowledge--
    (A) the Firm is a foreign registered public accounting firm and has 
not failed to include in this Form any information or affirmation that 
is required by the instructions to this Form except for information or 
affirmations that the Firm asserts it cannot provide to the Board on 
this Form 2 without violating non-U.S. law;
    (B) with respect to any such withheld information or affirmation, 
the Firm has

[[Page 6292]]

satisfied the requirements of PCAOB Rule 2207(b) and has in its 
possession the materials required by PCAOB Rule 2207(c); and
    (C) the Firm has indicated, in accordance with the instructions to 
this Form, each Item of this Form with respect to which the Firm has 
withheld any required information or affirmation.
    The signature must be accompanied by the signer's title, the 
capacity in which the signer signed the Form, the date of signature, 
and the signer's business mailing address, business telephone number, 
business facsimile number, and business email address.

Part XI--Exhibits

    To the extent applicable under the foregoing instructions or the 
Board's rules, each annual report must be accompanied by the following 
exhibits:

Exhibit 3.2 Description of Methodology Used to Estimate Components of 
Calculation in Item 3.2 and Reasons for Using Estimates
Exhibit 99.1 Request for Confidential Treatment
Exhibit 99.3 Materials Required by Rule 2207(c)(2)-(4)--Submit Only as 
an Exhibit to an Amended Form 2 in Response to a Request Made Pursuant 
to Rule 2207(d)

Form 3--Special Report Form

General Instructions

    1. Submission of this Report. Effective December 31, 2009, a 
registered public accounting firm must use this Form to file special 
reports with the Board pursuant to Section 102(d) of the Act and Rule 
2203 and to file any amendments to a special report. Unless otherwise 
directed by the Board, the Firm must file this Form, and all exhibits 
to this Form, electronically with the Board through the Board's Web-
based system.
    2. Defined Terms. The definitions in the Board's rules apply to 
this Form. Italicized terms in the instructions to this Form are 
defined in the Board's rules. In addition, as used in the instructions 
to this Form, the term ``the Firm'' means the registered public 
accounting firm that is filing this Form with the Board.
    3. When this Report is Required and When It is Considered Filed. 
Upon the occurrence of any event specified in Part II of this Form, the 
Firm must report the event on this Form by following the instructions 
to this Form. With respect to events that occur on or after December 
31, 2009 and while the Firm is registered, the Firm must file the Form 
no later than thirty days after the occurrence of the event reported. 
Certain additional requirements apply, but they vary depending on 
whether a firm was registered as of December 31, 2009. A firm that 
becomes registered after December 31, 2009, must, within thirty days of 
receiving notice of Board approval of its registration application, 
file this Form to report any reportable events that occurred in a 
specified period before approval of the firm's application for 
registration. See Rule 2203(a)(2). A firm that was registered as of 
December 31, 2009, must, by January 30, 2010, file this Form to report 
certain additional information that is current as of December 31, 2009. 
See Rule 2203(a)(3) and General Instruction No. 4 below. A special 
report shall be deemed to be filed on the date that the Firm submits a 
Form 3 in accordance with Rule 2203 that includes the signed 
certification required in Part VIII of Form 3.
    4. Required Filing to Bring Current Certain Information for Firms 
Registered as of December 31, 2009. If the Firm is registered as of 
December 31, 2009, the Firm must file a special report on this Form no 
later than January 30, 2010, to report the information specified below, 
to the extent that it has not been reported on the Firm's Form 1 
filing. The Firm must make this Form 3 filing to report the following 
information even if the Firm has previously informally disclosed the 
information to the Board or its staff--
    a. Information responsive to Items 2.4 through 2.9 and Item 4.1 if 
(1) the proceeding is pending as of December 31, 2009, and (2) the 
defendants or respondents as of that date include either the Firm or a 
person who is a partner, shareholder, principal, owner, member, or 
audit manager of the Firm as of that date;
    b. Information responsive to Items 2.10 and 4.2 if (1) the 
conclusion of a proceeding as to any party specified there occurred 
after the date used by the firm for purposes of General Instruction 9 
to Form 1 and before December 31, 2009, and (2) the proceeding resulted 
in any conviction of, judgment against, imposition of any liability or 
sanction on, or Commission Rule 102(e) order against the Firm or any 
person who is a partner, shareholder, principal, owner, member, or 
audit manager of the Firm as of December 31, 2009;
    c. Information responsive to Items 2.11 and 4.3 if the Firm is the 
subject of a petition or proceeding described there as of December 31, 
2009;
    d. Information responsive to Items 2.12 through 2.14 and Part V if 
(1) the relationship commenced after the date used by the firm for 
purposes of General Instruction 9 to Form 1, (2) the specified 
disciplinary sanction or Commission Rule 102(e) order continued to be 
in effect as of December 31, 2009, and (3) the specified relationship 
continues to exist as of December 31, 2009;
    e. Information responsive to Items 2.15 and 6.1 if (1) the loss of 
authorization relates to a jurisdiction or authority identified in Item 
1.7 of the Firm's Form 1 and, (2) as of December 31, 2009, the Firm 
continues to lack the specified authorization in that jurisdiction;
    f. Information responsive to Items 2.16 and 6.2 if the license or 
certification is in effect as of December 31, 2009; and
    g. Information responsive to Items 2.17 and 2.18 and Part VII that 
is current as of December 31, 2009 to the extent that it differs from 
the corresponding information provided on the Firm's Form 1.
    5. Completing the Form. A firm filing this Form must always 
complete Parts I, II, and VIII of this Form. Parts III through VII 
should be completed to the extent applicable, as described more fully 
in the instructions to Part II of the Form.
    6. Amendments to this Report. Amendments shall not be filed to 
update information in a filed Form 3 that was correct at the time the 
Form was filed, but only to correct information that was incorrect at 
the time the Form was filed or to provide information that was omitted 
from the Form and was required to be provided at the time the Form was 
filed. When filing a Form 3 to amend an earlier filed Form 3, the Firm 
must supply not only the corrected or supplemental information, but 
must include in the amended Form 3 all information, affirmations, and 
certifications that were required to be included in the original Form 
3. The Firm may access the originally filed Form 3 through the Board's 
Web-based system and make the appropriate amendments without needing to 
re-enter all other information.

    Note: The Board will designate an amendment to a special report as 
a report on ``Form 3/A.''

    7. Rules Governing this Report. In addition to these instructions, 
the rules contained in Part 2 of Section 2 of the Board's rules govern 
this Form. Please read these rules and the instructions carefully 
before completing this Form.
    8. Requests for Confidential Treatment. The Firm may, by marking 
the Form in accordance with the instructions provided, request 
confidential treatment of any information submitted in Item 3.1.c,

[[Page 6293]]

Part IV, Part V, Item 6.1.d, Item 7.1.d, or Exhibit 99.3 of this Form 
that has not otherwise been publicly disclosed and that either contains 
information reasonably identified by the Firm as proprietary 
information or that is protected from public disclosure by applicable 
laws related to confidentiality of proprietary, personal, or other 
information. See Rule 2300. If the Firm requests confidential 
treatment, it must identify the information in Item 3.1.c, Part IV, 
Part V, Item 6.1.d, Item 7.1.d, or Exhibit 99.3 that it desires to keep 
confidential, and include, as Exhibit 99.1 to this Form, a 
representation that, to the Firm's knowledge, the information for which 
confidential treatment is requested has not otherwise been publicly 
disclosed, and a detailed explanation of the grounds on which the 
information is considered proprietary or a detailed explanation of the 
basis for asserting that the information is protected by law from 
public disclosure and a copy of the specific provision of law that the 
Firm claims protects the information from public disclosure. If the 
Firm fails to include Exhibit 99.1, or includes an Exhibit 99.1 that 
fails to comply with Rule 2300(c)(2), the request for confidential 
treatment may be denied solely on the basis of the failure. The Board 
will normally grant confidential treatment requests for information 
concerning non-public disciplinary proceedings. The Board will 
determine whether or not to grant other confidential treatment requests 
on a case-by-case basis. See Rule 2300(c).
    9. Assertions of Conflicts with Non-U.S. Law. If the Firm is a 
foreign registered public accounting firm, the Firm may, unless 
otherwise directed by the Board pursuant to Rule 2207(e), decline to 
provide certain information required by this Form if the Firm could not 
provide such information without violating non-U.S. law and the Firm 
proceeds in accordance with Rule 2207. The Firm may withhold responsive 
information on that basis from any Part of the Form other than Parts I, 
II, and VIII, and Items 7.1.a, 7.1.b, 7.1.c, and 7.2. If the firm 
withholds responsive information, the Firm must indicate, in accordance 
with the instructions in the relevant Part of the Form, the particular 
Items with respect to which the Firm has withheld responsive 
information. The Firm may not use the Form to make any general 
assertion that a particular requirement may conflict with non-U.S. law, 
but only to indicate that, on the basis of an asserted conflict, the 
Firm has in fact withheld from this Form required information.
    10. Language. Information submitted as part of this Form, including 
any exhibit to this Form, must be in the English language.

Part I--Identity of the Firm

Item 1.1 Name of Firm
    a. State the legal name of the Firm.

    Note: If the Firm is filing this Form 3 to report that the Firm's 
legal name has changed, the name entered in Item 1.1.a should be the 
Firm's legal name before the name change that is being reported. The 
Firm's new name should be included in the response to Item 1.1.c.
    b. If different than its legal name, state the name or names under 
which the Firm issues audit reports.
    c. If the Firm is filing this Form 3 to report that the Firm's 
legal name has changed, state the new legal name of the Firm.

Part II--Reason for Filing This Report

    Indicate, by checking the relevant box(es) from among Items 2.1 
through 2.18 below, the event(s) being reported on this Form. More than 
one event may be reported in the same Form 3 filing. For each event 
indicated below, proceed to the Parts and Items of this Form indicated 
parenthetically for the specific event being reported and provide the 
information therein described. Provide responses only to those Parts 
and Items of the Form specifically indicated for the event or events 
that the Firm identifies in this Part II as an event being reported on 
this Form. (For example, if the Form is being filed solely to report 
that the Firm has changed its name, check the box for Item 2.17 in this 
Part of the Form, and complete only Item 7.1 and Part VIII of the 
Form.) If the Firm is filing this Form to amend a previous filing, the 
Firm also should complete Item 2.19.

    Note: In Items 2.4 through 2.11 and Item 2.15, the reportable event 
is described in terms of whether the Firm ``has become aware'' of 
certain facts. For these purposes, the Firm is deemed to have become 
aware of the relevant facts on the date that any partner, shareholder, 
principal, owner, or member of the Firm first becomes aware of the 
facts.
Audit Reports
Item 2.1 The Firm has withdrawn an audit report on an issuer's 
financial statements, or withdrawn its consent to the use of its name 
in a report, document, or written communication containing an issuer's 
financial statements, and the issuer has failed to comply with a 
Commission requirement to make a report concerning the matter pursuant 
to Item 4.02 of Commission Form 8-K. (Complete Item 3.1 and Part VIII.)
Item 2.1-C The Firm has resigned, declined to stand for re-appointment, 
or been dismissed from an audit engagement as principal auditor (or an 
auditor upon whom the issuer's principal auditor expressed reliance in 
its report regarding a significant subsidiary), and the issuer has 
failed to comply with a Commission requirement to make a report 
concerning the matter pursuant to Item 4.01 of Commission Form 8-K. 
(Complete Item 3.2 and Part VIII.)
Item 2.2 The Firm has issued audit reports with respect to more than 
100 issuers in a calendar year immediately following a calendar year in 
which the Firm did not issue audit reports with respect to more than 
100 issuers. (Complete Part VIII.)
Item 2.3 The Firm has issued audit reports with respect to 100 or fewer 
issuers in a completed calendar year immediately following a calendar 
year in which the Firm issued audit reports with respect to more than 
100 issuers. (Complete Part VIII.)
Certain Legal Proceedings
Item 2.4 The Firm has become aware that the Firm has become a defendant 
in a criminal proceeding prosecuted by a governmental criminal law 
enforcement authority. (Complete Item 4.1 and Part VIII.)
Item 2.5 The Firm has become aware that, in a matter arising out of his 
or her conduct in the course of providing audit services or other 
accounting services to an issuer, broker, dealer, a partner, 
shareholder, principal, owner, member, or audit manager of the Firm has 
become a defendant in a criminal proceeding prosecuted by a 
governmental criminal law enforcement authority. (Complete Item 4.1 and 
Part VIII.)
Item 2.6 The Firm has become aware that a partner, shareholder, 
principal, owner, member, or audit manager of the Firm who provided at 
least ten hours of audit services for any issuer, broker, or dealer 
during the Firm's current fiscal year or its most recently completed 
fiscal year has become a defendant in a criminal proceeding prosecuted 
by a governmental criminal law enforcement authority and is charged 
with fraud, embezzlement, forgery, extortion, bribery, obstruction of 
justice, perjury, or false statements; or charged with any crime 
arising out of alleged conduct relating to accounting, auditing, 
securities, banking, commodities, taxation, consumer

[[Page 6294]]

protection, or insurance. (Complete Item 4.1 and Part VIII.)
Item 2.7 The Firm has become aware that, in a matter arising out of the 
Firm's conduct in the course of providing professional services for a 
client, the Firm has become a defendant or respondent in a civil or 
alternative dispute resolution proceeding initiated by a governmental 
entity or in an administrative or disciplinary proceeding other than a 
Board disciplinary proceeding. (Complete Item 4.1 and Part VIII.)
Item 2.8 The Firm has become aware that, in a matter arising out of his 
or her conduct in the course of providing audit services or other 
accounting services to an issuer, broker, dealer, a partner, 
shareholder, principal, owner, member, or audit manager of the Firm has 
become a defendant or respondent in a civil or alternative dispute 
resolution proceeding initiated by a governmental entity or in an 
administrative or disciplinary proceeding other than a Board 
disciplinary proceeding. (Complete Item 4.1 and Part VIII.)
Item 2.9 The Firm has become aware that, in a matter arising out of his 
or her conduct in the course of providing professional services for a 
client, a partner, shareholder, principal, owner, member, or audit 
manager of the Firm who provided at least ten hours of audit services 
for any issuer, broker, or dealer during the Firm's current fiscal year 
or its most recently completed fiscal year has become a defendant or 
respondent in a civil or alternative dispute resolution proceeding 
initiated by a governmental entity or in an administrative or 
disciplinary proceeding other than a Board disciplinary proceeding. 
(Complete Item 4.1 and Part VIII.)
Item 2.10 The Firm has become aware that a proceeding meeting the 
criteria described in Items 2.4, 2.5, 2.6, 2.7, 2.8, or 2.9, above has 
been concluded as to the Firm or a partner, shareholder, principal, 
owner, member, or audit manager of the Firm (whether by dismissal, 
acceptance of pleas, through consents or settlement agreements, the 
entry of a final judgment, or otherwise). (Complete Item 4.2 and Part 
VIII.)
Item 2.11 The Firm has become aware that the Firm, or the parent or a 
subsidiary of the Firm, has become the subject of a petition filed in a 
bankruptcy court, or has otherwise become the subject of a proceeding 
in which a court or governmental agency (or, in a non-U.S. 
jurisdiction, a person or entity performing a comparable function) has 
assumed jurisdiction over substantially all of the assets or business 
of the Firm or its parent or a subsidiary. (Complete Item 4.3 and Part 
VIII.)
Certain Relationships
Item 2.12 The Firm has taken on as an employee, partner, shareholder, 
principal, or member, or has otherwise become owned or partly owned by, 
a person who is currently the subject of (a) a Board disciplinary 
sanction suspending or barring the person from being an associated 
person of a registered public accounting firm, (b) a Commission order 
suspending or denying the privilege of appearing or practicing before 
the Commission, or (c) a court-ordered injunction prohibiting 
appearance or practice before the Commission. (Complete Item 5.1 and 
Part VIII.)
Item 2.13 The Firm has become owned or partly owned by an entity that 
is currently the subject of (a) a Board disciplinary sanction 
suspending or revoking that entity's registration or disapproving that 
entity's application for registration, (b) a Commission order 
suspending or denying the privilege of appearing or practicing before 
the Commission, or (c) a court-ordered injunction prohibiting 
appearance or practice before the Commission. (Complete Item 5.2 and 
Part VIII.)
Item 2.14 The Firm has entered into a contractual or other arrangement 
to receive consulting or other professional services from a person or 
entity meeting any of the criteria described in Items 2.12 or 2.13 
above. (Complete Item 5.3 and Part VIII.)
Licenses and Certifications
Item 2.15 The Firm has become aware that its authorization to engage in 
the business of auditing or accounting in a particular jurisdiction has 
ceased to be effective or has become subject to conditions or 
contingencies other than conditions or contingencies imposed on all 
firms engaged in the business of auditing or accounting in the 
jurisdiction. (Complete Item 6.1 and Part VIII.)
Item 2.16 The Firm has obtained a license or certification authorizing 
the Firm to engage in the business of auditing or accounting and which 
has not been identified on any Form 1 or Form 3 previously filed by the 
Firm, or there has been a change in a license or certification number 
identified on a Form 1 or Form 3 previously filed by the Firm. 
(Complete Item 6.2 and Part VIII.)
Changes in the Firm or the Firm's Board Contact Person
Item 2.17 The Firm has changed its legal name while otherwise remaining 
the same legal entity that it was before the name change. (Complete 
Item 7.1 and Part VIII.)
Item 2.18 There has been a change in the business mailing address, 
business telephone number, business facsimile number, or business email 
of the person most recently designated by the Firm (on Form 2, Form 3, 
or Form 4) as the Firm's primary contact with the Board, or the Firm is 
designating a new person to serve as the primary contact. (Complete 
Item 7.2 and Part VIII.)
Amendment
Item 2.19 Amendments
    If this is an amendment to a report previously filed with the 
Board--
    a. Indicate, by checking the box corresponding to this item, that 
this is an amendment.
    b. Identify the specific Item numbers of this Form (other than this 
Item 2.19) as to which the Firm's response has changed from that 
provided in the most recent Form 3 or amended Form 3 filed by the Firm 
with respect to the events reported on this Form.

PART III--WITHDRAWN AUDIT REPORTS AND ISSUER AUDITOR CHANGES

Item 3.1 Withdrawn issuer audit reports and consents
    If the Firm has withdrawn an audit report on an issuer's financial 
statements, or withdrawn its consent to the use of its name in a 
report, document, or written communication containing an issuer's 
financial statements, and the issuer has failed to comply with a 
Commission requirement to make a report concerning the matter pursuant 
to Item 4.02 of Commission Form 8-K, provide--
    a. The issuer's name and CIK number, if any;
    b. The date(s) of the audit report(s) that the Firm has withdrawn, 
or to which the Firm's withdrawal of consent relates; and
    c. A description of the reason(s) the Firm has withdrawn the audit 
report(s) or the consent.

    Note: The 30-day period in which the Firm must report the event 
does not begin to run unless and until the issuer fails to report on 
Form 8-K within the time required by the Commission's rules. The Firm 
must then report the

[[Page 6295]]

event on Form 3 within 30 days of the expiration of the required Form 
8-K filing deadline, unless, within that 30-day period, the issuer 
reports on a late-filed Form 8-K.
Item 3.2 Issuer auditor changes
    If the Firm has resigned, declined to stand for re-appointment, or 
been dismissed from an audit engagement as principal auditor (or an 
auditor upon whom the issuer's principal auditor expressed reliance in 
its report regarding a significant subsidiary) and the issuer has 
failed to comply with a Commission requirement to make a report 
concerning the matter pursuant to Item 4.01 of Commission Form 8-K, 
provide--
    a. The issuer's name and CIK number, if any; and
    b. Whether the Firm resigned, declined to stand for re-election, or 
was dismissed and the date thereof.

PART IV--CERTAIN PROCEEDINGS

Item 4.1 Criminal, Governmental, Administrative, or Disciplinary 
Proceedings
    If the Firm has indicated in this Form 3 that any of the events 
described in Items 2.4, 2.5, 2.6, 2.7, 2.8, or 2.9 has occurred, 
provide the following information with respect to each such event--
    a. The name, filing date, and case or docket number of the 
proceeding, and the nature of the proceeding, i.e., whether it is a 
criminal proceeding, a civil or alternative dispute resolution 
proceeding, or an administrative or disciplinary proceeding.
    b. The name of the court, tribunal, or body in or before which the 
proceeding was filed.
    c. An indication whether the Firm itself is a defendant or 
respondent in the proceeding and, if so, the statutes, rules, or legal 
duties that the firm is alleged to have violated, and a brief 
description of the firm's alleged conduct in violation of those 
statutes, rules, or legal duties.
    d. The names of every defendant or respondent who is a partner, 
shareholder, principal, owner, member, or audit manager of the Firm, or 
who was such either at the time the Firm received notice of the 
proceeding or at the time of the alleged conduct on which any claim or 
charge is based, and who provided at least ten hours of audit services 
for any issuer, broker, or dealer during the Firm's current fiscal year 
or its most recent fiscal year; and, as to each such defendant or 
respondent, the statutes, rules, or legal duties that he or she is 
alleged to have violated, and a brief description of his or her alleged 
conduct in violation of those statutes, rules, or legal duties.
    e. The name of any client that was the recipient of the 
professional services to which any claim or charge in the proceeding 
relates.

    Note: For the purpose of this Part, administrative or disciplinary 
proceedings include those of the Commission; any other federal, state, 
or non-U.S. agency, board, or administrative or licensing authority; 
and any professional association or body. Investigations that have not 
resulted in the commencement of a proceeding need not be included.
Item 4.2 Concluded Criminal, Governmental, Administrative, or 
Disciplinary Proceedings
    If any proceeding meeting the criteria described in Items 2.4, 2.5, 
2.6, 2.7, 2.8, or 2.9, including any proceeding reported in Item 4.1, 
has been concluded as to the Firm or a partner, shareholder, principal, 
owner, member, or audit manager of the Firm (whether by dismissal, 
acceptance of pleas, through consents or settlement agreements, the 
entry of a final judgment, or otherwise), provide--
    a. The name, filing date, and case or docket number of the 
proceeding, and the nature of the proceeding, i.e., whether it is a 
criminal proceeding, a civil or alternative dispute resolution 
proceeding, or an administrative or disciplinary proceeding;
    b. The name of the court, tribunal, or body in or before which the 
proceeding was filed; and
    c. A brief description of the terms of the conclusion of the 
proceeding as to the Firm or partner, shareholder, principal, owner, 
member, or audit manager.
Item 4.3 Bankruptcy or Receivership
    If the Firm, or the parent or a subsidiary thereof, has become the 
subject of a petition filed in a bankruptcy court, or has otherwise 
become the subject of a proceeding in which a court or governmental 
agency (or, in a non-U.S. jurisdiction, a person or entity performing a 
comparable function) has assumed jurisdiction over substantially all of 
the assets or business of the Firm or its parent or a subsidiary, 
provide--
    a. the name of the proceeding;
    b. the name of the court or governmental body;
    c. the date of the filing or of the assumption of jurisdiction; and
    d. the identity of the receiver, fiscal agent or similar officer, 
if applicable, and the date of his or her appointment.

PART V--CERTAIN RELATIONSHIPS

Item 5.1 New Relationship With Person Subject to Bar or Suspension
    If the Firm has taken on as an employee, partner, shareholder, 
principal, or member, or has otherwise become owned or partly owned by, 
a person who is currently the subject of (a) a Board disciplinary 
sanction suspending or barring the person from being an associated 
person of a registered public accounting firm, (b) a Commission order 
suspending or denying the privilege of appearing or practicing before 
the Commission, or (c) a court-ordered injunction prohibiting 
appearance or practice before the Commission, provide--
    a. the name of the person;
    b. the nature of the person's relationship with the Firm; and
    c. the date on which the person's relationship with the Firm began.
Item 5.2 New Ownership Interest by Firm Subject to Bar or Suspension
    If the Firm has become owned or partly owned by an entity that is 
currently the subject of (a) a Board disciplinary sanction suspending 
or revoking that entity's registration or disapproving that entity's 
application for registration, (b) a Commission order suspending or 
denying the privilege of appearing or practicing before the Commission, 
or (c) a court-ordered injunction prohibiting appearance or practice 
before the Commission, provide--
    a. the name of the entity that has obtained an ownership interest 
in the Firm;
    b. the nature and extent of the ownership interest; and
    c. the date on which the ownership interest was obtained.
Item 5.3 Certain Arrangements To Receive Consulting or Other 
Professional Services
    If the Firm has entered into a contractual or other arrangement to 
receive consulting or other professional services from a person or 
entity meeting any of the criteria described in Items 2.12 or 2.13 
above, provide--
    a. the name of the person or entity;
    b. the date that the Firm entered into the contract or other 
arrangement; and
    c. a description of the services to be provided to the Firm by the 
person or entity.

[[Page 6296]]

PART VI--LICENSES AND CERTIFICATIONS

Item 6.1 Loss of, or Limitations Imposed on, Authorization To Engage in 
the Business of Auditing or Accounting
    If the Firm's authorization to engage in the business of auditing 
or accounting in a particular jurisdiction has ceased to be effective 
or has become subject to conditions or contingencies other than 
conditions or contingencies imposed on all firms engaged in the 
business of auditing or accounting in the jurisdiction, provide--
    a. the name of the state, agency, board or other authority that had 
issued the license or certification related to such authorization;
    b. the number of the license or certification;
    c. the date that the authorization ceased to be effective or became 
subject to conditions or contingencies, and
    d. a brief description of the reason(s) for such action, including 
a description of the conditions or contingencies, if any.
Item 6.2 New License or Certification
    If the Firm has obtained any license or certification authorizing 
the Firm to engage in the business of auditing or accounting, and which 
has not been identified on any Form 1 or Form 3 previously filed by the 
Firm, or there has been a change in any license or certification number 
identified on a Form 1 or Form 3 previously filed by the Firm, 
provide--
    a. the name of the issuing state, agency, board or other authority;
    b. the number of the license or certification;
    c. the date the license or certification took effect; and
    d. if the license or certification replaces another license or 
certification issued by the same authority, the number of the replaced 
license or certification.

    Note: If the Firm is filing a Form 4 to report a change in its form 
of organization, change in jurisdiction, or a business combination, the 
Firm should report on Form 4, rather than Form 3, any related license 
change that takes effect before the submission of the Form 4.

PART VII--CHANGES IN THE FIRM OR THE FIRM'S BOARD CONTACT PERSON

Item 7.1 Change in Name of Firm
    If the Firm is reporting a change in its legal name--
    a. State the new legal name of the Firm;
    b. State the legal name of the Firm immediately preceding the new 
legal name;
    c. State the effective date of the name change;
    d. Provide a brief description of the reason(s) for the change; and
    e. Affirm, by checking the box corresponding to this Item, that, 
other than the name change, the Firm is the same legal entity that it 
was before the name change.

    Note: If, other than the name change, the Firm is not the same 
legal entity that it was before the name change, whether because of a 
change in the Firm's legal form of organization or because of other 
transactions, the registration status of the predecessor firm does not 
automatically attach to the Firm, and the Firm cannot report the event 
as a name change. If the Firm cannot make the affirmation required by 
Item 7.1.e, the Firm cannot execute the certification in Part VIII as 
to Item 7.1, and this Form cannot be deemed filed under Rule 2206.
    In that event, the Firm should consider whether, pursuant to the 
provisions of Rule 2108, the Firm can make the representations required 
in a Form 4 filing to enable the predecessor firm's registration to 
attach to the Firm. If the Firm cannot or does not file with the Board 
a Form 4 making all necessary representations, the predecessor firm's 
registration does not attach to the Firm. In those circumstances, the 
Firm may not lawfully prepare or issue an audit report without first 
filing an application for registration on Form 1 and having that 
application approved by the Board.

    Note: If the Firm is filing a Form 4 to report a change in its form 
of organization, change in jurisdiction, or a business combination, the 
Firm should report any related name change on Form 4 and not on Form 3.
Item 7.2 Change in Contact Information
    If there has been a change in the business mailing address, 
business telephone number, business facsimile number, or business email 
address of the person most recently designated by the Firm (on Form 2, 
Form 3, or Form 4) as the Firm's primary contact with the Board, or if 
the Firm is designating a new person to serve as the primary contact, 
provide the name and current business mailing address, business 
telephone number, business facsimile number, and business email of the 
partner or authorized officer of the Firm who will serve as the Firm's 
primary contact with the Board.

PART VIII--CERTIFICATION OF THE FIRM

Item 8.1 Signature of Partner or Authorized Officer
    This Form must be signed on behalf of the Firm by an authorized 
partner or officer of the Firm including, in accordance with Rule 2204, 
both a signature that appears in typed form within the electronic 
submission and a corresponding manual signature retained by the Firm. 
The signer must certify that--
    a. the signer is authorized to sign this Form on behalf of the 
Firm;
    b. the signer has reviewed this Form;
    c. based on the signer's knowledge, this Form does not contain any 
untrue statement of a material fact or omit to state a material fact 
necessary to make the statements made, in light of the circumstances 
under which such statements were made, not misleading; and
    d. either--
    1. based on the signer's knowledge, the Firm has not failed to 
include in this Form any information or affirmation that is required by 
the instructions to this Form, with respect to the event or events 
being reported on this Form, or
    2. based on the signer's knowledge--
    (A) the Firm is a foreign registered public accounting firm and has 
not failed to include in this Form any information or affirmation that 
is required by the instructions to this Form, with respect to the event 
or events being reported on this Form, except for information or 
affirmations that the Firm asserts it cannot provide to the Board on 
this Form 3 without violating non-U.S. law;
    (B) with respect to any such withheld information or affirmation, 
the Firm has made the efforts required by PCAOB Rule 2207(b) and has in 
its possession the materials required by PCAOB Rule 2207(c); and
    (C) the Firm has indicated, in accordance with the instructions to 
this Form, each Item of this Form with respect to which the Firm has 
withheld any required information.
    The signature must be accompanied by the signer's title, the 
capacity in which the signer signed the Form, the date of signature, 
and the signer's business mailing address, business telephone number, 
business facsimile number, and business email address.

PART IX--EXHIBITS

    To the extent applicable under the foregoing instructions, each 
special report must be accompanied by the following exhibits:


[[Page 6297]]


Exhibit 99.1 Request for Confidential Treatment
Exhibit 99.3 Materials Required by Rule 2207(c)(2)-(4)--Submit Only as 
an Exhibit to an Amended Form 3 in Response to a Request Made Pursuant 
to Rule 2207(d)
* * * * *

FORM 4--SUCCEEDING TO REGISTRATION STATUS OF PREDECESSOR

GENERAL INSTRUCTIONS

    1. Purpose of this Form. Effective December 31, 2009, this Form 
must be used to submit information, representations, and affirmations 
to the Board, pursuant to Rule 2109, by a public accounting firm that 
seeks to succeed to the registration status of a predecessor firm in 
circumstances described in Rule 2108.
    2. Defined Terms. The definitions in the Board's rules apply to 
this Form. Italicized terms in the instructions to this Form are 
defined in the Board's rules. In addition, as used in the instructions 
to this Form, the term ``the Firm'' means the public accounting firm 
that is submitting this Form to the Board, and the term ``the 
predecessor firm'' means the registered public accounting firm 
identified in Item 1.1.a of the Form.
    3. Submission of this Form. Unless otherwise directed by the Board, 
the Firm must submit this Form, and all exhibits to this Form, to the 
Board electronically by completing the Web-based version of this Form 
available on the Board's Web site. The Firm must use the predecessor 
firm's user ID and password to access the system and submit the Form. 
In the event of a transaction involving the combination of multiple 
registered public accounting firms, the Firm must access the system 
using only the user ID and password of the firm specifically identified 
in Item 1.1.a, and not those of any other registered public accounting 
firm.
    4. When this Form Should be Submitted and When It is Considered 
Filed. To succeed to the registration status of the predecessor firm 
pursuant to the provisions of Rule 2108(a) or (b), the Firm must 
provide the information and representations required by this Form, in 
accordance with the instructions to this Form, and must file the Form 
no later than the 14th day after the effective date of the change in 
form of organization, change in jurisdiction of organization, or 
business combination. Different timing requirements apply with respect 
to events that occurred before December 31, 2009. See Rule 2109(a)(2). 
Form 4 is considered filed when the Firm has submitted to the Board, 
through the Board's Web-based reporting system, a Form 4 that includes 
the signed certification required in Part V of Form 4, provided, 
however, that any Form 4 so submitted after the applicable filing 
deadline shall not be deemed filed unless and until the Board, pursuant 
to Rule 2108(d), grants leave to file the Form 4 out of time.
    5. Seeking Leave To File this Form Out of Time. To request leave to 
file Form 4 out of time, pursuant to the provisions of Rule 2108(d), 
the Firm must file the request on Form 4 and must attach as Exhibit 
99.5 a detailed statement describing why, despite the passage of time 
since the event described on the Form 4, the Board should permit the 
Firm to succeed to the registration status of the predecessor firm. Any 
Form 4 that has been submitted out of time, and as to which a Board 
decision on whether to allow the form to be filed is pending, may be 
withdrawn by accessing the pending submission in the Board's Web-based 
system and selecting the ``Withdraw'' option.
    6. Completing the Form. The Firm must complete Parts I, II, IV and 
V of this Form. Part III should be completed to the extent applicable, 
as described more fully in the instructions to Part II of the Form.
    7. Amendments to this Form. Amendments shall not be submitted to 
update information into a Form 4 that was correct at the time the Form 
was submitted, but only to correct information that was incorrect at 
the time the Form was submitted or to provide information that was 
omitted from the Form and was required to be provided at the time the 
Form was submitted. When submitting a Form 4 to amend an earlier 
submitted Form 4, the Firm must supply not only the corrected or 
supplemental information, but must include in the amended Form 4 all 
information, affirmations, and certifications that were required to be 
included in the original Form 4. The Firm may access the originally 
filed Form 4 through the Board's Web-based system and make the 
appropriate amendments without needing to re-enter all other 
information. (Note that, pursuant to Rule 2109(d), the provisions of 
Rule 2205 concerning amendments apply to any submission on this Form as 
if the submission were a report on Form 3.)

    Note: The Board will designate an amendment to a report on Form 4 
as a report on ``Form 4/A.''

    Note: Any change to a Form 4 that was originally submitted out of 
time, and as to which a Board decision on whether to allow the form to 
be filed is pending, shall not be treated as an amendment. To make a 
change to any such pending Form 4 submission, the Firm must access the 
pending submission in the Board's Web-based system, select the 
``Withdraw and Replace'' option, and submit a new completed Form 4 in 
place of the previously pending submission. The certification required 
in Part V of the new submission must be executed specifically for the 
replacement version of the Form and dated accordingly.
    8. Rules Governing this Form. In addition to these instructions, 
the rules contained in Part 2 of Section 2 of the Board's rules govern 
this Form. Please read these rules and the instructions carefully 
before completing this Form.
    9. Requests for Confidential Treatment. The Firm may, by marking 
the Form in accordance with the instructions provided, request 
confidential treatment of any information submitted in Exhibit 99.3 or 
Exhibit 99.5 of this Form that has not otherwise been publicly 
disclosed and that either contains information reasonably identified by 
the Firm as proprietary information or that is protected from public 
disclosure by applicable laws related to confidentiality of 
proprietary, personal, or other information. See Rule 2300. If the Firm 
requests confidential treatment, it must identify the information in 
Exhibit 99.3 or Exhibit 99.5 that it desires to keep confidential, and 
include, as Exhibit 99.1 to this Form, a representation that, to the 
Firm's knowledge, the information for which confidential treatment is 
requested has not otherwise been publicly disclosed, and a detailed 
explanation of the grounds on which the information is considered 
proprietary or a detailed explanation of the basis for asserting that 
the information is protected by law from public disclosure and a copy 
of the specific provision of law that the Firm claims protects the 
information from public disclosure. If the Firm fails to include 
Exhibit 99.1, or includes an Exhibit 99.1 that fails to comply with 
Rule 2300(c)(2), the request for confidential treatment may be denied 
solely on the basis of the failure. The Board will normally grant 
confidential treatment requests for information concerning non-public 
disciplinary proceedings. The Board will determine whether or not to 
grant other confidential treatment requests on a case-by-case basis. 
See Rule 2300(c).
    10. Assertions of Conflicts with Non-U.S. Law. If the Firm is a 
foreign registered public accounting firm, the

[[Page 6298]]

Firm may, unless otherwise directed by the Board pursuant to Rule 
2207(e), decline to provide the affirmation required by Item 4.1 of 
this Form and any answer required by Item 3.2.e of this Form if doing 
so would constitute a violation of non-U.S. law by the Firm and the 
Firm proceeds in accordance with Rule 2207. (Note that, pursuant to 
Rule 2109(d), the provisions of Rule 2207 apply to any submission on 
this Form as if the submission were a report on Form 3.) If the firm 
withholds the affirmation or answer, the Firm must indicate, in 
accordance with the instructions in the relevant Part of the Form, that 
it has done so.
    11. Language. Information submitted as part of this Form, including 
any exhibit to this Form, must be in the English language.

PART I--IDENTITY OF THE FIRM AND CONTACT PERSONS

Item 1.1 Names of Firm and Predecessor Registered Public Accounting 
Firm
    a. State the legal name of the registered public accounting firm to 
whose registration status the Firm seeks to succeed.

    Note: The name provided in Item 1.1.a should be the legal name of 
the registered public accounting firm as last reported to the Board on 
Form 1 or Form 3. This is the firm referred to in this Form as ``the 
predecessor firm.'' In accessing and submitting this Form through the 
Board's Web-based system, the Firm must use the predecessor firm's user 
ID and password.
    b. State the legal name of the Firm filing this Form.

    Note: The name provided in Item 1.1.b will be the name under which 
the Firm is registered with the Board if this Form is filed in 
accordance with Rule 2109.
    c. If different than the name provided in Item 1.1.b, state the 
name or names under which the Firm issues or intends to issue audit 
reports.
Item 1.2 Contact Information of the Firm
    a. State the physical address (and, if different, mailing address) 
of the Firm's headquarters office.
    b. State the telephone number and facsimile number of the Firm 's 
headquarters office. If available, state the Web site address of the 
Firm.
Item 1.3 Primary Contact and Signatory
    a. State the name, business title, physical business address (and, 
if different, business mailing address), business telephone number, 
business facsimile number, and business email address of a partner or 
authorized officer of the Firm who will serve as the Firm's primary 
contact with the Board, including for purposes of this Form 4, any 
annual reports filed on Form 2, and any special reports filed on Form 
3.

PART II--GENERAL INFORMATION CONCERNING THE FILING OF THIS FORM

Item 2.1 Reason for Filing this Form
    Indicate, by checking the box for either Item a or Item b below, 
the reason the Firm is filing this Form. Then proceed to the Parts and 
Items of this Form indicated parenthetically for the relevant item and 
provide the information described there. Provide responses only to 
those Parts and Items of the Form specifically indicated for the event 
or events that the Firm identifies in this Part II as the reason for 
filing this Form. (For example, if the Form is being submitted because 
the Firm has changed its form of organization, check the box for Item 
2.1.a, and complete only Item 3.1 and Parts IV and V of the Form. 
Complete Item 2.2 or Item 2.3 if applicable.)
    a. There has been a change in the Firm's form of organization, or 
the Firm has changed the jurisdiction under the law of which it is 
organized. (Complete Item 3.1, Part IV, and Part V; complete Item 2.2 
or Item 2.3 if applicable.)
    b. There has been an acquisition of a registered public accounting 
firm by an entity that was not a registered public accounting firm at 
the time of the acquisition, or a registered public accounting firm has 
combined with another entity or other entities to form a new legal 
entity. (Complete Item 3.2, Part IV, and Part V; complete Item 2.2 or 
Item 2.3 if applicable.)
Item 2.2 Request for Leave To File This Form Out of Time
    If this Form is not submitted in accordance with Rule 2109(b) on or 
before the filing deadline set by Rule 2109(a), the Firm may request 
leave to file this Form 4 out of time by checking the box for this 
Item, completing this Form 4 as is otherwise required, and providing, 
as Exhibit 99.5 to this Form, a description of the reason(s) the Form 
was not timely filed and a statement of the grounds on which the Firm 
asserts that the Board should grant leave to file the Form out of time.

    Note: Requests for leave to file Form 4 out of time are not 
automatically granted. See Rule 2108(d).
Item 2.3 Amendments
    If this is an amendment to a Form 4 previously filed with the 
Board--
    a. Indicate, by checking the box corresponding to this item, that 
this is an amendment.
    b. Identify the specific Item numbers of this Form (other than this 
Item 2.3) as to which the Firm's response has changed from that 
provided in the most recent Form 4 or amended Form 4 filed by the Firm 
with respect to the event reported on this Form.

PART III--CHANGES IN THE FIRM

Item 3.1 Changes in Form of Organization or in Relevant Jurisdiction
    If this Form 4 is being submitted in connection with a change in 
the Firm's form of organization or a change in the jurisdiction under 
the law of which the Firm is organized--
    a. State the Firm's current (i.e., after the change in legal form 
or jurisdiction) legal form of organization;
    b. Identify the jurisdiction under the law of which the Firm is 
organized currently (i.e., after the change in legal form or 
jurisdiction); and
    c. State the date that the change took effect.
    d. Affirm that, after the change reported or described in this Item 
3.1, the Firm is a public accounting firm under substantially the same 
ownership as the predecessor firm.

    Note: Neither the Act nor Board rules include any provision by 
which a registered public accounting firm may, in effect, transfer its 
Board registration to another entity. Rule 2108(a), in conjunction with 
this Form, allows the succession of registration status in 
circumstances in which a registered public accounting firm changes its 
legal form of organization while remaining under substantially the same 
ownership. For purposes of this Item, the Firm is considered to be 
under substantially the same ownership as the predecessor firm if a 
majority of the persons who held an equity ownership interest in the 
predecessor also constitute a majority of the persons who hold an 
equity ownership interest in the Firm.
    e. If, in connection with the change described in this Item 3.1, 
the Firm has obtained, or will practice under, a license or 
certification number, authorizing it to engage in the business of 
auditing or accounting, that is different from any such license or 
certification number previously reported to the Board by the 
predecessor firm, provide as to each such license--
    1. the name of the issuing state, agency, board, or other 
authority;

[[Page 6299]]

    2. the number of the license or certification;
    3. the date the license or certification took effect.
    f. If, in connection with the change described in this Item 3.1, 
any license or certification that authorized the predecessor firm to 
engage in the business of auditing or accounting has ceased to be 
effective or has become subject to any conditions or contingencies 
other than conditions or contingencies imposed on all firms engaged in 
the business of auditing or accounting in the jurisdiction, provide, as 
to each such license--
    1. the name of the issuing state, agency, board, or other 
authority;
    2. the number of the license or certification; and
    3. the date that the authorization ceased to be effective or became 
subject to conditions or contingencies.
Item 3.2 Acquisitions of, or Combinations Involving, a Registered 
Public Accounting Firm
    a. If this Form 4 is being submitted in connection with a 
transaction concerning which a person who holds an equity ownership 
interest in the Firm, or is employed by the Firm, can certify the 
points set out in Item 3.2.b. and Exhibit 99.4,--
    1. Provide the name of each entity, other than the predecessor 
firm, that was involved in the transaction and that was a registered 
public accounting firm immediately before the transaction, and as to 
each such entity--
    (i) affirm that the entity has filed with the Board a request for 
leave to withdraw from registration on Form 1-WD; and
    (ii) state the date that the entity filed Form 1-WD;
    2. Provide the name of each entity, including any acquiror, that 
was involved in the transaction and that was not a registered public 
accounting firm immediately before the transaction;
    3. Provide the date that the transaction took effect; and
    4. Provide a brief description of the nature of the transaction.
    b. Provide as Exhibit 99.4 to this Form, a statement in the form 
set out below, signed by a person who, immediately before the 
transaction, was an officer of, or held an equity ownership interest 
in, the predecessor firm and who now either holds an equity ownership 
interest in, or is employed by, the Firm. The statement must be 
submitted on behalf of the Firm. Exhibit 99.4 must include a signature 
that appears in typed form in the electronic submission and a 
corresponding manual signature retained by the Firm in accordance with 
Rule 2109(d). The signature must be accompanied by the signer's current 
title, the signer's title immediately before the event described in 
Item 3.2.a, the date of signature, and the signer's business mailing 
address, business telephone number, business facsimile number, and 
business email address. Other than the insertion of the relevant names, 
Exhibit 99.4 must be in the exact following words--
    On behalf of [name of the Firm], I certify that (1) I was an 
officer of, or held an equity ownership interest in, [name of 
predecessor firm] immediately before the transaction described in Item 
3.2.a of the Form 4 to which this exhibit is attached; (2) immediately 
before that transaction [name of predecessor firm] was a registered 
public accounting firm; (3) as part of that transaction, a majority of 
the persons who held equity ownership interests in [name of predecessor 
firm] obtained equity ownership interests in, or became employed by, 
[name of the Firm]; (4) [name of predecessor firm] intended that [name 
of the Firm] succeed to the Board registration status of [name of 
predecessor firm] to the extent permitted by the Board's rules; and (5) 
[name of predecessor firm] is no longer a public accounting firm.
    c. If, in connection with the transaction described in Item 3.2.a, 
the Firm has obtained, or will practice under, a license or 
certification number, authorizing it to engage in the business of 
auditing or accounting, that is different from any such license or 
certification number previously reported to the Board by the 
predecessor firm, provide, as to each such license--
    1. the name of the issuing state, agency, board or other authority;
    2. the number of the license or certification; and
    3. the date the license or certification took effect.
    d. If, in connection with the transaction described in Item 3.2.a, 
any license or certification that authorized the predecessor firm to 
engage in the business of auditing or accounting has ceased to be 
effective or has become subject to any conditions or contingencies 
other than conditions or contingencies imposed on all firms engaged in 
the business of auditing or accounting in the jurisdiction, provide, as 
to each such license--
    1. the name of the issuing state, agency, board, or other 
authority;
    2. the number of the license or certification; and
    3. the date that the authorization ceased to be effective or became 
subject to conditions or contingencies.
    e. Provide a ``yes'' or ``no'' answer to each of the following 
questions--
    1. Is there identified in Item 3.2.a.2 any entity that, if it were 
filing an application for registration on Form 1 on the date of the 
certification in Part V of this Form, would have to provide an 
affirmative response to Item 5.1.a of Form 1 in order to file a 
complete and truthful Form 1?

    Note: In considering whether an affirmative response would be 
required to Item 5.1.a of Form 1, the Firm should take into account the 
guidance provided by question number 33 in Frequently Asked Questions 
Regarding Registration with the Board, PCAOB Release No. 2003-011D 
(Apr. 28, 2010).

    2. Is there identified in Item 3.2.a.2 any entity that (i) issued 
an audit report with respect to an issuer on or after October 22, 2003 
(or, if the entity is a non-U.S. entity, July 19, 2004), while not 
registered with the Board, and (ii) did not thereafter have an 
application for registration on Form 1 approved by the Board?
    3. Is there identified in Item 3.2.a.2 any entity that (i) issued 
an audit report with respect to a broker or dealer for financial 
statements with fiscal years ending after December 31, 2008, while not 
registered with the Board, and (ii) did not thereafter have an 
application for registration on Form 1 approved by the Board?
    4. Is the Firm operating without holding any license or 
certification issued by a state, agency, board, or other authority 
authorizing the Firm to engage in the business of auditing or 
accounting?

    Note: If the Firm answers ``yes'' to any question in Item 3.2.e or 
asserts as to any of those questions that non-U.S. law prohibits it 
from providing an answer, the Firm cannot succeed outright to the 
registration of the predecessor. If this Form 4 is submitted in 
accordance with Rule 2109, however, the Firm will temporarily succeed 
to the registration of the predecessor for a transitional period as 
described in Rule 2108(b)(2) as long as the Firm makes the 
representation required in Item 3.2.f below. If the Firm answers 
``yes'' to any question in Item 3.2.e or asserts as to any of those 
questions that non U.S. law prohibits it from providing an answer but 
fails to make the representation required in Item 3.2.f, this Form 4 
will not be accepted for filing and the Firm will not succeed to the 
predecessor's registration even on a temporary basis. See Rule 
2108(b)(2).
    f. If the Firm answered ``yes'' to any question in Item 3.2.e or 
asserts as to any of those questions that non-U.S. law

[[Page 6300]]

prohibits it from providing an answer, affirm, by checking the box 
corresponding to the appropriate item, that one of the following 
statements is true--
    1. The Firm has filed an application for registration on Form 1 on 
or after the date provided in Item 3.2.a.3.
    2. The Firm intends to file an application for Registration on Form 
1 no later than 45 days after the date provided in Item 3.2.a.3.

PART IV--CONTINUING OBLIGATIONS

Item 4.1 Continuing Consent to Cooperate
    Affirm that--
    a. The Firm consents to cooperate in and comply with any request 
for testimony or the production of documents made by the Board in 
furtherance of its authority and responsibilities under the Sarbanes-
Oxley Act of 2002;
    b. The Firm has secured from each of its associated persons, and 
agrees to enforce as a condition of each such person's continued 
employment by or other association with the Firm, a consent indicating 
that the associated person consents to cooperate in and comply with any 
request for testimony or the production of documents made by the Board 
in furtherance of its authority under the Sarbanes-Oxley Act of 2002, 
and that the associated person understands and agrees that such consent 
is a condition of his or her continued employment by or other 
association with the Firm; and
    c. The Firm understands and agrees that cooperation and compliance, 
as described in Item 4.1.a., and the securing and enforcing of consents 
from its associated persons as described in Item 4.1.b., is a condition 
to the continuing effectiveness of the registration of the Firm with 
the Board.

    Note: The affirmation in Item 4.1.b. shall not be understood to 
include an affirmation that the Firm has secured such consents from any 
associated person that is a registered public accounting firm.

    Note: The affirmation in Item 4.1.b. shall not be understood to 
include an affirmation that the Firm has secured such consents from any 
associated person that is a foreign public accounting firm in 
circumstances where that associated person asserts that non-U.S. law 
prohibits it from providing the consent, so long as the Firm possesses 
in its files documents relating to the associated person's assertion 
about non-U.S. law that would be sufficient to satisfy the requirements 
of subparagraphs (2) through (4) of Rule 2207(c) if that associated 
person were a registered public accounting firm filing a Form 2 and 
withholding this affirmation. This exception to the affirmation in Item 
4.1.b. does not relieve the Firm of its obligation to enforce 
cooperation and compliance with Board demands by any such associated 
person as a condition of continued association with the Firm.

    Note: If the Firm is a foreign registered public accounting firm, 
the affirmations in Item 4.1 that relate to associated persons shall be 
understood to encompass every accountant who is a proprietor, partner, 
principal, shareholder, officer, or manager of the Firm and who 
provided at least ten hours of audit services for any issuer during the 
reporting period.
    Item 4.2 Continuing Responsibility to the Board for Previous 
Conduct Affirm that, for purposes of the Board's authority with respect 
to registered public accounting firms, including but not limited to the 
authority to require reporting of information and the authority to 
impose disciplinary sanctions, the Firm either has retained or assumes 
responsibility for the conduct of any predecessor registered public 
accounting firm before the change or business combination reported on 
this Form took effect.

    Note: As used in Item 4.2 the term ``predecessor registered public 
accounting firm,'' means (1) in circumstances not involving a 
transaction described in Item 3.2, the predecessor firm and (2) in 
circumstances involving a transaction described in Item 3.2, each 
registered public accounting firm that was involved in the business 
combination.

    Note: The continuing responsibility in Item 4.2 includes, among 
other things, responsibility for reporting information on Form 2 and 
events on Form 3. Thus, for example, if a registered public accounting 
firm experienced a Form 3 reportable event before the event that is the 
subject of this Form, the Firm, as successor, has the obligation to 
report that event on Form 3, and bears responsibility for any failure 
by any predecessor to have filed a timely Form 3 to report the matter.

    Note: The Board's rules do not require that any entity retain or 
assume responsibility as set forth above. In the absence of an 
affirmation that it retains or assumes responsibility for such conduct 
at least for purposes of the Board's authority, however, an entity 
cannot succeed to the Board registration status of any predecessor 
entity. See Rule 2108.

PART V--CERTIFICATION OF THE FIRM

Item 5.1 Signature of Partner or Authorized Officer
    This Form must be signed on behalf of the Firm by an authorized 
partner or officer of the Firm including, in accordance with Rule 
2109(d), both a signature that appears in typed form within the 
electronic submission and a corresponding manual signature retained by 
the Firm. The signer must certify that--
    a. the signer is authorized to sign this Form on behalf of the 
Firm;
    b. the signer has reviewed this Form;
    c. based on the signer's knowledge, this Form does not contain any 
untrue statement of a material fact or omit to state a material fact 
necessary to make the statements made, in light of the circumstances 
under which such statements were made, not misleading; and
    d. either--
    1. based on the signer's knowledge, the Firm has not failed to 
include in this Form any information or affirmation that is required by 
the instructions to this Form, with respect to the event or events 
being described on this Form, or
    2. based on the signer's knowledge--
    (A) the Firm is a foreign public accounting firm and has not failed 
to include in this Form any information or affirmation that is required 
by the instructions to this Form other than an affirmation required by 
Item 4.1 and/or an answer to Item 3.2.e.; and
    (B) the Firm asserts that it is prohibited by non-U.S. law from 
providing any such withheld affirmation or response to the Board on 
this Form and, with respect to each such withheld affirmation or 
response, the Firm has made the efforts described in PCAOB Rule 2207(b) 
and has in its files the materials described in PCAOB Rule 2207(c).
    The signature must be accompanied by the signer's title, the 
capacity in which the signer signed the Form, the date of signature, 
and the signer's business mailing address, business telephone number, 
business facsimile number, and business email address.

PART VI--EXHIBITS

    To the extent applicable under the foregoing instructions, each 
report must be accompanied by the following exhibits:
Exhibit 99.1 Request for Confidential Treatment
Exhibit 99.3 Materials Required by Rule 2207(c)(2)-(4)--Submit Only as 
an Exhibit to an Amended Form 4 in Response to a Request Made Pursuant 
to Rule 2207(d)

[[Page 6301]]

Exhibit 99.4 Acknowledgment Concerning Registration Status in Certain 
Transactions
Exhibit 99.5 Statement in Support of Request for Leave To File Form 4 
Out of Time.
* * * * *

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

    In its filing with the Commission, the Board included statements 
concerning the purpose of, and basis for, the proposed rules and 
discussed any comments it received on the proposed rules. 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. In 
addition, the Board is requesting that the Commission approve the 
proposed rules, pursuant to Section 103(a)(3)(C) of the Sarbanes-Oxley 
Act, for application to audits of emerging growth companies (``EGCs''), 
as that term is defined in Section 3(a)(80) of the Securities Exchange 
Act of 1934 (``Exchange Act''). The Board's request is set forth in 
section D.

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

(a) Purpose
Introduction
    On July 21, 2010, the Dodd-Frank Act \1\ amended various provisions 
of the Sarbanes-Oxley Act of 2002 (``the Dodd-Frank amendments'') and, 
among other things, gave the PCAOB oversight authority with respect to 
audits of brokers and dealers that are registered with the SEC.\2\ The 
Dodd-Frank amendments provided the Board with authority to carry out 
the same types of oversight programs for audits of brokers and dealers 
that it has carried out with respect to audits of issuers.\3\ The 
legislative history notes that this new authority ``permits [the Board] 
to write standards for, inspect, investigate, and bring disciplinary 
actions arising out of, any audit of a registered broker or dealer.'' 
\4\
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    \1\ Public Law 111-203, 124 Stat. 1376.
    \2\ Section 110 of the Sarbanes-Oxley Act of 2002 (``Sarbanes-
Oxley'' or the ``Act''), which was added by the Dodd-Frank 
amendments, incorporates the definitions of ``broker'' in Section 
3(a)(4) of the Securities Exchange Act of 1934 (``Exchange Act'') 
and ``dealer'' in Section 3(a)(5) of the Exchange Act, but includes 
only those brokers or dealers that are required to file a balance 
sheet, income statement, or other financial statement under Section 
17(e)(1)(A) of the Exchange Act certified by a registered public 
accounting firm. See Section 110(3) and (4) of the Act.
    \3\ As defined in Section 2(a)(7) of the Act, ``issuer'' means 
an issuer (as defined in Section 3 of the Exchange Act) the 
securities of which are registered under Section 12 of the Exchange 
Act, or that is required to file reports under Section 15(d) of the 
Exchange Act, or that files or has filed a registration statement 
that has not yet become effective under the Securities Act of 1933 
and that it has not withdrawn.
    \4\ S. Rep. No. 111-176, at 154 (2010). The Dodd-Frank 
amendments to Section 102(a) of the Act also expanded the Act's 
registration requirement by making it unlawful for any person that 
is not a registered public accounting firm to prepare or issue, or 
to participate in the preparation or issuance of, any audit report 
with respect to any broker or dealer. Even before the Dodd-Frank 
amendments, Section 17(e)(1)(A) of the Exchange Act, as amended by 
Sarbanes-Oxley in 2002, required that the balance sheets and income 
statements filed with the Commission by registered brokers or 
dealers be certified by a public accounting firm registered with the 
PCAOB. Before the Dodd-Frank amendments, however, the Sarbanes-Oxley 
Act did not give the PCAOB the authority to inspect, set standards 
for, or engage in investigation and enforcement actions with respect 
to registered firms that audit brokers and dealers. In July 2013, 
the SEC adopted amendments to SEC Rule 17a-5 to, among other things, 
require that broker and dealer audits be conducted in accordance 
with PCAOB standards and the PCAOB's attestation standards regarding 
broker and dealer examinations and reviews. See SEC, Broker-Dealer 
Reports, Exchange Act Release No. 70073 (July 30, 2013), 78 FR 51910 
(Aug. 21, 2013).
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    On February 28, 2012, the PCAOB proposed to update its rules to 
conform them to the Dodd-Frank amendments and to make certain other 
updates and clarifications.\5\ The Board received 13 comment letters: 
10 from registered public accounting firms (representing a range of 
large, medium, and small-sized firms), two from accounting-auditing 
professional associations, and one from an actuary. Commenters 
generally supported the goal of amending the Board's rules to conform 
them to the Dodd-Frank Act and to make certain other amendments in 
light of the Board's administrative experience.\6\ Commenters said the 
proposals were generally consistent with the ``goal of enhancing audit 
quality for the audits of brokers and dealers,'' \7\ and would 
``provide added clarity regarding the applicability of the Board's 
rules and standards to brokers and dealers.'' \8\
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    \5\ See Proposed Amendments to Conform the Board's Rules and 
Forms to the Dodd-Frank Act and Make Certain Updates and 
Clarifications, PCAOB Release No. 2012-002 (Feb. 28, 2012). The 
comment period closed on April 30, 2012.
    \6\ See Letter of the Center for Audit Quality (Apr. 30, 2012) 
(``CAQ Comment Letter''); Letter of Deloitte & Touche LLP (Apr. 26, 
2012) (``D&T Comment Letter''); Letter of Ernst & Young LLP (Apr. 
30, 2012) (``EY Comment Letter''); Letter of KPMG LLP (Apr. 27, 
2012) (``KPMG Comment Letter''); Letter of McGladrey & Pullen, LLP 
(Apr. 27, 2012) (``McGladrey Comment Letter''); Letter of 
PricewaterhouseCoopers LLP (Apr. 30, 2012) (``PWC Comment Letter'').
    \7\ Letter of Crowe Horwath LLP (Apr. 23, 2012) (``Crowe Horwath 
Comment Letter'').
    \8\ Letter of Grant Thornton LLP (Apr. 30, 2012) (``Grant 
Thornton Comment Letter'').
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    Commenters also raised a number of concerns, focusing especially on 
the Board's proposals to: Apply Rule 3523 (Tax Services for Persons in 
Financial Reporting Oversight Roles) to the audits of brokers and 
dealers; amend Rule 5109 (Rights of Witnesses in Inquiries and 
Investigations) and Rule 5422 (Availability of Documents for Inspection 
and Copying); and require Form 3 special reporting for withdrawn broker 
and dealer audit reports (proposed Form 3, Item 3.2) and issuer auditor 
changes (proposed Form 3, Item 3.3).
    As described in more detail below, the Board, after considering 
comments, is adopting the proposed amendments with modifications to 
address certain of the commenters' concerns.
    The amendments the PCAOB is adopting today include specific 
references to audits and auditors of brokers and dealers in the Board's 
rules. The amendments also conform the Board's rules to the Dodd-Frank 
amendments that (1) clarified the definition of ``person associated 
with a public accounting firm,'' \9\ (2) permitted the Board to share 
certain information with foreign auditor oversight authorities,\10\ and 
(3) clarified that the Board's sanctioning authority is not limited to 
persons who are supervisory personnel at the time a failure to 
supervise sanction is imposed.\11\ Certain rules in each section of the 
Board's rules, except the funding rules,\12\ and the rules related to 
assistance to non-U.S. authorities in inspections and investigations, 
are affected by these conforming amendments.\13\ These sections are:
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    \9\ See Section 2(a)(9)(C) of the Act.
    \10\ See Section 105(b)(5)(C) of the Act.
    \11\ See Section 105(c)(6)(A) of the Act.
    \12\ The Board's funding rules were addressed in a separate 
PCAOB rulemaking. See Final Rules for Allocation of the Board's 
Accounting Support Fee Among Issuers, Brokers, and Dealers, and 
Other Amendments to the Board's Funding Rules, PCAOB Release No. 
2011-002 (June 14, 2011). While the Board is not substantively 
amending the funding rules, the Board is making technical amendments 
to Rules 7103 and 7104. See infra note 17.
    \13\ The Board is not amending the rules in Section 6, which 
state that the Board may provide assistance to non-U.S. authorities 
in an inspection or investigation of a registered public accounting 
firm, because these rules apply to registered firms that audit 
brokers and dealers without amendment.
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Section 1--General Provisions
Section 2--Registration and Reporting
Section 3--Professional Standards (including Auditor Independence)
Section 4--Inspections
Section 5--Investigations and Adjudications

[[Page 6302]]

Ethics Code
    Beyond these conforming amendments, the PCAOB is adopting three 
additional categories of amendments that tailor certain of the Board's 
rules to the audits of brokers and dealers; call for relevant broker 
and dealer audit client information on the Board's forms; and amend a 
number of rules in light of the Board's experience administering and 
enforcing these rules.
    First, the PCAOB is tailoring the Board's professional practice 
standards to the audits of brokers and dealers. As amended, Rule 3521 
(Contingent Fees) and Rule 3522 (Tax Transactions) apply to the audits 
of brokers and dealers to the same extent that they previously applied 
to the audits of issuers. In contrast, Rule 3523 (Tax Services for 
Persons in Financial Reporting Oversight Roles), Rule 3524 (Audit 
Committee Pre-approval of Certain Tax Services), and Rule 3525 (Audit 
Committee Pre-approval of Non-audit Services Related to Internal 
Control Over Financial Reporting) will remain limited to services 
provided to issuer audit clients. The Board also is adding a definition 
of ``audit committee'' so that Rule 3526 (Communication with Audit 
Committees Concerning Independence) applies to brokers and dealers that 
may not have organizational structures that include audit committees.
    Second, the Board is amending its registration, withdrawal, and 
reporting forms (Forms 1, 1-WD, 2, 3, and 4), and the general 
instructions to these forms, to call for relevant broker and dealer 
audit client information. This information includes, among other 
things, information identifying each audit report issued by registered 
firms for broker and dealer audit clients during their annual reporting 
periods.
    Finally, the Board is amending a number of rule provisions and form 
items in light of administrative experience and to make a number of 
updates to address events that have occurred since the last time the 
rules were updated. These amendments, for example, conform Rule 4009 
(Firm Response to Quality Control Defects) to a rule adopted by the 
Commission in July 2010, and eliminate a hard-copy submission 
requirement from Form 1-WD that the Board believes is unnecessary.
(b) Statutory Basis
    The statutory basis for the proposed rules is Title I of the Act.

B. Board's Statement on Burden on Competition

    Not applicable.

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

    The Board released the proposed rule amendment for public comment 
in PCAOB Release No. 2012-002 (February 28, 2012). A copy of Release 
No. 2012-002 and the comment letters received in response to the 
PCAOB's request for comment are available on the PCAOB's Web site at 
http://www.pcaobus.org/Rules/Rulemaking/Pages/Docket039.aspx. The Board 
received 13 written comment letters. The Board has carefully considered 
the comment letters, as discussed below.
Section 1--General Provisions
    Rule 1001, in Section 1 of the Board's rules, contains definitions 
of terms used in the Board's rules. Today's amendments conform 
definitions in this section to the definitions of terms in the Dodd-
Frank amendments, including by amending the terms ``audit services'' 
and ``other accounting services'' to implement Section 102(b)(2)(B) of 
the Act.\14\ The amendments also add the new statutory term ``foreign 
auditor oversight authority'' to Rule 1001.\15\ Although commenters did 
not generally address the proposed amendments to Rule 1001, one 
commenter indicated its general support for these proposals, saying 
they conform to the provisions of the Dodd-Frank Act.\16\
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    \14\ As part of a separate rulemaking related to the Board's 
funding rules, the Board adopted amendments to Rule 1001 that added 
definitions of, among other Rule 1001 terms, ``broker,'' ``dealer,'' 
and ``self-regulatory organization,'' which are consistent with the 
definitions in the Dodd-Frank amendments. See PCAOB Release No. 
2011-002.
    \15\ In addition, the Board is reserving Rule 1001(n)(i), and 
renumbering the definitions of ``party'' in Rule 1001(p)(iii) and 
``secretary'' in Rule 1001(s)(iii) to correct technical errors in 
Rule 1001's numbering. In 2011, the Board removed the term 
``notice'' from Rule 1001 without reserving subparagraph (n)(i). See 
PCAOB Release No. 2011-002, at n.22. Also, prior rule amendments 
inadvertently resulted in several unrelated definitions being 
assigned the same subparagraph numbers.
    \16\ See Grant Thornton Comment Letter.
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    ``Audit'' and ``Audit Report'' (Rule 1001(a)(v) and (a)(vi)). The 
PCAOB is amending the definitions of ``audit'' and ``audit report'' to 
conform these terms to the statutory definitions the Dodd-Frank 
amendments added to Section 110 of the Act.\17\ The amended definitions 
expand the terms to include not only audits of financial statements 
under PCAOB auditing standards but also examinations of reports, 
notices, other documents, procedures or controls under PCAOB 
attestation standards. The Board did not receive comment on the 
proposed amendments to the definitions of ``audit'' or ``audit 
report,'' and the Board is adopting the amendments to these definitions 
as proposed. The amended definitions recognize that brokers and dealers 
are required under SEC rules to file reports prepared and issued by 
auditors based on an examination of, among other things, broker and 
dealer financial statements and supporting schedules that provide 
information regarding a broker-dealer's net capital, reserves, and 
other items.\18\ The terms ``audit'' and ``audit report'' in the 
context of SEC Rule 17a-5 apply to reports prepared on a broker's or 
dealer's financial statements and supporting schedules, compliance 
report, and exemption report, as well as a supplemental report 
regarding Securities Investor Protection Corporation (``SIPC'') annual 
general assessment reconciliation or exclusion from SIPC membership, as 
applicable.\19\
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    \17\ The Board is also removing the notes accompanying the 
definitions of ``audit'' and ``audit report.'' The Board added these 
notes in 2011 to make clear that the Board's enforcement rules 
encompass the obligations of auditors with respect to the audits of 
brokers and dealers. See Temporary Rule for an Interim Program of 
Inspection Related to Audits of Brokers and Dealers, PCAOB Release 
No. 2011-001, at n.32 (June 14, 2011); Proposed Temporary Rule for 
an Interim Program of Inspection Related to Audits of Brokers and 
Dealers, PCAOB Release No. 2010-008, at n.19 (Dec. 14, 2010). 
Today's amendments make these notes unnecessary. Similarly, the 
amendments to the definitions of ``audit'' and ``audit report'' make 
note three accompanying Rule 7104(b) unnecessary, and the Board is 
removing this note. The Board is also making a technical correction 
to Rule 7103(c), which should have consistently referred to brokers 
and dealers, as well as issuers.
    \18\ See generally, SEC Rule 17a-5 under the Exchange Act (17 
CFR 240.17a-5).
    \19\ See SEC Rule 17a-5(e)(4) and (g). In July 2013, the SEC 
adopted amendments to SEC Rule 17a-5 to, among other things, 
strengthen and clarify broker and dealer audit and reporting 
requirements and require that broker and dealer audits be conducted 
in accordance with PCAOB standards. See Broker-Dealer Reports, 
Exchange Act Release No. 70073.
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    ``Audit Services'' and ``Other Accounting Services'' (Rule 
1001(a)(vii) and (o)(i)). To implement the Dodd-Frank amendments to 
Section 102(b)(2)(B) of the Act, the Board is amending the terms 
``audit services'' and ``other accounting services'' to include 
services provided by auditors to broker and dealer audit clients. 
Commenters did not address the proposed amendments to the definitions 
of ``audit services'' or ``other accounting services'' and the PCAOB is 
adopting these definitions as proposed. Because firms provide different 
services to broker and dealer audit clients than they provide to issuer 
audit clients, the Board's definitions are tailored to each category of 
audit client. As discussed in more detail in Section VII below, these 
amendments will be used in the context

[[Page 6303]]

of collecting certain fee information on broker and dealer audit 
clients on Form 1.\20\ In the event that a firm has both issuer and 
broker and dealer audit clients, the fee information will be collected 
separately for issuer and for broker and dealer audit clients. (The 
Board, as discussed below, is not imposing an annual reporting 
requirement with respect to fees for services provided to broker and 
dealer audit clients on Form 2.) \21\
---------------------------------------------------------------------------

    \20\ See infra notes 151-155 and accompanying text.
    \21\ See infra note 177 and accompanying text.
---------------------------------------------------------------------------

    The Rule 1001 term ``audit services,'' in the context of broker or 
dealer audit clients, includes professional services related to the 
audit of a broker's or dealer's financial statements and supporting 
schedules, as described in SEC Rule 17a-5(d)(2),\22\ as well as the 
report on a broker's or dealer's compliance report, as described in SEC 
Rule 17a-5(d)(3), a report on a broker's or dealer's exemption report, 
as described in SEC Rule 17a-5(d)(4), and a report on the broker's or 
dealer's supplemental report on SIPC annual general assessment 
reconciliation or exclusion from SIPC membership, as described in SEC 
Rule 17a-5(e)(4).
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    \22\ ``Audit services'' covers professional services rendered 
for the audit of a broker's or dealer's financial statements and 
supporting schedules regarding computation and information required 
under SEC Rules 15c3-1 and 15c3-3. The definition of ``non-audit 
services'' remains unchanged. See Rule 1001(n)(ii).
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    To the extent a firm's services and particular fees may overlap 
these fee categories, the firm must attribute the fees it billed to 
just one of the fee categories. Applicants must include such fees 
within the most appropriate category under the circumstances. As 
discussed in more detail below, the Board understands that firms with 
broker and dealer audit clients have not necessarily maintained billing 
records in a way that would make precise reporting according to the fee 
categories always possible. For this reason, the Board expects that 
estimates will be required to attribute particular billed fees to one 
of the fee categories on Form 1.\23\
---------------------------------------------------------------------------

    \23\ See infra text accompanying note 156.
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    ``Foreign Auditor Oversight Authority'' (Rule 1001(f)(iii)). As 
proposed, the Board is amending Rule 1001 to include the definition of 
``foreign auditor oversight authority'' to track the definition in 
Section 2(a)(17) of the Act. The Board did not receive comment on the 
proposed definition of foreign auditor oversight authority. This 
definition supports the Board's authority to share confidential 
information with its counterparts in other countries.
    ``Person Associated with a Public Accounting Firm (and Related 
Terms)'' (Rule 1001(p)(i)). The PCAOB, as proposed, is amending Rule 
1001(p)(i), which defines ``person associated with a public accounting 
firm'' (and related terms), consistent with amended Section 2(a)(9) of 
the Act. The Board is also adding a note to Rule 1001(p)(i) 
highlighting a related amendment to Section 2(a)(9). The note explains 
that Section 2(a)(9) has been amended to make clear that, for purposes 
of the Board's investigations and disciplinary proceedings, the defined 
terms include any person associated, seeking to become associated, or 
formerly associated with a public accounting firm. The note also 
explains that Section 2(a)(9) makes clear that the Board's authority to 
conduct an investigation of any such person applies only with respect 
to conduct or omissions that occurred while the person was associated 
or seeking to become associated with a firm, and that the Board's 
authority to commence disciplinary proceedings or impose sanctions 
against any such person applies only with respect to conduct or 
omissions occurring during such a period or failures to cooperate with 
investigative demands for testimony, documents, or other information 
relating to such a period. The legislative history of the Dodd-Frank 
amendments explains that Congress enacted the revised definition of 
associated person ``to make it clear that [the Board] may sanction or 
discipline persons who engage in misconduct while associated with a 
regulated or supervised entity even if they are no longer associated 
with that entity.'' \24\
---------------------------------------------------------------------------

    \24\ H.R. Rep. No. 111-687, at 79 (Dec. 16, 2010) (accompanying 
H.R. 3817, the Investor Protection Act of 2009).
---------------------------------------------------------------------------

    Commenters asked for guidance regarding the meaning of ``seeking to 
become associated'' (as added by the Dodd-Frank Act).\25\ The Board 
believes that inclusion of the phrase ``seeking to become associated'' 
in the Act provides the Board with investigative and disciplinary 
authority over, for example, conduct connected with the preparation and 
filing with the Board of Form 1 (including the form's contents and all 
attachments, exhibits, and correspondence related to the form) and 
other applications for registration with the Board.
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    \25\ See CAQ Comment Letter; D&T Comment Letter; Grant Thornton 
Comment Letter; KPMG Comment Letter.
---------------------------------------------------------------------------

    The PCAOB is also amending a provision that the Board included in 
the definition in its rules but is not included in the statutory 
definition. Before the Board adopted Rule 1001(p)(i) in 2003, a number 
of commenters suggested that the definition should be limited to only a 
public accounting firm's employees. In response, the Board adopted a 
provision providing that the persons associated with a particular 
public accounting firm do not include those persons the firm reasonably 
believes are persons primarily associated with another registered 
public accounting firm.\26\ Experience in administering the rule after 
its adoption has shown that, in contexts other than registration and 
reporting, this provision, which is not a part of the statutory 
definition, may create uncertainty and lead to results inconsistent 
with the statutory definition. By its terms, the statutory definition 
has application without regard to the belief of a firm. Accordingly, 
the Board is adding language to Rule 1001(p)(i) to limit the reasonable 
belief provision to the context of registration and reporting forms 
that are completed on behalf of a firm pursuant to Section 2 of the 
Board's rules, thus making clear that this provision does not otherwise 
operate to amend the statutory definition. The Board did not receive 
comment on this aspect of the proposed amendments to the associated 
person definition and is adopting it as proposed.
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    \26\ See Registration System for Public Accounting Firms, PCAOB 
Release No. 2003-007, at A-3-xii (May 6, 2003). See also Frequently 
Asked Questions Regarding Registration with the Board, PCAOB Release 
No. 2003-011D, Question and Answer No. 21, available at http://pcaobus.org/Registration/Pages/SampleForms.aspx. See generally, 
comment letters available at http://pcaobus.org/Rules/Rulemaking/Pages/Docket001Comments.aspx.
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    The Board also is amending Rule 1001(p)(i) by inserting the words 
``or entity'' after the words ``independent contractor,'' and ``or 
otherwise'' after ``participates as agent.'' The phrases ``or entity'' 
and ``or otherwise'' are included in the definition of ``Person 
Associated with a Public Accounting Firm'' in Section 2(a)(9) of the 
Act. Two commenters suggested that these amendments may raise 
interpretive and implementation questions.\27\ The primary purpose of 
many definitions adopted in 2003 was to narrow terms to allow auditing 
firms to complete initial registration forms with some certainty and in 
a relatively short period of time. These rules, however, did not limit 
or contract the Board's authority under the Act. Now that most firms 
are registered, it is appropriate for the definition in the Board's 
rules to reflect the full statutory

[[Page 6304]]

meaning of the term. As with other provisions of the Act, the Board's 
interpretation of this defined term will be determined based on 
specific facts and circumstances.
---------------------------------------------------------------------------

    \27\ See D&T Comment Letter and EY Comment Letter.
---------------------------------------------------------------------------

    ``Play a Substantial Role in the Preparation or Furnishing of an 
Audit Report'' (Rule 1001(p)(ii)). As proposed, the PCAOB is inserting 
``broker or dealer'' throughout this definition to make it clear that 
the definition extends to audit reports prepared for brokers or 
dealers, as well as issuers. The Board is also amending this definition 
to correct an error, by replacing the word ``accountant'' with 
``auditor,'' which is the more appropriate term.\28\ The Board did not 
receive comment on the proposed amendments to the substantial role 
definition.
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    \28\ ``Accountant'' is defined in Rule 1001(a)(ii) as a natural 
person who is a CPA, or who holds an accounting degree, or who holds 
a license or certification authorizing him or her to engage in 
auditing or accounting, or who holds a degree other than accounting 
and participates in audits. ``Auditor'' is defined in Rule 
1001(a)(xii) to mean both public accounting firms registered with 
the Board and associated persons thereof. The Board is also 
correcting this error in the notes accompanying Form 1, Items 2.1 
and 2.2.
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    ``Professional Standards'' (Rule 1001(p)(vi)). The Board is 
amending the definition of ``professional standards'' to conform to the 
definition of this term in Section 110 of the Act.\29\ Under the 
amended rule, the definition of professional standards is extended to 
include accounting principles, auditing standards, attestation 
standards, quality control standards, ethics standards and independence 
standards relating to the audit reports for brokers and dealers, as 
well as issuers. The Board did not receive comment on the proposed 
amendments to the definition of professional standards and is adopting 
the definition as proposed.
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    \29\ The amendments also remove, as unnecessary, the note 
accompanying the definition of ``professional standards.''
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    ``Suspension'' (Rule 1001(s)(iv)). As proposed, the PCAOB is 
amending the definition of ``suspension'' to make it clear that when 
the Board imposes a suspension on a registered public accounting firm, 
the firm is prohibited from preparing or issuing, or participating in 
the preparation or issuance of, any audit report, including audit 
reports issued for brokers or dealers. The Board did not receive 
comment on the proposed amendments to the definition of suspension.
Section 2--Registration and Reporting Rules
    This section of the PCAOB's rules sets out the requirements for 
public accounting firms to register with the Board. It also contains 
provisions for annual and special reporting, the payment of annual 
fees, and procedures to withdraw from registration with the Board. In 
addition, Section 2 contains rules governing a firm's request for 
confidential treatment of information submitted in registration and 
reporting forms, as well as requests to omit certain information on 
grounds that providing the information would violate certain non-U.S. 
laws.
    Most of the amendments the Board is making to this section are to 
add ``broker'' and ``dealer'' to those rules that formerly applied only 
to auditors of issuers. Commenters did not address the Board's proposed 
amendments to the rules in Section 2, and the Board is adopting the 
amendments, which are briefly described below, as proposed.
    Application for Registration (Rule 2100). Section 102(a) of the Act 
and Rule 2100 require the registration of all public accounting firms 
that prepare or issue audit reports, or play a substantial role in 
preparing or furnishing an audit report, with respect to issuers. The 
Dodd-Frank amendments extended this requirement to auditors of brokers 
and dealers.\30\ The Board is revising Rule 2100 to implement these 
amendments with respect to registration.
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    \30\ Section 17(e)(1)(A) of the Exchange Act requires every 
registered broker and dealer to file with the Commission a balance 
sheet and income statement certified by a registered public 
accounting firm.
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    Standard for Approval (Rule 2106(a)). Rule 2106(a) sets out the 
standard for the Board to consider in determining whether to approve a 
firm's application for registration. The rule is based on Section 
101(a) of the Act. The Dodd-Frank amendments broadened Section 101(a) 
to cover broker and dealer audits, as well as issuer audits. To ensure 
that Rule 2106(a) continues to track Section 101(a) of the Act, as 
amended by the Dodd-Frank Act, the Board is revising this rule to 
remove its last clause.
    Board Action (Rule 2107(d)). The Board may order that withdrawal of 
a firm's registration be delayed for a period of up to eighteen months 
under Rule 2107(d), if it determines that withdrawal is inconsistent 
with the Board's responsibilities to conduct inspections or 
investigations. Specifically, Rule 2107(d)(1) refers to ``inspections 
to assess the degree of compliance of each registered public accounting 
firm and associated persons of that firm with . . . related matters 
involving issuers.'' The Board is amending this provision to encompass 
brokers and dealers to reflect the Board's expanded authority under the 
Dodd-Frank amendments.
Section 3--Professional Standards
    Section 3 of the PCAOB's rules establish auditing and related 
professional practice standards, including attestation, quality 
control, ethics, and independence standards applicable to registered 
public accounting firms and their associated persons. In light of the 
enactment of the Dodd-Frank Act, the Board proposed specific amendments 
to make Section 3 applicable to audits of brokers and dealers.
    Under Section 17 of the Exchange Act and SEC Rule 17a-5 thereunder, 
brokers or dealers are generally required, among other things, to file 
with the Commission and with the broker's or dealer's designated 
examining authority (``DEA'') an annual report containing audited 
financial statements, supporting schedules, supplemental reports, and 
independent public accountant reports, as applicable.\31\ Under the 
amendments to SEC Rule 17a-5, effective for fiscal years ending on or 
after June 1, 2014, ``independent public accountant'' reports must be 
prepared in accordance with the standards of the PCAOB.\32\
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    \31\ See Section 17(a) and (e) of the Exchange Act and SEC Rule 
17a-5(d).
    \32\ See SEC Rule 17a-5(g), as amended.
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    As discussed above, in July 2010, the Dodd-Frank amendments gave 
the Board authority to establish, subject to Commission approval, 
auditing and related attestation, quality control, ethics, and 
independence standards to be used by registered public accounting firms 
in the preparation and issuance of the audit reports included in broker 
and dealer filings with the Commission. In September 2010, the 
Commission issued interpretive guidance clarifying that the 
``references in Commission rules and staff guidance and in the federal 
securities laws to generally accepted auditing standards (``GAAS'') or 
to specific standards under GAAS, as they relate to non-issuer brokers 
or dealers, should continue to be understood to mean'' the auditing and 
attestation standards established by the American Institute of 
Certified Public Accountants (the ``AICPA''), but noted that it 
intended to revisit this interpretation in connection with a Commission 
rulemaking project to update the audit and attestation requirements for 
brokers and dealers in light of the Dodd-Frank Act.\33\ In June 2011, 
the Commission proposed to amend SEC Rule 17a-5 to mandate that the 
rule's required reports be prepared in accordance with the

[[Page 6305]]

standards of the PCAOB.\34\ Finally, in July 2013, the SEC adopted 
amendments to SEC Rule 17a-5, directing that auditors of brokers and 
dealers are to comply with PCAOB standards effective for fiscal years 
ending on or after June 1, 2014.\35\ As a result, the Board's auditing, 
attestation, quality control, and independence standards apply to 
audit, attest, and other engagements for brokers and dealers required 
by Section 17 of the Exchange Act and SEC Rule 17a-5.\36\
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    \33\ SEC, Commission Guidance Regarding Auditing, Attestation, 
and Related Professional Practice Standards Related to Brokers and 
Dealers, Exchange Act Release No. 62991 (Sep. 24, 2010).
    \34\ SEC, Broker-Dealer Reports, Exchange Act Release No. 64676 
(June 15, 2011), 76 FR 57572 (June 27, 2011).
    \35\ Broker-Dealer Reports, Exchange Act Release No. 70073.
    \36\ In related releases issued recently, the PCAOB adopted 
standards that are tailored to the SEC's requirements under SEC Rule 
17a-5. See Standards for Attestation Engagements Related to Broker 
and Dealer Compliance and Exemption Report Required by the U.S. 
Securities and Exchange Commission and Related Amendments to PCAOB 
Standards, PCAOB Release No. 2013-007 (Oct. 10, 2013), and Auditing 
Standard on Auditing Supplemental Information Accompanying Audited 
Financial Statements, PCAOB Release No. 2013-008 (Oct. 10, 2013). 
These standards must be approved by the SEC.
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General Requirements
    Rule 3100 requires registered firms and their associated persons to 
comply with all applicable auditing and related professional practice 
standards and Rule 3101 explains the meaning of certain terms used in 
those standards (such as ``must'' and ``should'') that describe the 
responsibility a PCAOB standard imposes on auditors. Rules 3100 and 
3101 are applicable to audits of brokers and dealers required by 
Section 17 of the Exchange Act and SEC Rule 17a-5.
    Rules 3200T, 3300T and 3400T generally require registered firms and 
their associated persons to comply with the AICPA's auditing, 
attestation, and quality control standards as in existence on April 16, 
2003, to the extent not superseded or amended by the Board. Rules 3200T 
and 3300T, as well as standards adopted by the Board and approved by 
the Commission, apply to audit, attest, and other engagements for 
brokers and dealers required under Section 17 of the Exchange Act and 
SEC Rule 17a-5.
    To clarify that Rule 3300T regarding interim attestation standards 
applies to broker or dealer engagements, the Board is removing the 
words ``for issuers'' from the phrase in the rule ``audit reports for 
issuers.'' \37\ As a result, Rule 3300T applies, and the interim 
standards, as applicable and to the extent not superseded or amended by 
the Board, must be followed in connection with engagements related to 
the preparation or issuance of audit reports for brokers and 
dealers.\38\
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    \37\ As noted above, the Board is amending the definition of 
``audit reports'' in Rule 1001 to include auditor examinations of 
and reports concerning not only financial statements but also 
reports, notices, other documents, procedures or controls, such as 
the auditor reports provided in connection with audits of brokers 
and dealers pursuant to SEC Rule 17a-5. See supra notes 17-19 and 
accompanying text.
    \38\ In related releases issued recently, the PCAOB adopted 
standards to align its standards more closely with auditor 
responsibilities under SEC Rule 17a-5. AT 1 and AT 2 apply 
specifically to the examination of a broker's or dealer's compliance 
report and review of a broker's or dealer's exemption report, as 
required by SEC Rule 17a-5. See supra note 36.
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    Rule 3400T requires, among other things, that certain registered 
firms--firms that were members of the former SEC Practice Section 
(``SECPS'') of the AICPA--must comply with certain of the SECPS 
membership requirements that existed as of April 16, 2003, to the 
extent not superseded or amended by the Board.\39\ Under the 
amendments, the SECPS membership requirements apply to the auditors of 
brokers and dealers that were members of the SECPS in 2003. This 
approach is consistent with the previous rule (which applied the SECPS 
membership requirements only to those registered firms that are former 
members of the SECPS).
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    \39\ See Rule 3400T(b); Establishment of Interim Professional 
Auditing Standards, PCAOB Release No. 2003-006, at n.15 and 
accompanying text (Apr. 18, 2003). These standards address, among 
other topics, training and education, internal communication of 
broad principles that influence the firm's quality control policies 
and procedures, notifications to regulators of dismissals and 
resignations from audit engagements, obligations with respect to 
foreign correspondent firms or other members of an international 
firm, and compliance with auditor independence requirements. Some of 
these membership requirements do not apply to broker or dealer audit 
clients. See infra note 42.
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    One commenter suggested that Rule 3400T itself should state that 
the SECPS membership requirements apply to auditors of brokers and 
dealers that were members of the SECPS in 2003.\40\ In response to this 
comment, the Board has added a note to Rule 3400T to clarify that the 
SECPS membership requirements only apply to those firms that were 
members of the SECPS in 2003.
---------------------------------------------------------------------------

    \40\ See EY Comment Letter.
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    Another commenter expressed concern that applying the former SECPS 
membership requirements only to firms that were SECPS members in 2003 
could result in an unbalanced and disparate application of the Board's 
requirements.\41\ Prior to the Act's enactment, public accounting firms 
that were members of the SECPS voluntarily committed to satisfying a 
number of quality control-related requirements, including the quality 
control requirements the Board is adopting today. The Board notes that 
only two of the five SECPS membership requirements adopted by the Board 
apply to audits of brokers or dealers. These two requirements relate to 
continuing professional education requirements for audit firm personnel 
and the firm communicating through a written statement to its 
professional personnel the firm's broad policies and procedures related 
to accounting principles, client relationships, and services 
provided.\42\ The Board notes that all firms (including those that were 
members of the SECPS in 2003) are required to comply with state and 
professionally mandated continuing professional education requirements 
that satisfy most, if not all, of these education requirements, and 
expects that firms distribute such information to their professional 
personnel to effectively manage their firms. Application of these 
requirements to audits of brokers and dealers is therefore not expected 
to result in a significant burden on auditors of brokers or dealers 
that were members of the SECPS in 2003. The Board intends to address 
the quality control standards more generally in the future, and to 
consider whether the substance of any or all of the SECPS membership 
requirements should be applied to all registered firms.\43\
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    \41\ See Grant Thornton Comment Letter (suggesting that the 
Board defer the application of the SECPS membership requirements to 
auditors of brokers and dealers until the Board has fully considered 
the application of those requirements to all firms).
    \42\ See AICPA SEC Practice Section Reference Manual, Sec.  
1000.08(d) and Sec.  1000.08(l). In addition, three SECPS membership 
requirements adopted by the Board do not apply to audits of non-
public brokers or dealers because they depend in part on the 
definition of ``SEC registrant'' in SECPS Membership Section 
1000.38, which specifically excludes brokers or dealers that are 
registered with the Commission ``only because of section 15 
paragraph a of the [Securities Exchange Act of 1934].'' See SECPS 
Member Section 1000.46 Appendix L, at n.3. These three requirements 
include notification to the Commission of resignations and 
dismissals from engagements with SEC registrants, audit obligations 
with respect to correspondent firms or other members of an 
international association of firms, and certain quality control 
procedures regarding compliance with auditor independence rules. See 
AICPA SEC Practice Section Reference Manual, Sec.  1000.08(m), Sec.  
1000.08(n)(1), and Sec.  1000.08(o).
    \43\ See Office of the Chief Auditor, Standard-Setting Agenda, 
at 6 (Sep. 30, 2013).
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    Although some commenters supported the proposals to amend the 
Board's general requirements governing the applicability of the Board's 
auditing and related professional practice standards to apply to audits 
of brokers and dealers,\44\ others believed that the

[[Page 6306]]

Board's quality control, ethics, and independence rules should not 
apply to the audit and attestation engagements of ``introducing'' or 
``non-carrying'' brokers and dealers, asserting that these brokers and 
dealers are usually smaller entities that present little if any 
investment risk to investors or the capital markets.\45\ Other 
commenters said that requiring auditors of brokers and dealers to 
follow PCAOB quality control, ethics, and independence standards is not 
warranted until decisions with respect to a final, permanent inspection 
program's scope are reached.\46\
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    \44\ See Grant Thornton Comment Letter; Rothstein Kass Comment 
Letter.
    \45\ See Letter of the AICPA (Apr. 30, 2012) (``AICPA Comment 
Letter''); Crowe Horwath Comment Letter; KPMG Comment Letter.
    \46\ See AICPA Comment Letter; Letter of WeiserMazars LLP (Apr. 
30, 2012) (``WeiserMazars Comment Letter'').
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    As noted elsewhere, the SEC in July 2013 determined that all audit 
reports filed with the SEC and DEAs by brokers and dealers must be 
prepared in accordance with PCAOB standards.\47\ A final decision 
regarding the scope of the Board's inspection program will be made at a 
later date. The Board believes postponing the adoption of amendments to 
its rules would not be consistent with the SEC's determination under 
Section 17(e)(2) of the Exchange Act to require that audits and 
attestations of broker and dealer reports filed under SEC Rule 17a-5 be 
made in accordance with standards of the PCAOB. The Board is not 
persuaded that removing doubt about which rules and standards apply to 
these audits should be delayed pending determinations on the scope of 
the Board's final inspection program.
---------------------------------------------------------------------------

    \47\ See SEC Rule 17a-5(g); see also Broker-Dealer Reports, 
Exchange Act Release No. 70073, at nn.330-347 and accompanying text.
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    The Board also is amending the rules in Section 3 to remove 
outdated and currently irrelevant provisions. For example, the Board is 
deleting the notes to Rules 3200T, 3300T and 3400T that addressed the 
application of standards during the period from the adoption of the Act 
to the date in 2003 when firms initially were required to register with 
the Board. The Board also is deleting Rule 3101(c), which provided 
relief from certain documentation requirements before November 2004. 
The Board is deleting Rule 3201T, which was a temporary and 
transitional rule regarding the application of Auditing Standard No. 
(``AS'') 2 and by its terms expired on July 15, 2005. The Board is 
amending Rule 3400T to remove the note that addressed application of 
the SECPS membership requirement for concurring partner reviews, which 
was superseded by Auditing Standard No. 7, Engagement Quality 
Review.\48\ Finally, the Board is amending the note to Rule 3700(c) to 
clarify that nominations to Board advisory groups may be submitted by 
any person or organization, including a broker or dealer.
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    \48\ A number of commenters pointed out that the proposal to 
remove subparagraph (1) from Rule 3400T(b)'s reference to Sec.  
1000.08(n) would have broadened the applicability of that 
requirement. See CAQ Comment Letter; Crowe Horwath Comment Letter; 
Grant Thornton Comment Letter; and KPMG Comment Letter. This 
consequence was not intended, and the Board is not adopting this 
proposal. See Rule 3400T(b).
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    Section 1000.08(m) of the SECPS Membership Requirements. After 
soliciting comment, the PCAOB is adopting an amendment to the SECPS 
membership requirement addressing circumstances where a former SECPS 
member firm has been the auditor for an SEC Registrant (as defined in 
Appendix D, SECPS Sec.  1000.38) that is required to file current 
reports on Form 8-K and has resigned, declined to stand for re-
election, or been dismissed.\49\ To make firm notices of these events 
more meaningful, the Board is requiring that registered firms (that are 
former members of the SECPS) notify the Commission's Office of the 
Chief Accountant of the cessation of an auditor's relationship with an 
issuer audit client only if the issuer has not reported the end of the 
relationship to the SEC in a timely filed Form 8-K.\50\ Previously, 
these firm notices were required irrespective of whether or not the 
registrant reported the fact that the relationship ceased in a timely 
filed Form 8-K. As amended, if, by the end of the fifth business day 
after an issuer client-auditor relationship has ended the issuer has 
not reported the cessation of the relationship to the SEC in a timely 
filed Form 8-K, then a former SECPS member firm must simultaneously 
send a written report of this fact to the former client and email the 
report to the SEC's Office of the Chief Accountant.\51\
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    \49\ See AICPA SEC Practice Section Reference Manual, Sec.  
1000.08(m)(1). If an issuer audit client has a change in its 
principal auditor (or an auditor upon whom the issuer's principal 
auditor expressed reliance in its report regarding a significant 
subsidiary), within the last two fiscal years or any subsequent 
interim period up to and including the date of change, the issuer 
must provide the required information in Item 4.01 of Form 8-K 
within four business days of the change. See Item 304(a) of 
Regulation S-K; Item 4.01 of Form 8-K.
    \50\ See SECPS Sec.  1000.08(m)(1). SECPS Sec.  1000.08(m) does 
not apply to the termination of engagements with broker or dealer 
audit clients. See Appendix D, SECPS Sec.  1000.38(1)(b). Also, 
under Rule 3400T, the former SECPS membership requirements, 
including SECPS Sec.  1000.08(m), only apply to firms that were 
SECPS members in 2003.
    \51\ SECPS Sec.  1000.08(m) also applies to situations where a 
firm (that is a former member of the SECPS) believes it no longer 
has a relationship with a former issuer audit client. In situations 
where a former issuer audit client has ``gone dark'' or declared 
bankruptcy, for example, and therefore the firm believes that the 
client-auditor relationship has ceased, SECPS Sec.  1000.08(m) 
requires the firm to notify the former client and the SEC's Office 
of the Chief Accountant of the end of the issuer client-auditor 
relationship.
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    The amendment to Section 1000.08(m) of the SECPS Membership 
Requirements only applies to SEC Registrants that are required to file 
current reports on Form 8-K. For SEC Registrants that do not file 
current reports on Form 8-K--including foreign private issuers required 
to make reports on Form 6-K and investment companies required to file 
reports under Rule 30b1-1 of the Investment Company Act (other than 
business development companies)--the SECPS reporting requirement 
remains unchanged.\52\ Notices for former clients that do not file 
current reports on Form 8-K are due by the end of the fifth business 
day following the end of the firm's determination that the client-
auditor relationship has ended, irrespective of whether or not the 
registrant has reported the change in auditors in a timely filed 
report. The PCAOB is also updating Appendix I of SECPS Section 1000.43 
to reflect the SEC's updated contact information and preference for 
email notifications.\53\
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    \52\ See SECPS Sec.  1000.08(m)(2). Foreign private issuers are 
required to report issuer auditor changes on Item 16F of Form 20-F 
and investment companies (other than business development companies) 
are required to report auditor changes on item 77K of Form N-SAR.
    \53\ The SEC staff strongly encourages emailing the SECPS report 
notification to [email protected]. See Appendix I, SECPS Sec.  
1000.43. See also http://www.sec.gov/about/offices/oca/10a1notices.htm (``The Office of the Chief Accountant strongly 
encourages sending the SECPS report notification to 
[email protected]. The staff will accept the date the email is 
received as the notification date.'').
---------------------------------------------------------------------------

    Commenters generally supported reporting circumstances where a 
former SECPS member firm has resigned, declined to stand for re-
election, or been dismissed from an issuer engagement under Section 
1000.08(m) only if the issuer has not reported the end of the 
relationship in a timely filed report (exception reporting).\54\ But 
one commenter suggested that Section 1000.08(m) should be eliminated 
entirely,\55\ and one other commenter said Section 1000.08(m) reporting 
is ``working, helpful, and appropriate'' and should not be amended.\56\ 
After considering these comments, the PCAOB has determined that more 
focused Section 1000.08(m) reporting

[[Page 6307]]

will enhance the SEC's ability to monitor the cessation of auditors' 
relationships with issuers that are required to file reports on Form 8-
K. The Board, as discussed in more detail below, has also determined to 
adopt amendments requiring all registered firms to report the cessation 
of issuer relationships with Form 8-K filers on Form 3.\57\
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    \54\ Crowe Horwath Comment Letter; EY Comment Letter; Grant 
Thornton Comment Letter; McGladrey Comment Letter; PWC Comment 
Letter.
    \55\ KPMG Comment Letter.
    \56\ D&T Comment Letter.
    \57\ See infra notes 183-195 and accompanying text.
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Auditor Independence
    Registered public accounting firms must follow not only the 
Commission's auditor independence requirements \58\ but also, to the 
extent applicable, the ethics and auditor independence requirements in 
Rules 3520 through 3526.\59\
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    \58\ See SEC Regulation S-X, Rule 2-01.
    \59\ Among other things, the Dodd-Frank amendments clarified the 
Board's authority under Section 103 of the Act to establish auditor 
independence standards to be used by registered public accounting 
firms in the preparation and issuance of audit reports, as required 
by the Act, SEC rules, or ``as may be necessary or appropriate in 
the public interest or for the protection of investors.'' See 
Section 103(a)(1) of the Act.
---------------------------------------------------------------------------

    In 2003, the Board adopted Rules 3500T and 3600T, which require 
registered public accounting firms to adhere to ethics and independence 
standards described in the AICPA's Code of Professional Conduct Rules 
102 and 101 and the interpretations and rulings thereunder, as in 
existence on April 16, 2003 to the extent not superseded or amended by 
the Board, and to certain standards and interpretations of the 
Independence Standards Board.
    To simplify the Board's rules, and to conform to Section 103(a)(1) 
of the Act as revised by the Dodd-Frank amendments, the Board is 
merging Rule 3600T into Rule 3500T. The merger of these rules results 
in the specific auditor independence rules following the incorporation 
of the interim independence rules without having to renumber the 
existing PCAOB auditor independence rules.\60\ The Board also is making 
a technical amendment to Rule 3600T(b) to delete a reference to 
Independence Standards Board Standard No. 1, which was superseded by 
Rule 3526.\61\
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    \60\ Regarding the note following proposed Rule 3500T, one 
commenter indicated that it would be better for the Board to say 
that the Board's independence rules ``supplement'' the SEC's 
standards, rather than the proposed formulation (that the Board's 
rules ``do not supersede'' the SEC's independence rules). See EY 
Comment Letter. The proposed note, however, was substantially the 
same as a note that had followed Rule 3600T. In the proposed note, 
following the statement that the Board's rules ``do not supersede'' 
the SEC's auditor independence rule, the statement was made that 
``to the extent that a provision of the Commission's rule is more 
restrictive--or less restrictive--than the Board's Interim 
Independence Standards, a registered public accounting firm must 
comply with the more restrictive rule.'' The note means that the 
less restrictive rule still applies but satisfying the more 
restrictive rule is deemed to satisfy the less restrictive rule. 
Changing ``do not supersede'' to ``supplement'' would not enhance 
this understanding of the note. Accordingly, the Board has 
determined not to make the change suggested by the commenter, and is 
adopting the note as proposed.
    \61\ PCAOB Release No. 2008-003, at 4.
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    Subsequent to the adoption of Rules 3500T and 3600T, the Board 
added definitions and general rules related to ethics and auditor 
independence, rules that prohibit contingent fee arrangements for any 
services a registered public accounting firm may provide to its audit 
clients, rules that restrict certain types of tax services that may be 
provided to audit clients and to persons in a ``financial reporting 
oversight role'' at an issuer audit client, rules related to issuer 
audit committee pre-approval of tax services and services related to 
internal control over financial reporting, and rules related to 
communications with issuers' audit committees concerning auditor 
independence.\62\ The areas covered by these rules, and the Board's 
application of each rule to audits of brokers and dealers, are 
discussed below.\63\
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    \62\ See, e.g., PCAOB Release Nos. 2003-011; 2005-014; 2005-20; 
2007-005A; and 2008-003.
    \63\ Regardless of the application of the Board's independence 
rules, auditors of brokers and dealers must follow the Commission's 
auditor independence rules as stated in SEC Rule 17a-5(f)(1).
---------------------------------------------------------------------------

    Definitions (Rule 3501). This rule contains definitions of nine 
terms used in the Board's auditor independence rules.
    The Board is adding a definition of ``audit committee'' to Rule 
3501 in order to facilitate the application of Rule 3526, 
Communications with Audit Committees Concerning Independence, to 
brokers and dealers.\64\ The definition generally tracks the definition 
of ``audit committees'' in section 2(a)(3) of the Act. The Act 
essentially defines the ``audit committee'' to be the committee of the 
board of directors established to oversee the accounting and financial 
reporting processes of the issuer, and if there is no such committee 
then the full board of directors. Because the Board recognizes that 
some brokers and dealers may not have governance structures that 
include boards of directors or audit committees, the amended definition 
includes a provision indicating that for non-issuers, if no audit 
committee or board of directors (or equivalent body) exists, the term 
means those persons who oversee the accounting and financial reporting 
processes of the entity and the audits of the entity's financial 
statements.\65\ As a result, if a broker or dealer audit client (or 
potential client) does not have an audit committee or a board of 
directors, the auditor must provide Rule 3526 communications to persons 
overseeing the broker's or dealer's accounting and financial reporting 
processes and its audits.
---------------------------------------------------------------------------

    \64\ See Rule 3501(a)(v).
    \65\ The Board adopted essentially the same definition of 
``audit committee'' in its audit committee communications standard. 
See Auditing Standard No. 16, Communications with Audit Committees, 
PCAOB Release No. 2012-004 (Aug. 15, 2012). Instead of adopting 
``essentially the same'' definition of audit committees as the audit 
committee communication standard, KPMG stated that the Board should 
consider using the same definition. The difference between the 
definitions is that audit committee communication definition uses 
the term ``company'' and the definition in Rule 3501 uses the word 
``entity.'' In both instances, the defined term is intended to 
encompass the audit committee of the audit client, regardless of the 
client's legal form of organization.
---------------------------------------------------------------------------

    The amended definition does not mean that the broker or dealer 
audit client or potential client has to formally designate persons who 
oversee the client's accounting and financial reporting processes and 
audits. Instead, auditors are expected to use their judgment to 
identify senior persons at the client or potential client that have 
decision-making authority and responsibility for these functions. For 
an owner-managed entity, for example, the person overseeing the 
accounting and financial reporting processes, and audits, could be the 
owner. Under a limited partnership, that person could be the managing 
or general partner responsible for preparation of the financial 
statements and oversight of the partnership's audits.
    One commenter supported amending the definition of ``audit 
committee'' to accommodate those brokers and dealers who do not have a 
formal audit committee in place.\66\ Another commenter said the 
definition should be aligned with the definition of audit committee in 
ISA 260 and AICPA AU Section 260, which refers to ``the person(s) with 
responsibility for overseeing the strategic direction of the entity and 
obligations related to the accountability of the entity.'' \67\ A third 
commenter recommended adding the words ``and controlling'' to the 
accounting and financial reporting processes identified in the proposed

[[Page 6308]]

audit committee definition to more fully relate to brokers and 
dealers.\68\
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    \66\ See Rothstein Kass Comment Letter.
    \67\ See EY Comment Letter. Under that definition, EY said 
communication would likely be made to the CEO or another officer of 
the broker or dealer.
    \68\ See Letter of Chris Barnard, Actuary (Apr. 26, 2012).
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    After consideration of the comments, the Board, as proposed, is 
adopting essentially the same ``audit committee'' definition used in 
its standard on communications with audit committees (AS 16). One of 
the purposes of defining ``audit committee'' in Rule 3501 is to 
facilitate auditor communications with audit committees regarding 
auditor independence issues and having consistent definitions of the 
term ``audit committee'' should promote the efficient implementation of 
the Board's two standards. In light of the AS 16 audit committee 
definition, adding the concept of ``controlling'' to the definition, or 
conforming the definition to international standards, would add 
unnecessary complexity to the Board's rules.
    Although the Board is not amending the other definitions in Rule 
3501, the meaning of certain definitions is altered because the Board's 
rules and standards are now applicable to the audits of brokers and 
dealers. For example, Rule 3501(a)(iv) defines ``audit client'' to mean 
``the entity whose financial statements or other information is being 
audited, reviewed, or attested and affiliates of the audit client.'' 
The ``entity'' referenced in this definition includes a broker or 
dealer, as well as an issuer.\69\ No comments were received regarding 
how changes in the definitions in the Board's rules may alter the 
applicability of the definitions in Rule 3501 to audits of brokers or 
dealers.
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    \69\ Auditors of brokers and dealers must generally comply with 
the independence requirements of SEC Rule 2-01 of Regulation S-X. 
See SEC Rule 17a-5(f)(1); see also Broker-Dealer Reports, Exchange 
Act Release No. 70073, at nn.383-391 and accompanying text.
---------------------------------------------------------------------------

    Overall Framework (Rules 3502 and 3520). Rule 3502 establishes a 
standard of ethical behavior for the conduct of persons associated with 
registered public accounting firms, indicating that these persons shall 
not take or omit to take an action knowing, or recklessly not knowing, 
that the act or omission would directly and substantially contribute to 
a violation by the firm of the Act, the rules of the Board, or 
provisions of the securities laws or professional standards. This basic 
ethics rule applies, without amendment, to all associated persons in 
all registered public accounting firms.
    Rule 3520 sets forth the fundamental ethical obligation for the 
accounting firm and its associated persons to be independent of the 
firm's audit client throughout the audit and professional engagement 
period. With the change in the definition of ``audit client'' described 
above, this rule applies to auditors of brokers and dealers as well as 
to auditors of issuers. To remove any doubt that this rule applies to 
auditors of brokers and dealers as well as to auditors of issuers, and 
to make other technical changes, the Board, as proposed, is removing 
the reference to ``an issuer'' from note 1 of this rule. The Board did 
not receive comment on the proposed amendments to Rule 3520.
    Contingent Fees (Rule 3521). This rule, which is consistent with 
the SEC's auditor independence rules,\70\ states that a registered 
public accounting firm is not independent if it provides any service or 
product to the audit client for a contingent fee or a commission, or 
receives from the audit client, directly or indirectly, a contingent 
fee or commission. With the expanded interpretation of ``audit client'' 
as noted above, this rule applies to audits of brokers and dealers as 
well as to audits of issuers. Because the SEC rule on contingent fees 
currently is applicable to audits of brokers and dealers, making the 
PCAOB rule similarly applicable to those audits should not affect 
practice in this area.
---------------------------------------------------------------------------

    \70\ See SEC Rule 2-01(c)(5) of Regulation S-X.
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    One commenter supported the proposed amendments to Rule 3521, 
stating that expanding Rule 3521 to include broker and dealer audit 
clients to make the rule consistent with current SEC auditor 
independence rules should have no effect in the broker-dealer practice 
area and is appropriate.\71\ No commenters opposed the proposed 
application of Rule 3521. The Board has determined to have this rule 
apply to audits of brokers and dealers.
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    \71\ See WeiserMazars Comment Letter.
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    Tax Transactions (Rule 3522). Under this rule, registered public 
accounting firms are prohibited from providing any non-audit service to 
their audit clients related to the marketing, planning, or opining in 
favor of the tax treatment of transactions that are ``confidential 
transactions'' \72\ under the Internal Revenue Service's regulations or 
transactions that would be considered ``aggressive tax position 
transactions.'' \73\
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    \72\ Rule 3501(c)(i) defines a ``confidential transaction'' to 
be a transaction that is offered to a taxpayer under conditions of 
confidentiality and for which the taxpayer has paid an advisor a 
fee.
    \73\ Rule 3522(b) describes an ``aggressive tax position 
transaction'' as a transaction initially recommended, directly or 
indirectly, by the registered public accounting firm with a 
significant purpose of tax avoidance, unless the proposed tax 
treatment is at least more likely than not to be allowable under 
applicable tax laws.
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    The Board adopted Rule 3522 in 2005 following a report by the 
Permanent Sub-committee on Investigations of the Senate Committee on 
Governmental Affairs (the ``Subcommittee'') which noted that some of 
the nation's largest accounting firms in the past had sold generic tax 
products to multiple corporate and individual clients despite evidence 
that some of those products were potentially abusive or illegal.\74\ In 
addition, the Internal Revenue Service (``IRS'') and the U.S. 
Department of Justice brought a number of cases against accounting 
firms in connection with those firms' marketing of tax shelter products 
and, specifically, those firms' alleged failures to register, or comply 
with list maintenance requirements relating to, their tax shelter 
products. In addition, the IRS proposed a settlement initiative for 
executives and companies that participated in certain abusive tax 
avoidance transactions, at times with the assistance of the companies' 
auditors.\75\ At the time the initiative was announced, the IRS 
Commissioner said that ``[t]hese transactions raise[d] questions not 
only about compliance with the tax laws, but also, in some instances, 
about corporate governance and auditor independence.'' \76\
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    \74\ See Permanent Subcommittee on Investigations of the 
Committee on Homeland Security and Governmental Affairs, The Role of 
Professional Firms in the U.S. Tax Shelter Industry, S. Rep. No. 
109-54, at 6 (2005). This report was based on a Subcommittee 
investigation that included hearings, in November 2003, in which the 
Subcommittee elicited testimony that described certain potentially 
abusive tax shelter products marketed through cold-call selling 
techniques by accounting firms and others. See also U.S. Tax Shelter 
Industry: The Role of Accountants, Lawyers, and Financial 
Professionals: Hearings Before the Permanent Subcommittee on 
Investigations of the Senate Committee on Governmental Affairs, 
108th Cong. (2003).
    \75\ Announcement 2005-19, 2005-11 I.R.B.1.
    \76\ IRS News Release, Settlement Offer Extended for Executive 
Stock Option Scheme, IR 2005-17 (Feb. 22, 2005), available at http://www.irs.gov/uac/Settlement-Offer-Extended-for-Executive-Stock-Option-Scheme. The Commissioner also said, ``We believe a new 
climate under Sarbanes-Oxley, together with the tougher independence 
standards for auditors recently proposed by the Public Company 
Accounting Oversight Board make this sort of thing less likely going 
forward.'' Id.
---------------------------------------------------------------------------

    The Government Accountability Office (``GAO'') also noted concerns 
about auditors' involvement in marketing abusive tax shelters to public 
companies. The GAO reported that 61 Fortune 500 companies obtained tax 
shelter services from their external auditors during the period 1998 
through 2003.\77\ The GAO also noted that the IRS considered some of 
these ``transactions abusive, with tax benefits subject to

[[Page 6309]]

disallowance under existing law, and other transactions possibly to 
have some traits of abuse.'' \78\
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    \77\ See GAO, Tax Shelters: Provided by External Auditors, GAO-
05-171 (2005).
    \78\ Id.
---------------------------------------------------------------------------

    With the change in meaning of the term ``audit client,'' as 
described above, Rule 3522 applies to audits of brokers and dealers. 
The Board did not receive comment on the proposed application of Rule 
3522 to audits of brokers and dealers. Accordingly, the amendments the 
Board is making today result in a prohibition on a registered public 
accounting firm providing any non-audit service related to the 
marketing, planning or opining in favor of a tax treatment of a 
``confidential transaction'' or an ``aggressive tax position 
transaction'' to a broker or dealer audit client.
    Tax Services for Persons in Financial Reporting Oversight Roles 
(Rule 3523). The Board is amending Rule 3523 to apply only to issuer 
audit clients. Rule 3523 does not apply in audits of brokers or dealers 
unless the broker or dealer is an issuer or an affiliate of an issuer 
under Rule 3501(a)(ii).\79\
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    \79\ If a non-issuer broker or dealer is an affiliate of an 
issuer audit client, then the broker or dealer will be treated in 
the same manner that any other affiliate of the issuer would be 
treated when analyzing the auditor's independence from the issuer.
---------------------------------------------------------------------------

    Rule 3523 prohibits auditors from providing any tax service to any 
person who performs a financial reporting oversight role at an issuer 
audit client, or an immediate family member of such an individual, 
unless the person is in that role solely because (a) he or she is a 
member of the board of directors or a similar management or governing 
body, (b) the person has a relationship with an affiliated entity that 
is immaterial to the audit client's consolidated financial statements 
or that has its financial statements audited by another auditor, or (c) 
the person was hired or promoted into the financial reporting oversight 
role and the tax engagement was in process before the hiring or 
promotion and will be completed within 180 days after the hiring or 
promotion.\80\ The rule addresses the concern that performing tax 
services for certain individuals involved in the financial reporting 
processes of an issuer audit client creates an appearance of a 
mutuality of interest between the auditor and those individuals.\81\
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    \80\ PCAOB Release No. 2005-014, at 34-39.
    \81\ Id. at 34-35. In 2008, the Board amended this rule to limit 
its application to the ``professional engagement period,'' which 
begins when the auditor either signs the initial engagement letter 
or begins audit procedures, whichever is earlier, and ends when 
either the company or the auditor notifies the Commission that the 
company is no longer that auditor's audit client. See PCAOB Release 
No. 2008-003, at 15. The rule previously had applied not only to the 
professional engagement period but also during the ``audit period,'' 
which is the period covered by any financial statements being 
audited or reviewed. See PCAOB Release No. 2005-14, at 14-15.
---------------------------------------------------------------------------

    Although the Board proposed that Rule 3523 similarly apply to the 
audits of non-issuer brokers and dealers, it noted that the auditor 
independence implications of an auditor providing such tax services to 
an officer of a broker or dealer may not be the same as those 
associated with an auditor providing tax services to an officer of a 
public company, and it solicited comment on whether Rule 3523 should 
continue to be limited to issuer audit clients.
    Commenters generally stated that Rule 3523 should be limited to 
issuers or subsidiaries of issuers,\82\ saying the investing public 
does not trade on the financial results of brokers and dealers and that 
the SEC staff has recognized this difference by noting that non-issuer 
brokers and dealers are not required to comply with certain provisions 
of SEC Rule 2-01 of Regulation S-X.\83\ Commenters also said the threat 
that these services would create the appearance of a mutuality of 
interests between the auditor and the individuals in a financial 
reporting oversight role is significantly greater for a public company, 
where the interests of investors and management's interests typically 
diverge to a greater degree than in a private company.\84\ Finally, 
commenters said that applying Rule 3523 to audits of brokers and 
dealers could unnecessarily increase costs for brokers and dealers, 
many of which are small businesses, where the owner, manager, and 
person providing financial reporting oversight is the same person.\85\ 
Similarly, some commenters indicated that compliance with the proposal 
might require some brokers or dealers, that may be organized as limited 
partnerships or sole proprietorships, to hire a second audit firm to 
provide personal tax services, creating inefficiencies.\86\
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    \82\ See CAQ Comment Letter; Grant Thornton Comment Letter; 
McGladrey Comment Letter; KPMG Comment Letter; Letter of Peterson 
Sullivan LLP (Apr. 30, 2012); Rothstein Kass Comment Letter.
    \83\ See Crowe Horwath Comment Letter.
    \84\ See McGladrey Comment Letter; Rothstein Kass Comment 
Letter.
    \85\ See CAQ Comment Letter; KPMG Comment Letter; Rothstein Kass 
Comment Letter; WeiserMazars Comment Letter.
    \86\ See Crowe Horwath Comment Letter; Rothstein Kass Comment 
Letter; WeiserMazars Comment Letter.
---------------------------------------------------------------------------

    In response to these comments, the PCAOB has further considered the 
proposed application of Rule 3523 to audits of non-issuer brokers and 
dealers. The Board is not at this time extending the requirements of 
Rule 3523 (and the costs associated with these requirements) to audits 
of non-issuer brokers and dealers. Rule 3523's prohibition on providing 
tax services to a person in a financial reporting oversight role is 
therefore limited to issuer audit clients. As more information is 
gathered on broker and dealer audits through the PCAOB's inspections 
and other oversight functions, the Board will continue to consider 
whether providing such tax services for persons in financial reporting 
oversight roles could impair independence and could revisit its 
decision to limit Rule 3523's application to issuer audits.
    Audit Committee Pre-approval of Certain Tax Services (Rule 3524). 
The Board adopted Rule 3524 to implement and strengthen the requirement 
in Sections 10A(h) and 10A(i) of the Exchange Act, as amended by 
Section 202 of Sarbanes-Oxley, that all non-audit services for an 
issuer audit client ``shall be preapproved by the audit committee of 
the issuer.'' \87\ The Dodd-Frank amendments, however, did not extend 
the Exchange Act's issuer-audit committee preapproval requirements to 
non-audit services provided to non-issuer brokers and dealers. In 
addition, the SEC's independence rules over audit committee 
administration are applicable only to issuers. As a result, the Board 
is not extending the preapproval requirements in Rule 3524 to broker or 
dealer audit clients.\88\ Commenters agreed that Rule 3524 should not 
be extended to the audits of brokers and dealers.\89\
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    \87\ PCAOB Release No. 2005-014, at 40, quoting Section 
10A(i)(1)(A) of the Exchange Act.
    \88\ Audits of SEC registered brokers and dealers, however, 
remain subject to the SEC auditor independence rules, including 
prohibitions on the auditor providing certain non-audit services to 
audit clients. See SEC Rule 2-01(c)(4) of Regulation S-X.
    \89\ See Grant Thornton Comment Letter; McGladrey Comment 
Letter; Rothstein Kass Comment Letter.
---------------------------------------------------------------------------

    Audit Committee Pre-approval of Non-audit Services Related to 
Internal Control Over Financial Reporting (Rule 3525). The Board 
adopted Rule 3525 in connection with the adoption of Auditing Standard 
No. 5, An Audit of Internal Control Over Financial Reporting That is 
Integrated with An Audit of Financial Statements, in 2007.\90\ The 
prior auditing standard, Auditing Standard No. 2, had required audit 
committee pre-approval of internal control related non-audit

[[Page 6310]]

services.\91\ With the adoption of Auditing Standard No. 5, this 
requirement was moved to Rule 3525.
---------------------------------------------------------------------------

    \90\ See PCAOB Release No. 2007-005A, at 14-15 and Appendix 2.
    \91\ AS 2.33.
---------------------------------------------------------------------------

    Rule 3525 was adopted to facilitate implementation of the audit 
committee pre-approval requirements in Section 10A of the Exchange Act 
and the internal control reporting requirements in Section 404 
Sarbanes-Oxley. As noted above, the Dodd-Frank amendments did not 
extend the audit committee pre-approval requirements in Exchange Act 
Sections 10A(h) and 10A(i) to brokers or dealers. Similarly, the Dodd-
Frank amendments did not extend the Sarbanes-Oxley Act Section 404 
internal control reporting requirements to brokers or dealers, and the 
Commission has not extended similar requirements to brokers or dealers. 
Accordingly, the Board has determined that the application of Rule 3525 
should remain limited to services provided to issuer audit clients. 
Commenters agreed that Rule 3525 should not be extended to audits of 
non-issuer brokers and dealers.\92\
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    \92\ See Grant Thornton Comment Letter; McGladrey Comment 
Letter; Rothstein Kass Comment Letter.
---------------------------------------------------------------------------

    Communication with Audit Committees Concerning Independence (Rule 
3526). The Board adopted Rule 3526 to ensure that those making the 
decisions to hire, compensate, and oversee the work of the auditor have 
information about the auditor's independence that could assist them in 
performing those responsibilities.\93\ This rule requires that prior to 
being engaged and at least annually thereafter, an auditor describe in 
writing to the audit committee all relationships between the registered 
public accounting firm and audit client that may reasonably be thought 
to bear on the firm's independence from the audit client, discuss with 
the audit committee the potential effects of those relationships on 
independence, affirm annually that the public accounting firm is in 
compliance with Rule 3520, and document the substance of the discussion 
with the audit committee.\94\
---------------------------------------------------------------------------

    \93\ PCAOB Release No. 2008-003, at 3-4.
    \94\ Rule 3526 requires that the registered public accounting 
firm describe, in writing, all relationships between the registered 
public accounting firm, or any affiliates of the firm, and the 
existing or potential audit client or persons at the audit client in 
a ``financial reporting oversight role'' that reasonably may be 
thought to bear on the auditor's independence.
---------------------------------------------------------------------------

    SEC Rule 17a-5 generally requires that brokers or dealers 
registered with the Commission pursuant to Section 15 of the Exchange 
Act file with the Commission annual reports consisting of a financial 
report and either a compliance report or an exemption report that are 
prepared by the broker or dealer, as well as certain reports that are 
prepared by an independent public accountant covering the financial 
report and the compliance report or the exemption report.\95\ The 
accountant must be independent in accordance with the Commission's 
independence rules in Regulation S-X.\96\ It is as important that those 
persons discharging the responsibilities to engage, compensate and 
oversee an independent auditor at a broker or dealer, as it is for an 
issuer's audit committee, to be advised by the auditor of any 
relationships that reasonably may be thought to bear on the auditor's 
independence. The Board, therefore, is making Rule 3526 applicable to 
audits of brokers and dealers.
---------------------------------------------------------------------------

    \95\ SEC Rule 17a-5(d).
    \96\ SEC Rule 17a-5(f)(1). The Commission's independence 
requirements include SEC Rule 2-01 and related interpretations.
---------------------------------------------------------------------------

    The Board recognizes, however, that brokers and dealers may have 
organizational structures that do not include audit committees. The 
Board is therefore adding a definition of ``audit committee'' to Rule 
3501 that makes Rule 3526 applicable to broker and dealer audit 
clients.\97\ This definition, as discussed above, provides that if a 
broker or dealer does not have an audit committee or board of directors 
(or equivalent body) then the required communications should be made to 
the individuals overseeing the accounting and financial reporting 
processes of the broker or dealer and audits of the financial 
statements of the broker or dealer.\98\
---------------------------------------------------------------------------

    \97\ One commenter indicated that although auditors currently 
document their independence under GAAS, including brokers and 
dealers in Rule 3526 would be beneficial as it would require more 
documented evidence of auditor independence. See WeiserMazars 
Comment Letter.
    \98\ See generally, Section 301 of Sarbanes-Oxley, directing the 
Commission to adopt rules requiring listed companies' audit 
committees to ``be directly responsible for the appointment, 
compensation, and oversight of the work of any registered public 
accounting firm employed by that issuer. . . .'' See also Exchange 
Act Section 10A(m)(2) and SEC Rule 10A-3(b)(2).
---------------------------------------------------------------------------

    One commenter recommended that in a situation in which those 
charged with governance and management are the same individuals, the 
Board should consider providing some flexibility by allowing auditor 
judgment in determining the nature of the communications that should 
occur in these circumstances.\99\ Under Rule 3526, an auditor of a non-
issuer broker or dealer with no existing audit committee or board of 
directors (or equivalent body) is expected to identify senior persons 
at the broker or dealer who have decision-making authority and 
responsibility to oversee the accounting and financial reporting 
processes of the broker or dealer and audits of the financial 
statements, and make the required communications to those persons. For 
example, in an owner-managed broker, the person with oversight of 
financial reporting within the broker could be the owner, and the Rule 
3526 communications, therefore, would be made to the owner. When making 
Rule 3526 communications to the owner, the auditor need not repeat 
written communications provided to the owner throughout the audit 
process as long as the auditor has met all of the requirements of Rule 
3526, including describing in writing all relationships that reasonably 
may be thought to bear on independence, discussing the potential 
effects of those relationships on the auditor's independence, and 
providing a written affirmation of the firm's independence. In 
addition, the auditor may identify others in charge of the broker's or 
dealer's operations and performance who may benefit from the Rule 3526 
communications and make the communications to those individuals as well 
as the owner.
---------------------------------------------------------------------------

    \99\ See Grant Thornton Comment Letter.
---------------------------------------------------------------------------

    Compliance dates for Rules 3521 through 3526. Commenters indicated 
that certain of the proposed amendments, if adopted, would benefit from 
transition periods. For example, one commenter suggested that certain 
services should be allowed to continue provided that the services are 
completed on or before the later of October 31 of the calendar year in 
which the SEC approves the Board's rules, or 10 days after the date the 
SEC approves the rules.\100\ The requests from commenters for a 
prolonged transition period for the Board's independence rules focused 
on the time needed for brokers and dealers to change either auditors or 
tax consultants in the event of the application of Rule 3523 to broker 
and dealer audit engagements. Because the Board has determined not to 
apply Rules 3523, 3524, or 3525 to audits of non-issuer brokers and 
dealers, an extended transition period should not be necessary. These 
amendments will take effect on June 1, 2014.
---------------------------------------------------------------------------

    \100\ See D&T Comment Letter.
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Section 4--Inspections
    The rules in this section set out the procedures for the Board's 
inspections of registered public accounting firms. The Board has 
adopted a temporary rule, Rule 4020T, which sets out an interim 
inspection program for auditors

[[Page 6311]]

of brokers and dealers.\101\ After it has gained knowledge and 
experience through the interim program and other sources, the Board in 
a subsequent rulemaking proceeding will propose rules for a permanent 
inspection program for these firms.
---------------------------------------------------------------------------

    \101\ PCAOB Release No. 2011-001.
---------------------------------------------------------------------------

    The Board is making two technical amendments to the rules in this 
section. The first is to revise Rule 4009 to conform to Rule 140 of the 
Commission's Regulation P (``Rule 140''),\102\ which went into effect 
on September 7, 2010, and the second is to revise Rule 4020T(b) to 
conform to the amendments that the Board is making to the definitions 
of ``audit,'' ``audit report,'' and ``professional standards'' in Rule 
1001.
---------------------------------------------------------------------------

    \102\ 17 CFR 202.140.
---------------------------------------------------------------------------

    Firm Response to Quality Control Defects (Rule 4009). Rule 4009 
sets out the procedures relating to a firm's submission to the Board to 
demonstrate how the firm has addressed criticisms of, or potential 
defects in, the firm's system of quality control that are described in 
an inspection report. If the Board determines that the firm has 
satisfactorily addressed a criticism or defect, the portion of the 
inspection report discussing that issue remains nonpublic. If the Board 
determines that the firm has not addressed a criticism or defect to the 
Board's satisfaction, however, the portion of the report discussing 
that issue will be made public. Section 104(h) of the Act allows the 
firm to request interim Commission review if the firm disagrees with 
the Board's determination that the firm has not satisfactorily 
addressed a quality control criticism or defect.
    When a firm seeks Commission review of a negative remediation 
determination by the Board, Rule 4009(d)(3) provides that ``unless 
otherwise directed by Commission order or rule,'' (emphasis added) the 
quality control findings shall be made public by the Board 30 days 
after the firm formally requests Commission review. In July 2010, the 
Commission adopted Rule 140, which provides that a firm's timely 
request for Commission review of a negative remediation determination 
operates as a stay of publication by the Board of the portions of the 
report at issue unless and until the Commission either denies the 
review request or otherwise determines.\103\ The Board is making an 
amendment to Rule 4009(d)(3) to conform to Rule 140's stay of 
publication provision. Commenters did not address the Board's proposed 
amendments to Rule 4009, and the Board is adopting the amendments as 
proposed.
---------------------------------------------------------------------------

    \103\ See SEC Rule 140(c)(5), (d), and (e)(4).
---------------------------------------------------------------------------

    Interim Inspection Program Related to Audits of Brokers and Dealers 
(Rule 4020T). On June 14, 2011, the Board adopted Rule 4020T, 
establishing an interim inspection program relating to audits of 
brokers and dealers.\104\ Rule 4020T(b) provided that the definitions 
of ``audit,'' ``audit report,'' and ``professional standards'' 
contained in the Dodd-Frank Amendments applied to Rule 4020T, Rule 
3502, Section 5 of the rules, and to the definition of ``disciplinary 
proceeding'' in Rule 1001(d)(i). Because this rulemaking makes these 
definitions permanently applicable to all of the Board's rules, the 
Board is deleting the second sentence of Rule 4020T(b).\105\ Commenters 
did not address the Board's proposed amendments to Rule 4020T and the 
Board is adopting the amendments as proposed.
---------------------------------------------------------------------------

    \104\ See PCAOB Release No. 2011-001.
    \105\ As discussed above, the Board is also removing the notes 
accompanying the definitions of ``audit,'' ``audit report,'' and 
``professional standards'' in Rule 1001. See supra notes 17, 29.
---------------------------------------------------------------------------

Section 5--Investigations and Adjudications
    Section 5 of the Board's rules governs the process of PCAOB 
investigations and disciplinary proceedings. The Board is amending 
certain rules in this section to conform to the Dodd-Frank amendments. 
For many of these rules, this is simply a matter of adding ``broker'' 
and ``dealer'' to rules in addition to ``issuer,'' to reflect the 
Board's jurisdiction over auditors of brokers and dealers pursuant to 
the Dodd-Frank amendments. The Board is also amending a number of the 
rules in this section in light of its experience administering and 
enforcing these rules.\106\
---------------------------------------------------------------------------

    \106\ The Board is also making a number of technical amendments, 
such as updating cross-references, to Rules 5205, 5407, and 5462.
---------------------------------------------------------------------------

    Many of the rules in this section are affected by the amendments 
the Board is making to the definitions in Rule 1001. In particular, the 
changes to the definitions of ``audit,'' ``audit report,'' and 
``professional standards'' make clear that the Board's enforcement 
rules--which encompass, among other things, the provisions of the 
securities laws relating to the preparation and issuance of audit 
reports and the obligations and liabilities of accountants with respect 
thereto--encompass the obligations of auditors with respect to audit 
reports for brokers and dealers, such as those obligations set out in 
Rule 17a-5. The Board's Temporary Rule for an Interim Inspection 
Program for the Audits of Brokers and Dealers extended the definition 
of these three terms to the rules in this section. This rulemaking 
makes these changes part of the Board's permanent rules.
    In addition, the revisions to the definition of ``Person Associated 
With a Public Accounting Firm'' in Rule 1001 apply to all uses of the 
term in this section, making it clear that the term ``associated 
persons'' includes formerly associated persons concerning conduct that 
occurred while they were associated with a registered public accounting 
firm, as well as persons seeking to become associated with a registered 
public accounting firm. As stated above, this amendment reflects the 
Dodd-Frank amendments' clarification of the Board's jurisdiction over 
these individuals.
    Some commenters said the proposed amendments regarding 
investigations and adjudications were not clear, and because in some 
cases they are unrelated to the Dodd-Frank amendments, the Board should 
consider a separate rulemaking effort to consider these amendments, 
which could also include suggestions for changes to the rules in 
Section 5 based on the experience of persons that have been the subject 
of inquiries and investigations, and better explain the rationales and 
potential impacts of these proposed amendments.\107\ The Board does not 
agree that a separate rulemaking is necessary to address the proposed 
amendments to Section 5 that are not related to the Dodd-Frank 
amendments. Many of the proposed amendments to the rules in Section 5 
were technical and the Board did not receive specific comment on them 
from any commenter. Commenters have had an opportunity through this 
rulemaking to comment on all aspects of the proposed rules. After 
considering the comments, including some suggestions for making 
amendments to the rules in Section 5 based on commenters' experiences, 
the Board is adopting the proposed amendments with modifications to 
address commenters' concerns, as discussed below.
---------------------------------------------------------------------------

    \107\ See CAQ Comment Letter; KPMG Comment Letter; PWC Comment 
Letter.
---------------------------------------------------------------------------

Inquiries and Investigations
    Testimony of Registered Public Accounting Firms and Associated 
Persons in Investigations (Rule 5102). Adopted pursuant to Section 
105(b)(2)(A) of the Act, Rule 5102 establishes Board procedures related 
to obtaining and recording the testimony of any registered public 
accounting firm or any associated person of such a firm

[[Page 6312]]

with respect to any matter that the Board considers relevant or 
material to an investigation. Rule 5102(c)(4) provides that a 
registered firm that is required to provide testimony in a Board 
examination shall designate one or more persons to testify on its 
behalf and ``may set forth, for each individual designated, the matters 
on which the individual will testify.'' As proposed, the Board is 
changing the phrase ``may set forth'' to ``shall set forth'' to ensure 
that, when a firm designates more than one individual to testify on its 
behalf, the firm provides appropriate notice as to the subject matter 
of each individual's testimony. The Board did not receive comment on 
the proposed amendments to Rule 5102.
    Requests for Testimony or Production of Documents from Persons Not 
Associated With Registered Public Accounting Firms (Rule 5105). Rule 
5105, adopted under Section 105(b)(2)(C) of the Act, provides that the 
Board, and the staff of the Board designated in a formal order, may 
issue an accounting board request for the testimony of any person, 
including any client of a registered public accounting firm, provided 
certain procedural requirements are satisfied. If not a natural person, 
the person to be examined must designate a representative or 
representatives to testify on the person's behalf.\108\ The Board is 
amending Rule 5105, as proposed, to make the rule's provisions 
applicable to brokers and dealers. The amendments to Rule 5105 also 
require that entities set forth the matters on which their designated 
representatives will testify.\109\ This amendment tracks the amendment 
to Rule 5102(c)(4), discussed above, and ensures that the Board 
receives appropriate notice of the subject matter of each designee's 
testimony. The Board did not receive comment on the proposed amendments 
to Rule 5105.
---------------------------------------------------------------------------

    \108\ See Rule 5105(a)(2).
    \109\ See Rule 5105(a)(2). The Board is changing the phrase 
``may set forth'' in Rule 5105(a)(2) to ``shall set forth.''
---------------------------------------------------------------------------

    Confidentiality of Investigatory Records (Rule 5108). Rule 5108(a) 
reflects the Board's authority, under Section 105(b)(5) of the Act, to 
make confidential materials relating to informal inquiries and formal 
investigations available to the Commission and, ``when determined by 
the Board to be necessary to accomplish the purposes of the Act or to 
protect investors,'' to certain other regulatory authorities. The 
specified regulatory authorities include the Attorney General of the 
United States; the appropriate Federal functional regulator and the 
Director of the Federal Housing Finance Agency,\110\ with respect to an 
audit report for an institution subject to the jurisdiction of such 
regulator; State attorneys general in connection with any criminal 
investigation; and any appropriate State regulatory authority. The 
Dodd-Frank amendments added two more categories of regulatory 
authorities to the list in Section 105(b)(5): self-regulatory 
organizations and foreign auditor oversight authorities. As proposed, 
the Board is making conforming amendments to Rule 5108. The Board's 
authority to disclose confidential information (either from 
investigations or inspections) to self-regulatory organizations and 
foreign audit oversight authorities is provided by the Act and does not 
depend upon these rule amendments taking effect.\111\
---------------------------------------------------------------------------

    \110\ Section 1161(h) of the Housing and Economic Recovery Act 
of 2008, Public Law 110-289, 122 Stat. 2654, 2781 (2008), amended 
Sarbanes-Oxley to authorize the PCAOB to share information gathered 
in Board inspections and investigations with the Director of the 
Federal Housing Finance Agency (with respect to audits of 
institutions within the Federal Housing Finance Agency's 
jurisdiction). The PCAOB is adopting amendments to conform to 
Section 1161(h) of the Housing and Economic Recovery Act. See Rule 
5108(a)(2)(b).
    \111\ See Section 105(b)(5)(B) and (C) of the Act. The PCAOB is 
adopting these rule amendments to maintain consistency between 
Sections 105(b)(5) of the Act and Rule 5108(a), which the Board 
originally adopted ``principally for purposes of notice concerning 
how the Board will comply with the requirements of Section 105(b)(5) 
(e.g., by keeping the relevant documents confidential) and that the 
Board will make appropriate use of its authority to share 
confidential materials with certain other regulatory authorities.'' 
See Rules on Investigations and Adjudications, PCAOB Release No. 
2003-015, at A2-40 (Sep. 29, 2003).
---------------------------------------------------------------------------

    Self-regulatory organization. The Board is adopting Rule 5108(e) to 
conform to the Dodd-Frank amendments that permit the Board to share 
confidential information with ``a self-regulatory organization, with 
respect to an audit report for a broker or dealer that is under the 
jurisdiction of such self-regulatory organization.'' \112\
---------------------------------------------------------------------------

    \112\ The term ``self-regulatory organization'' (``SRO'') was 
adopted as a part of the Board's funding rules release. See PCAOB 
Release No. 2011-002.
---------------------------------------------------------------------------

    Foreign auditor oversight authority. The Board is adopting Rule 
5108(f) to conform to the Dodd-Frank amendments that allow greater 
Board cooperation with certain foreign regulators. The Dodd-Frank 
amendments allow the Board to share confidential information with 
``foreign auditor oversight authorities,'' as the Board defined in Rule 
1001.\113\ Rule 5108(f) tracks the Dodd-Frank amendments that allow the 
Board to share documents with a foreign auditor oversight authority 
concerning a public accounting firm with respect to which it has been 
empowered by a foreign government to inspect or otherwise enforce laws, 
under certain circumstances. Specifically, the foreign auditor 
oversight authority must provide (1) assurances of confidentiality 
requested by the Board; (2) a description of its applicable information 
systems and controls; and (3) a description of the laws and regulations 
of the foreign government of the foreign auditor oversight authority 
that are relevant to information access. In addition to making a 
determination under Rule 5108(a)(2) that sharing the information with 
the foreign auditor oversight authority is necessary to accomplish the 
purposes of the Act or to protect investors, the Board must also 
determine that it is appropriate to share such information.\114\
---------------------------------------------------------------------------

    \113\ See Rule 1001(f)(iii).
    \114\ See Section 105(b)(5)(C) of the Act.
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    One commenter suggested that because SROs are private entities the 
Board should take additional steps to ensure that SROs preserve the 
confidentiality and privilege of any information that is transmitted to 
SROs, for example by requiring, by rule, that SROs enter into a 
memorandum of understanding with the Board before receiving 
confidential and privileged information from the Board.\115\ Unlike 
foreign auditor oversight authorities, Congress did not impose a 
requirement that the Board seek assurances of confidentiality from SROs 
or take other steps to determine that it is appropriate to share 
confidential information with SROs.\116\ Instead, the Act itself 
instructs SROs to ``maintain such information as confidential and 
privileged.'' \117\ The Board does not believe amending Rule 5108 is 
necessary to maintain the confidential and privileged status of this 
information. The Board takes steps to ensure that recipients of this 
information are aware of the statutory restrictions on information 
sharing. In the event that the Board discovers that an SRO makes 
disclosures that the Board believes are inconsistent with the Act, the 
Act and Rule 5108 allow the Board the flexibility to decline to supply 
information to that SRO or to require appropriate assurances of 
confidentiality.\118\
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    \115\ See D&T Comment Letter. With respect to foreign auditor 
oversight authorities, D&T supported inclusion of the statutory 
safeguards to protect against a breach of confidentiality by the 
foreign authority.
    \116\ Compare Section 105(b)(5)(C)(ii) of the Act, with Section 
105(b)(5)(B)(ii) of the Act.
    \117\ See Section 105(b)(5)(B) of the Act.
    \118\ For these same reasons, the Board does not believe this 
commenter's similar suggested revisions to Rule 5112 or Rule 5420 
are necessary and declines to make them.

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[[Page 6313]]

    Statements of Position (Rule 5109). Rule 5109(d) allows a 
registered firm or associated person that has become involved in an 
informal inquiry or formal investigation to submit a written statement 
to the Board setting forth their position on the subject matter of the 
investigation. The Board proposed to add an explanatory note to Rule 
5109(d), that would have indicated that, in considering factual 
assertions in a statement of position, the Board will consider whether 
those factual assertions are supported by evidence, such as evidence in 
the investigative record, or by an affidavit or declaration by an 
individual with knowledge of the asserted facts. The proposed note was 
designed to encourage associated persons and registered firms to 
provide the Board with appropriate information that would further 
assist the Board in evaluating statements of position.
    Several commenters said the proposed explanatory note could suggest 
that arguments made in statements of position that were not supported 
by formal affidavits or declarations would be discounted by the Board, 
which they said would place disproportionate weight on formal 
evidentiary submissions at an early stage of an inquiry or 
investigation and potentially harm the Board's process of obtaining 
evidence.\119\ Two commenters said that the proposing release did not 
provide a clear rationale for this proposed amendment.\120\
---------------------------------------------------------------------------

    \119\ See D&T Comment Letter; Grant Thornton Comment Letter; 
KPMG Comment Letter; PWC Comment Letter.
    \120\ See KPMG Comment Letter; PWC Comment Letter.
---------------------------------------------------------------------------

    In light of the concerns expressed by commenters, the Board is not 
adopting the proposed explanatory note. The Board did not intend to 
suggest that formal evidentiary submissions would be required, or that 
the Division of Enforcement and Investigation's (``DEI'' or 
``Division'') burden of proof would shift as a result of the proposal. 
The purpose of the Rule 5109(d) process is to assist the Board in its 
decision-making by providing prospective respondents with a meaningful 
opportunity to focus the Board's attention on significant issues 
concerning prospective respondents' characterization of their own 
conduct, and on the legal and policy issues implicated by the staff's 
recommendation.\121\ Submissions made under Rule 5109(d) also help the 
Board's Enforcement staff in determining whether to pursue a 
recommendation that the Board institute disciplinary proceedings 
against a prospective respondent. The process is not designed to become 
a miniature adjudication that is subject to formal evidentiary 
submission requirements.
---------------------------------------------------------------------------

    \121\ See PCAOB Release No. 2003-015, at A2-47 through A2-49.
---------------------------------------------------------------------------

    Practice today varies across Rule 5109(d) submissions and sometimes 
within a submission. Some submissions are amply supported; others are 
unsupported or only partially supported. Additionally, in some 
instances, assertions in a submission appear to contradict evidence in 
the investigative record. The Board's goal in proposing the explanatory 
note was simply to make prospective respondents aware (or remind them) 
that if their statements of position assert new facts, or make factual 
assertions that contradict evidence already in the investigative 
record, those assertions are likely to be given more weight by the 
Division and the Board if they are supported by evidence. Supportive 
evidence could include evidence that is already in the investigative 
record. A proposed respondent could also, for example, submit an 
affidavit, declaration, or similar statement signed by an individual 
who claims to have knowledge of the asserted facts.
    Board Referrals of Investigations (Rule 5112). Rule 5112(b) 
provides that the Board may refer any investigation to the Commission, 
and to any other Federal functional regulator. The Dodd-Frank 
amendments gave the Board authority to refer any investigation to a 
self-regulatory organization when the investigation concerns an audit 
report for a broker or dealer that is under the jurisdiction of such 
organization. The Board is adding subparagraph (2) to Rule 5112(b) to 
conform to these amendments.\122\ Other than the comment discussed 
above in connection with Rule 5108(a), the Board did not receive 
comment on the proposed amendment to Rule 5112 and is adopting it as 
proposed.\123\
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    \122\ The PCAOB is also adopting amendments to conform to 
Section 1161(h) of the Housing and Economic Recovery Act. See Rule 
5112(b)(3).
    \123\ See supra note 118.
---------------------------------------------------------------------------

Disciplinary Proceedings
    Commencement of Disciplinary Proceedings (Rule 5200(a)(2)). The 
Board is amending Rule 5200(a)(2) to replace the phrase ``the 
supervisory personnel of such a firm,'' with ``any person who is, or at 
the time of the alleged failure reasonably to supervise was, a 
supervisory person of such firm.'' This amendment conforms the rule to 
the Dodd-Frank amendments to Section 105(c)(6) of the Act concerning 
the imposition of sanctions for failure to supervise. The Board did not 
receive comment on the proposed amendments to Rule 5200(a)(2) and the 
Board is adopting the amendments as proposed.
    Proceedings Instituted Solely Pursuant to Rule 5200(a)(3). Under 
Rule 5200(a)(3), the Board may institute disciplinary proceedings when 
``it appears to the Board that a hearing is warranted pursuant to Rule 
5110.'' Rule 5110 states that the Board may institute a proceeding 
pursuant to Rule 5200(a)(3) for noncooperation with a Board 
investigation. A number of provisions in the Board rules are intended 
to expedite disciplinary proceedings of this type. Based on its 
experience with these rules in practice, the Board is making amendments 
so that these special procedures do not automatically apply in cases 
involving both non-cooperation and other charges.
    First, the Board is eliminating the Rule 5201(b)(3)(ii) requirement 
that the Board specify a hearing date in every order instituting 
proceedings (``OIP'') for alleged noncooperation with an investigation. 
Rule 5200(b)(12) requires a hearing officer to obtain Board approval 
before changing any hearing date set by Board order. These two rules 
combine to restrict the hearing officer's discretion in a way that is 
not necessary in every noncooperation case. The Board retains the 
discretion to include hearing dates or deadlines in any OIP.
    Second, the Board is amending the following rules by adding the 
word ``solely'' to make it clear that certain shorter deadlines and 
more abbreviated procedural requirements apply only to proceedings 
brought exclusively for alleged noncooperation: Rules 5110(b); 
5201(b)(3) (and deleting 5201(b)(3)(ii)); 5204(b)(Note), 5421(b), 
5422(a)(2), 5422(d), 5445(b), and 5460(a)(2)(ii). Rule 5421(b), for 
example, prescribes the time frame in which parties must answer 
allegations contained in Board OIPs. The rule requires parties to file 
answers to Board allegations within 20 days for proceedings brought 
pursuant to Rule 5200(a)(1), Rule 5200(a)(2), or Rule 5500, and within 
five days for proceedings brought under Rule 5200(a)(3). Rule 5421(b) 
does not expressly address, however, which time frame applies to 
proceedings brought under both Rule 5200(a)(1) and Rule 5200(a)(3), for 
example. The amendments clarify that the rule's shorter time frame 
applies only to proceedings brought under, and only under, Rule 
5200(a)(3). Put another way, the amendments clarify that Rule 5421(b)'s 
expedited time frame does not apply to a proceeding brought under both 
Rule 5200(a)(1) and Rule 5200(a)(3).

[[Page 6314]]

    One commenter expressed concern that the proposed amendments that 
would clarify that special expedited procedures only apply to non-
cooperation charges could have the effect of allowing a disagreement 
over what conduct constitutes non-cooperation to take too long to 
resolve, creating uncertainty.\124\ The Board's amendments clarify the 
circumstances under which the Board's special and expedited non-
cooperation procedures apply,\125\ but do not amend the grounds under 
which non-cooperation proceedings may be instituted \126\ or the 
substance of the expedited procedures.\127\ The time involved in 
resolving disagreements over what conduct constitutes non-cooperation 
should therefore not be affected by these amendments.
---------------------------------------------------------------------------

    \124\ See PWC Comment Letter.
    \125\ See Rule 5110(b).
    \126\ See Rule 5110(a).
    \127\ See Rules 5201(b)(3), 5300(b), 5302(d), 5421(b), 
5422(a)(2), 5422(d), 5445(b), and 5460(a)(2)(ii).
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    Burden of Proof (Rule 5204). Rule 5204(a) provides that in any 
disciplinary proceeding instituted pursuant to Rule 5200(a), the 
interested division ``shall bear the burden of proving an alleged 
violation or failure to supervise by a preponderance of the evidence.'' 
As proposed, the Board is adding a second sentence to Rule 5204 that 
makes it clear that respondents who raise affirmative defenses bear the 
burden of proving those affirmative defenses, also by a preponderance 
of the evidence. The addition is consistent with the general rule that 
the burden of proving an affirmative defense rests with the party 
asserting the defense. See, e.g., Taylor v. Sturgell, 553 U.S. 880, 907 
(2008).
    The amendments to Rule 5204 only become relevant if the interested 
division has met its burden of proving an alleged violation by a 
preponderance of the evidence. Thus, the amendments clarify that once 
the interested division has proved an alleged violation by a 
preponderance of the evidence, if the respondent raises an affirmative 
defense to the violation, the respondent bears the burden of proving 
the affirmative defense by a preponderance of the evidence. The Board 
did not receive comment on the proposed amendments to Rule 5204 and is 
adopting these amendments as proposed.
    Civil Money Penalties (Rule 5300). Rule 5300(a) lists the sanctions 
the Board may impose if it finds a registered firm or associated person 
has committed a violation of the Act, rules of the Board, the relevant 
securities laws, or professional standards. Under Rule 5300(a)(4), the 
Board may impose civil money penalties for each such violation. This 
rule, which became effective in 2004, listed specific maximum amounts 
for penalties against natural persons and entities. As required by the 
Debt Collection Improvement Act of 1996,\128\ the SEC adjusts the 
maximum amounts of certain penalties under the Act for inflation at 
least once every four years.\129\ As proposed, the Board is revising 
Rule 5300(a)(4) to recognize the penalty inflation adjustments, as 
published in the Code of Federal Regulations at 17 CFR Part 201 Subpart 
E. In addition, the Board is adding an explanatory note at the end of 
Rule 5300, indicating that the maximum penalty amounts vary depending 
on the date that the violation occurs, per 17 CFR Part 201 Subpart 
E.\130\
---------------------------------------------------------------------------

    \128\ Public Law 104-134, 110 Stat. 1321-373 (codified at 28 
U.S.C. 2461 note).
    \129\ See SEC, Adjustments to Civil Monetary Penalty Amounts, 
Securities Act Release No. 8530 (Feb. 4, 2005); SEC, Adjustments to 
Civil Monetary Penalty Amounts, Securities Act Release No. 9009 
(Feb. 25, 2009); SEC, Adjustments to Civil Monetary Penalty Amounts, 
Securities Act Release No. 9387 (Feb. 27, 2013).
    \130\ One commenter said that while it did not have a particular 
objection to the proposed amendment to Rule 5300, it was not 
apparent how the SEC can amend the civil penalties established by 
Congress in the Act for the PCAOB, because the Federal Civil 
Penalties Inflation Adjustment Act of 1990 (``FCPIAA'') applies only 
to ``agencies'' of the federal government, and the PCAOB is not a 
federal agency. See EY Comment Letter. The FCPIAA encompasses the 
civil monetary penalties that may be imposed by the Board because 
penalties assessed by the PCAOB are ``enforced'' by the SEC for 
purposes of the FCPIAA. See Securities Act Release No. 9009, at n.5.
---------------------------------------------------------------------------

    Leave to Participate to Request a Stay (Rule 5420). Under Rule 
5420, an authorized representative of the SEC, the United States 
Department of Justice or any United States Attorney's Office, an 
appropriate state regulatory authority, or any criminal prosecutorial 
authority of a state or political subdivision of a state may seek leave 
to participate in a pending Board or disciplinary proceeding to request 
a stay to protect an ongoing investigation or proceeding. Consistent 
with the Dodd-Frank amendments, the Board is expanding the list of 
entities that may seek a stay pursuant to Rule 5420 to include self-
regulatory organizations, as defined by Rule 1001(s)(v). This amendment 
permits a self-regulatory organization to seek a stay of a hearing that 
is in the public interest or for the protection of investors. Other 
than the comment discussed above in connection with Rule 5108(a), the 
Board did not receive comment on the proposed amendments to Rule 5420 
and is adopting these amendments as proposed.\131\
---------------------------------------------------------------------------

    \131\ See supra note 118.
---------------------------------------------------------------------------

    Documents That May Be Withheld From Production (Rule 5422). After 
disciplinary proceedings have been instituted, Rule 5422(a) provides 
that DEI generally must make available for inspection and copying 
various documents prepared or obtained by the Division ``in connection 
with the investigation prior to the institution of the proceedings.'' 
Rule 5422(b) lists categories of documents that the Division may 
decline to make available for inspection and copying, subject to an 
overriding obligation not to withhold material exculpatory evidence. 
The PCAOB has determined to amend Rule 5422(b) in two respects.
    First, under amended Rule 5422(b)(1)(i), DEI need not make 
available for inspection and copying any document prepared by a person 
retained by the PCAOB or the PCAOB's staff to provide services in 
connection with a PCAOB investigation, disciplinary proceeding, or 
hearing on disapproval of registration. Documents may be withheld under 
Rule 5422(b)(1)(i) only if the document has not been disclosed to any 
person other than Board members, Board staff, or persons retained by 
the Board or Board staff to provide services in connection with a PCAOB 
investigation, disciplinary proceeding, or hearing on disapproval of 
registration. Withholding such documents does not trigger any 
procedural requirements under Rule 5422(c).
    Commenters generally expressed concern that there is no parallel 
provision in the SEC's comparable rule, which sets forth when the SEC's 
Division of Enforcement may withhold a document including when a 
document ``is an internal memorandum, note or writing prepared by a 
Commission employee'' or ``is otherwise attorney work product and will 
not be offered in evidence.'' \132\ Commenters also contended that this 
change is not warranted without a more thorough explanation.\133\ The 
PCAOB further considered this proposal in light of the comments and 
determined to adopt it as proposed in most respects.\134\
---------------------------------------------------------------------------

    \132\ See CAQ Comment Letter; D&T Comment Letter; EY Comment 
Letter; Grant Thornton Comment Letter; KPMG Comment Letter.
    \133\ See CAQ Comment Letter; EY Comment Letter; KPMG Comment 
Letter; PWC Comment Letter.
    \134\ Commenters also generally asserted that the addition of 
the words ``obtained from'' in proposed Rule 5422(b)(1)(i) was 
ambiguous and could have implications on the efficiency and fairness 
of PCAOB proceedings. See CAQ Comment Letter; D&T Comment Letter; EY 
Comment Letter; and KPMG Comment Letter. After considering these 
comments, the Board has determined that this proposed amendment is 
not necessary and is not revising Rule 5422(b)(1)(i) to add the 
``obtained from'' language.

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[[Page 6315]]

    This amendment corrects an anomaly in the prior version of Rule 
5422(b)(1)(i), under which a document prepared by the Board or its 
staff and provided to a retained person would not be subject to 
disclosure under this subsection, but a document prepared by a retained 
person and provided to the Board or its staff was not covered by this 
subsection. The Board believes the applicability of Rule 5422(b)(1)(i) 
should not turn on whether a document was initially prepared by the 
Board, its staff, or a person retained by the Board or its staff. 
Retained persons are required to execute confidentiality agreements as 
a condition of their retention. Additionally, revising Rule 
5422(b)(1)(i) to encompass documents prepared by a retained person is 
consistent with the general rule that firms and associated persons are 
not required to produce to the Division documents prepared by 
consultants they have retained to provide services in connection with 
an investigation or disciplinary proceeding.
    The Board is also not persuaded that the lack of a similar specific 
provision in the SEC Rules of Practice counsels against amending Rule 
5422(b)(1)(i), since the analogous SEC Rule, Rule 230, Enforcement and 
Disciplinary Proceedings: Availability of Documents for Inspection and 
Copying, is structured differently from PCAOB Rule 5422. For example, 
under PCAOB Rule 5422(b), as currently written, the Division may 
withhold from production, pursuant to the ``work product doctrine,'' 
certain documents prepared by persons retained by the Board or the 
Board's staff in connection with an investigation. DEI, however, is 
required under Rule 5422(c) to provide a respondent with a log of such 
documents withheld. In contrast, under SEC Rule 230(c), the 
Commission's Division of Enforcement is not required to prepare a log 
of documents that it has withheld from production, including documents 
withheld pursuant to the work product doctrine (and work product 
documents prepared by retained persons), unless a hearing officer so 
requires. Thus, in certain respects, the amendment to Rule 
5422(b)(1)(i), which effectively removes the logging requirement for 
documents prepared by persons retained by the Board or the Board's 
staff in connection with an investigation, brings the Board's rules 
more in line with the Commission's rules.
    The PCAOB's second amendment, to Rule 5422(b)(1)(ii), allows DEI to 
not make available for inspection and copying any document ``accessed 
from generally available public sources, such as legal research or 
other subscription databases, databases of securities filings, 
databases of periodicals, and public Web sites, except to the extent 
that DEI intends to introduce such documents as evidence.'' Documents 
may be withheld under Rule 5422(b)(1)(ii) only if DEI does not intend 
to introduce them as evidence. Withholding such documents does not 
trigger any procedural requirements under Rule 5422(c).
    Some commenters asserted that documents ``accessed from generally 
available public sources'' could result in relevant materials not being 
produced, including documents DEI may consider supportive of its claims 
or that are exculpatory of a respondent.\135\ The Board does not agree 
that exculpatory materials can be withheld under this new subsection 
and is adopting this amendment as proposed. Rule 5422(b)(2) makes clear 
that material exculpatory evidence must always be produced even if it 
could otherwise be withheld under Rule 5422(b)(1).\136\ The PCAOB is 
adopting this amendment as proposed because it is concerned that the 
previous version of Rule 5422 could be misread to require DEI to log 
any legal research or general background research done during the 
investigation. This amendment is not intended to relieve DEI of the 
obligation to make available any document DEI knows of and intends to 
introduce as evidence, and it does not allow DEI to withhold a document 
that contains material exculpatory evidence.
---------------------------------------------------------------------------

    \135\ See CAQ Comment Letter; D&T Comment Letter; Grant Thornton 
Comment Letter; KPMG Comment Letter.
    \136\ The Board also is not persuaded that there is a risk that 
DEI would withhold evidence supportive of its claim under Rule 
5422(b)(1)(ii), since that subsection requires DEI to produce 
documents it intends to introduce as evidence even if the documents 
were obtained from a generally available public source.
---------------------------------------------------------------------------

    Prior Sworn Statements of Nonparty Witnesses in Lieu of Live 
Testimony (Rule 5426). Rule 5426 allows a party to make a motion with 
the Hearing Officer to introduce ``a prior, sworn statement of a 
nonparty witness otherwise admissible in the proceeding, in lieu of 
live testimony.'' The title and subsequent provisions of the rule do 
not, however, repeat the rule's limitation to nonparty witnesses. The 
Board is adding ``nonparty'' before ``witnesses'' in the title of Rule 
5426, and before ``witness'' in the fourth sentence of the rule, in 
order to make it clear that the rule does not apply to prior sworn 
statements of parties to the proceeding. The Board did not receive 
comment on the proposed amendments to Rule 5426 and is adopting these 
amendments as proposed.
    Motions for Summary Disposition (Rule 5427). Rule 5427 provides 
that the interested division or respondent may file motions for summary 
disposition of the proceedings. The Board is adding ``any or all 
allegations of the order instituting proceedings with'' to both Rules 
5427(a) and (b) to make it clear that a motion for partial summary 
disposition may be made by the interested division and the respondents 
to disciplinary proceedings. This language tracks Rule 250 of the 
Commission's Rules of Practice. The Board did not receive comment on 
the proposed amendments to Rule 5427 and is adopting these amendments 
as proposed.
    Evidence: Objections and Offers of Proof (Rule 5442). Rule 5442 
addresses objections to the admission or exclusion of evidence in a 
disciplinary proceeding. The Board is making a technical amendment to 
Rule 5442(a)(2) to clarify that exceptions to the hearing officer's 
admission or exclusion of evidence will not be deemed waived on appeal 
to the Board, if they are raised in proposed findings and conclusions 
filed in a post-hearing brief or other submission pursuant to Rule 
5445. The Board did not receive comment on the proposed amendments to 
Rule 5442 and is adopting these amendments as proposed.
    Board Review of Determinations of Hearing Officers (Rule 5460). 
Rule 5460 sets out the procedures for the Board's review of hearing 
officer initial decisions, either on appeal of a party to a hearing or 
on the Board's own initiative. Under Rule 5460(a)(2), a party may 
obtain Board review of an initial decision by filing a timely petition 
for review. To be timely, a petition must be filed within 10 days of an 
initial decision in a proceeding commenced under Rule 5200(a)(3) for 
noncooperation, and within 30 days of an initial decision in other 
proceedings. To conform with the clarification to Rule 5200(a)(3) 
discussed above, the Board is adding the word ``solely'' to Rule 
5460(a)(2)(ii), to make it clear that the 10-day time period applies 
only to proceedings instituted exclusively pursuant to Rule 5200(a)(3).
    The Board is also adding a note to Rule 5460(a) that sets out how 
the Board will determine when service of an initial decision has 
occurred, and by extension, when petitions for review are due. For any 
party that has entered a

[[Page 6316]]

notice of appearance and filed an electronic mailing address with the 
Board, pursuant to Rule 5401(c), the Board deems service to have 
occurred on the date that the Secretary has transmitted the initial 
decision by electronic mail to the email address on file.
    Finally, Rule 5460(e) provides that the Board may summarily affirm 
an initial decision, based upon a petition for review. The Board is 
deleting the phrase ``and any response thereto'' from this provision 
because no Board rule permits a response to a petition for review. The 
Board did not receive comment on the proposed amendments to Rule 5460 
and is adopting these amendments as proposed.
    Presence of accounting experts during investigative testimony. In 
response to a general request for comments about other potential 
changes to the rules in Section 5, several commenters said accounting 
experts should be allowed to assist counsel during testimony in 
appropriate circumstances under Rule 5102(c)(3).\137\ These commenters 
asserted that the SEC has permitted this form of assistance since 1985, 
``with no apparent interference in the SEC's fact-finding process,'' 
\138\ and said that DEI's ``functional ban'' on technical assistance 
results in: possible prejudice to counsel and witnesses during 
questioning, an inhibiting effect on DEI's fullest exposition and 
consideration of the issues, and the appearance that DEI has an unfair 
tactical advantage over the witness in the investigative process.\139\
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    \137\ See CAQ Comment Letter; EY Comment Letter; KPMG Comment 
Letter.
    \138\ See CAQ Comment Letter; EY Comment Letter; KPMG Comment 
Letter.
    \139\ See CAQ Comment Letter; KPMG Comment Letter.
---------------------------------------------------------------------------

    One commenter said that the Board should think of firm monitoring 
as a good idea that facilitates supervisors' ability to determine 
whether the firm should adjust the witness's work assignments, provide 
training, or take other steps to address shortcomings.\140\ And 
commenters suggested that the Board should amend its rules to expressly 
provide that witnesses' counsel be permitted the assistance of a 
technical consultant during the taking of testimony, except in 
circumstances in which DEI staff determines that it would obstruct the 
investigation.\141\
---------------------------------------------------------------------------

    \140\ See EY Comment Letter.
    \141\ See CAQ Comment Letter; EY Comment Letter; KPMG Comment 
Letter.
---------------------------------------------------------------------------

    The existing Rule 5102 gives the Board and the Board's staff 
discretion to allow an accounting expert to be present during 
investigative testimony in appropriate circumstances. The Board will 
consider the comments on this issue, as well as all other relevant 
factors, in determining how the staff should continue to exercise that 
discretion going forward.
Registration and Reporting Forms
    The Board is amending PCAOB Forms 1, 1-WD, 2, 3, and 4, the Board's 
registration, withdrawal, and reporting forms. The amendments revise 
the forms to call for relevant information relating to a firm's audits 
of brokers and dealers. That information includes, among other things, 
information about audit reports issued by registered firms for broker 
and dealer audit clients. The amendments also make a number of changes 
to the forms in light of administrative experience. Commenters 
generally supported the proposed form amendments,\142\ and the Board is 
largely adopting the amendments as proposed.
---------------------------------------------------------------------------

    \142\ See EY Comment Letter; KPMG Comment Letter; PWC Comment 
Letter.
---------------------------------------------------------------------------

    Form 1: Application for Registration. Under Section 102(b) of the 
Act and Rule 2101, public accounting firms applying to the Board for 
registration must complete and file Form 1.\143\ The Board is amending 
Form 1 to conform with the Dodd-Frank amendments by adding ``broker'' 
and ``dealer'' to the Form in appropriate places.\144\ In addition, the 
amendments require that applicants disclose identifying information 
concerning all brokers or dealers for which the applicant has prepared 
or issued audit reports during the previous calendar year,\145\ and for 
which the applicant prepared, or expects to prepare or issue, audit 
reports during the current calendar year.\146\ The amendments also 
require applicants to disclose the fees they billed to broker and 
dealer audit clients.\147\ The amendments also require applicants to 
provide information about any limitations currently in effect, whether 
Board-ordered, Commission-ordered, or court-ordered, on association 
with a registered public accounting firm or on appearing or practicing 
before the Commission.\148\ The Board did not receive comment on the 
proposed amendments to Form 1 and is adopting these amendments as 
proposed.
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    \143\ See Registration System for Public Accounting Firms, PCAOB 
Release No. 2003-007 (May 6, 2003).
    \144\ See, e.g., amended Form 1, Items 5.1, 5.2, 7.1, and 8.1. 
The amendments also make a technical change to General Instruction 6 
of Form 1, to more closely conform the instruction to Rule 2300, as 
adopted in 2008. See Rules on Periodic Reporting by Registered 
Public Accounting Firms, PCAOB Release No. 2008-004, at n.27 and 
accompanying text (June 10, 2008).
    \145\ Form 1, Item 3.1.
    \146\ Form 1, Item 3.2 and Item 3.3.
    \147\ Form 1, Item 3.1.c-e and Item 3.2.c-e.
    \148\ Form 1, Item 5.1.c-d.
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    Part III amendments. As required by Section 102(b)(2)(A) and (B) of 
the Act, and consistent with the issuer client information currently 
required in Part II of Form 1, Part III of Form 1 requires disclosures 
about the applicant's broker or dealer audit clients, including the 
client's name, business address, CRD number,\149\ CIK number,\150\ the 
date of the audit report, and disclosures about the fees billed to 
broker or dealer audit clients by the applicant. The disclosures are 
divided into four items that closely track the items in Part II of Form 
1 relating to issuer audit clients. Item 3.1 covers broker and dealer 
clients for which the applicant prepared an audit report during the 
previous year. Item 3.2 covers broker and dealer clients for which the 
applicant prepared an audit report during the current year. Item 3.3 
covers broker and dealer clients for which the applicant expects to 
prepare an audit report during the current year. Item 3.4 covers broker 
and dealer clients for which the applicant played or expects to play a 
substantial role in the audit during the preceding or current calendar 
year if the applicant did not prepare or issue and does not expect to 
prepare or issue audit reports.
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    \149\ A broker's or dealer's Central Registration Depository 
(``CRD'') number is a number assigned by FINRA's CRD system, a 
computer system that maintains registration information regarding 
brokers and dealers and their registered personnel.
    \150\ The Commission issues Central Index Key (``CIK'') numbers 
as unique publicly available identifiers and Electronic Data 
Gathering, Analysis, and Retrieval System (``EDGAR'') access codes. 
For consistency, and to more easily identify issuers, the Board is 
also amending Form 1, Items 2.1 through 2.4 to require issuers' CIK 
numbers.
---------------------------------------------------------------------------

    Items 3.1 and 3.2 require the same information: the broker's or 
dealer's name, business address, CRD number, CIK number, the date of 
the audit report, and the total amount of fees billed for audit 
services, other accounting services, and non-audit services.\151\ 
Because Item 3.3 refers to a future period, it only requires the 
broker's or dealer's name, business address, and CRD and CIK 
numbers.\152\ Item 3.4 requires disclosure of the broker's or dealer's 
name, business address, CRD

[[Page 6317]]

number, CIK number, the name of the public accounting firm that issued 
or is expected to issue the audit report, the date or expected date of 
the audit report, and the type of substantial role played by the 
applicant with respect to the audit report.
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    \151\ As discussed above, the Board is amending the terms 
``audit services'' and ``other accounting services'' to apply to 
broker and dealer audit clients. See supra note 20 and accompanying 
text.
    \152\ As proposed, the note to Item 3.3 stated that an applicant 
may ``presume'' it is expected to prepare or issue an audit report 
for a broker or dealer in certain circumstances, while the notes to 
proposed Items 2.4 and 3.4(d) used the term ``conclude'' in the same 
context. The Board agrees with two commenters that using the term 
``conclude'' consistently is preferable, and has adopted this 
change. See CAQ Comment Letter; KPMG Comment Letter.
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    The Board understands that the fee information in Items 3.1 and 3.2 
may not have been collected historically, and that public accounting 
firms may have to put systems in place to track information in these 
categories. While the Board understands that many, if not all, broker 
or dealer clients are not subject to the Commission's existing 
requirements for issuers to disclose fee information, or Items 2.1 and 
2.2 of Form 1, where similar fee disclosure is currently required for 
issuer audit clients, the Dodd-Frank amendments to Section 102(b)(2)(B) 
of the Act specifically require applicants to include disclosure of the 
annual fees received by the firm for ``audit services, other accounting 
services, and non-audit services'' for each broker or dealer audit 
client.\153\
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    \153\ As noted below, the Board is not imposing an annual 
reporting requirement with respect to fees for services provided for 
broker and dealer audit clients. See text accompanying and following 
note 177.
---------------------------------------------------------------------------

    The Board expects that the Form 1 fee disclosure requirements for 
broker and dealer audit clients will not affect most registered public 
accounting firms. First, all current auditors of broker and dealer 
clients should already be registered with the Board,\154\ and so will 
already have filed Form 1. Also, going forward the Board expects that 
most new firms will not have prepared audit reports for broker or 
dealer clients during the preceding or current calendar year, without 
having been previously registered with the Board, and therefore Items 
3.1 and 3.2 will generally not apply to them.\155\ Finally, because the 
Board recognizes that firms with broker and dealer audit clients have 
not necessarily been maintaining billing records in a way that readily 
facilitates precise reporting according to the fee categories in the 
Act (as the Board has defined them), the Board is adopting a note to 
these items that provides that estimated amounts may be used in 
responding to these Items in Form 1, to the extent that these fees have 
not previously been disclosed or otherwise known to an applicant.\156\
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    \154\ The Dodd-Frank amendments to Section 102(a) of the Act 
expanded the Act's registration requirement by making it unlawful 
for any person that is not a registered public accounting firm to 
prepare or issue, or to participate in the preparation or issuance 
of, any audit report with respect to any broker or dealer. Even 
before the Dodd-Frank amendments, however, Section 17(e)(1)(A) of 
the Exchange Act, as amended in 2002, required that the balance 
sheets and income statements filed with the Commission by registered 
brokers or dealers be certified by a public accounting firm 
registered with the PCAOB. See supra note 4.
    \155\ While Items 3.1 and 3.2 will generally not affect new 
applicants, some applicants may expect to issue an audit report for 
a broker or dealer in the current calendar year and may have 
provided tax services or other non-audit services to a broker or 
dealer client prior to providing audit services to the broker or 
dealer client. These applicants are required to comply with the 
amended fee disclosure requirements in Items 3.1 and 3.2 as to these 
previously provided tax and other accounting services.
    \156\ This means, for example, that if a firm has not tracked 
fees billed to broker and dealer audit clients according to the fee 
categories as defined by the Board's rules, estimated amounts may be 
used in responding to these items.
---------------------------------------------------------------------------

    Part V amendments. Item 5.1 of Form 1 requires applicants to 
disclose information about certain types of criminal, civil, 
administrative, or disciplinary proceedings pending against, or 
resolved in the preceding five years against, the applicant or any 
associated person of the applicant. At the time that the PCAOB adopted 
Form 1, there was no history of disciplinary sanctions imposed by the 
Board. Now that there is a history of Board-imposed bars and 
suspensions dating back to 2005, the Board is adding to Form 1 a 
requirement that the applicant disclose whether individuals in the 
firm, or contractors of the firm, are subject to any currently 
effective Board-imposed bar or suspension on being an associated person 
of a registered public accounting firm. The implication of collecting 
this information on Form 1 is not that a firm's relationship with such 
a person would, in and of itself, result in rejection of the firm's 
application, but in some circumstances it may be relevant information 
that would cause the Board to evaluate whether approving the 
application is consistent with the Board's responsibility to protect 
investors and further the public interest.\157\ In the same vein, the 
Board also is requiring information about currently effective 
prohibitions on appearing or practicing before the Commission, whether 
resulting from a Commission order denying or suspending that privilege 
or from a court-ordered injunction against such appearance or 
practice.\158\ The amendments add new Items 5.1.c, 5.1.d, and 5.1.e to 
Form 1.
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    \157\ Among other factors, the PCAOB will consider the nature of 
the allegations underlying the proceeding, and the position at the 
firm of the associated person. Form 1 permits firms to address these 
factors, as well as any other relevant points, in any discussion it 
provides concerning the disclosure.
    \158\ Because currently effective denials or suspensions may 
have been ordered at any time, not just within the five years 
preceding an application, the amended language refers to Commission 
orders without limiting them to orders issued pursuant to current 
Rule 102(e) of the Commission's Rules of Practice. The amended 
language also encompasses court-ordered injunctions against 
appearing or practicing before the SEC, some of which have been 
issued in the past and remain in effect. Although the vast majority 
of SEC practice denials or suspensions are administrative, some are 
court-ordered. A corresponding language change is also being made 
for Form 3, as described below.
---------------------------------------------------------------------------

    Part VI amendments. The Board is also amending Part VI of Form 1, 
which requires an applicant to identify instances in which the 
applicant's issuer audit clients disclosed disagreements with the 
applicant in Commission filings. As required by Section 102(b)(2)(G) of 
the Act,\159\ the Board is requiring that an applicant also disclose 
whether, in the preceding or current calendar year, a broker or dealer 
audit client disclosed issues with the applicant relating to any matter 
of accounting principles or practices, financial statement disclosure, 
auditing scope or procedure, or compliance with applicable rules of the 
Commission in a notice filed with the Commission pursuant to SEC Rule 
17a-5(f)(3)(v)(B).\160\ For each such instance in the preceding or 
current calendar year, an applicant is required to disclose the name of 
the broker or dealer client, the broker's or dealer's CRD and CIK 
numbers, the date of the filing containing the notice, and to submit, 
as exhibits, copies of identified filings.\161\
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    \159\ Section 102(b)(2)(G) of the Act specifically requires that 
an applicant submit as part of its application for registration 
``copies of any periodic or annual disclosure filed by an issuer, 
broker, or dealer with the Commission during the immediately 
preceding calendar year which discloses accounting disagreements 
between such issuer, broker, or dealer and the firm in connection 
with an audit report furnished or prepared by the firm for such 
issuer, broker, or dealer.''
    \160\ Form 1, Item 6.4. See SEC Rule 17a-5(f)(3)(v)(B).
    \161\ Form 1, Items 6.5 and 6.6. The amendments require an 
applicant to identify instances in which the applicant's broker or 
dealer audit clients disclosed issues with the applicant in such 
broker's or dealer's SEC Rule 17a-5 filings with the Commission. 
Therefore, if a broker or dealer did not disclose an issue in a SEC 
Rule 17a-5 filing with the Commission, the applicant does not need 
to disclose such issue in Form 1.
---------------------------------------------------------------------------

    Form 1-WD: Request to Withdraw from Registration. Under Rule 2107, 
a registered public accounting firm may at any time submit to the Board 
a request for leave to withdraw its registration. A request to withdraw 
must be submitted on Form 1-WD. The general instructions to Form 1-WD 
require registered public accounting firms seeking to withdraw from 
Board registration to submit an original hard copy of Form 1-WD to the 
Board, in addition to submitting the form to the Board 
electronically.\162\ To facilitate the

[[Page 6318]]

process of withdrawal for firms that no longer wish to be registered 
with the Board, and permit the withdrawal of a number of firms that 
have submitted the form electronically (but have not submitted original 
hard copies of the form), the Board is amending Form 1-WD's general 
instructions to eliminate the requirement that the form's original hard 
copy be submitted to the Board. Under the amended instructions, firms 
are only required to submit Form 1-WD to the Board electronically.\163\ 
The Board did not receive comment on the proposed amendments to Form 1-
WD and is adopting these amendments as proposed.
---------------------------------------------------------------------------

    \162\ See Form 1-WD, General Instruction 4.
    \163\ These amendments apply to firms that previously submitted 
an original hard copy of Form 1-WD without submitting the form 
electronically.
---------------------------------------------------------------------------

    Form 2: Annual Report. Under Section 102(d) of the Act and Rule 
2200, registered public accounting firms must file annual reports with 
the Board on Form 2.\164\ The Board is amending Form 2 to call for 
relevant information concerning a firm's audits of brokers and 
dealers.\165\
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    \164\ See Rules on Periodic Reporting by Registered Public 
Accounting Firms, PCAOB Release No. 2008-004 (June 10, 2008).
    \165\ See, e.g., Form 2, Items 3.1, 7.1, and 7.3. The amendments 
also make a technical change to General Instruction 7 of Form 2, to 
more closely conform the instruction to Rule 2300, as adopted in 
2008. See supra note 144.
---------------------------------------------------------------------------

    Part III amendments. Part III of Form 2 requires registered firms 
to annually disclose information about their issuer-related practice. 
The amendments require that registered firms indicate whether they 
issued any audit reports with respect to any broker or dealer during 
the annual reporting period; \166\ and, if they did not issue any such 
audit reports, to indicate whether they played a substantial role in 
the preparation or furnishing of an audit report with respect to a 
broker or dealer.\167\
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    \166\ Form 2, Item 3.1.d.
    \167\ Form 2, Item 3.1.e.
---------------------------------------------------------------------------

    The Board is also revising Part III of Form 2 to reflect the Dodd-
Frank amendment to the Act requiring certain foreign public accounting 
firms to designate to the Commission or the Board an agent in the 
United States upon whom may be served any request by the Commission or 
the Board under Section 106 of the Act or upon whom may be served any 
process, pleading, or other papers in any action to enforce Section 106 
of the Act.\168\ This statutory provision applies to any foreign public 
accounting firm that (i) performs material services upon which another 
registered public accounting firm relies in the conduct of an audit or 
interim review, (ii) issues an audit report, (iii) performs audit work, 
or (iv) performs interim reviews. Under the amendments, a foreign 
registered firm that has already made this designation to the 
Commission or Board is required to check a box annually indicating that 
the firm has done so and identify the name and address of the 
designated agent.\169\ A foreign registered firm that has not already 
made a Section 106(d)(2) designation is required to indicate annually 
whether or not it has performed any of the activities specified by 
Section 106(d)(2) since enactment of the Dodd-Frank Act.\170\ Any 
foreign public accounting firm that has not already made a required 
Section 106(d)(2) designation to the Commission or Board must do so 
immediately.\171\
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    \168\ See Section 106(d)(2) of the Act.
    \169\ Form 2, Item 3.3.a.
    \170\ Form 2, Item 3.3.b.
    \171\ To make a Section 106(d)(2) designation to the Board, 
firms should submit their designations by email to the PCAOB's 
Office of the Secretary ([email protected]) and to note 
``106(d)(2) Designation'' in the subject line of the email.
---------------------------------------------------------------------------

    One commenter said that the proposed identification of the name and 
address of the designated agent did not fairly reflect the Dodd-Frank 
amendments to Section 106 of the Act and would serve no legitimate 
purpose of the Commission, the Board, or the public readers of Form 2, 
because Section 106 confers no rights on persons beyond the SEC and 
PCAOB.\172\ The Board expects that these amendments will facilitate the 
Board's and SEC's ability to track foreign firm designations and will 
remind firms that their Section 106(d)(2) designations should be kept 
current. The Act only addresses requests by the Commission or the 
Board, and these form amendments are intended only to impose a new 
reporting requirement, not to confer rights on anyone.
---------------------------------------------------------------------------

    \172\ See KPMG Comment Letter.
---------------------------------------------------------------------------

    Another commenter said proposed Item 3.3 would only be appropriate 
if the Board permitted foreign firms to decline to provide such 
information if such firms were unable to do so without violating non-
U.S. law, asserting conflicts with non-U.S. law.\173\ The Board 
declines to accept this argument, as it would defeat the purpose of the 
Dodd-Frank amendment to Section 106(d)(2) of the Act.
---------------------------------------------------------------------------

    \173\ See Grant Thornton Comment Letter.
---------------------------------------------------------------------------

    Part IV amendments. Part IV of Form 2 requires firms to disclose 
information relating to the audit reports the firm issued for each 
issuer during the reporting period, as well as audit reports issued 
during the period that the firm did not issue, but played a substantial 
role in preparing or furnishing. The amendments require that public 
accounting firms disclose in their annual reports certain information 
concerning each audit report the firm issued for a broker or dealer 
during the reporting period.\174\ Also, if the firm did not issue any 
broker or dealer audit reports during the reporting period, the 
amendments require the firm to disclose the names and identifying 
information for each broker or dealer audit report the firm played a 
substantial role in preparing or furnishing in the reporting 
period.\175\
---------------------------------------------------------------------------

    \174\ Form 2, Item 4.3.a.
    \175\ Form 2, Item 4.4. The Board is also amending Form 2, Item 
4.1, so that in those circumstances in which the firm must report 
the date of the firm's issuance of a consent to a previously-issued 
report (i.e., when a firm's reports for a particular issuer during 
the reporting period are limited to such consents), the firm must 
indicate that the date corresponds to such a consent.
---------------------------------------------------------------------------

    Item 4.3 requires a public accounting firm to disclose in its 
annual report each audit report the firm issued for a broker or dealer 
during the reporting period. This amendment requires that the firm 
provide the broker's or dealer's name, CRD number, CIK number, and the 
date of the audit report(s).\176\ In response to the Board's comment 
request on this issue, commenters generally said that firms should not 
be required to report audit fee information for broker and dealer audit 
clients on an ongoing basis on Form 2, saying the PCAOB currently has 
access to fee information for registered firms and the public interest 
would not be served by making this information publicly available.\177\ 
The Board agrees and is not imposing an annual reporting requirement 
with respect to fees for services provided to broker and dealer audit 
clients under Form 2.
---------------------------------------------------------------------------

    \176\ Under the amendments, if a firm were to issue more than 
one audit report for a broker or dealer audit client during a 
reporting period, each audit report for that broker or dealer would 
be reported separately.
    \177\ See CAQ Comment Letter; Crowe Horwath Comment Letter; EY 
Comment Letter; KPMG Comment Letter; McGladrey Comment Letter.
---------------------------------------------------------------------------

    If a registered public accounting firm did not issue any broker or 
dealer audit reports during the reporting period, but played a 
substantial role in the preparation or furnishing of an audit report 
for a broker or dealer, Item 4.4 requires that registered public 
accounting firm to disclose, with respect to each such broker or 
dealer, the broker's or dealer's name, CRD number, CIK number, the name 
of the registered public accounting firm that issued the audit 
report(s), and a description of the role played by the firm with 
respect to the audit report(s). This information conforms to the 
information previously

[[Page 6319]]

required for issuer clients in Item 4.2.a.\178\
---------------------------------------------------------------------------

    \178\ Note 1 to Form 2, Item 4.4 clarifies that if a firm 
identifies a broker or dealer in response to 4.3, the firm does not 
have to respond to Item 4.4.
---------------------------------------------------------------------------

    Part VII amendments. Part VII of Form 2 requires firms to report 
information about certain types of relationships with individuals and 
entities that have specified disciplinary and other histories. Under 
the amendments, firms have to report new relationships with individuals 
and entities that were the subject of a Board order imposing a 
disciplinary sanction or a Commission Rule 102(e) order entered within 
the five years preceding the end of the reporting period, and who 
provided at least ten hours of audit services for any broker or dealer 
during the reporting period.\179\ Finally, the Board is amending Items 
7.1, 7.2, and 7.3 to correct certain cross-references.
---------------------------------------------------------------------------

    \179\ Form 2, Items 7.1.a and 7.3.a. Consistent with the 
previous Form 2 reporting requirements, the amendments capture only 
relationships that (i) exist as of the end of the reporting period, 
(ii) are with individuals or entities whose relevant disciplinary 
sanction or Rule 102(e) order was entered within the five years 
preceding the end of the reporting period, and (iii) have not 
previously been reported on Forms 1, 2, or 3. Other than the comment 
discussed supra in note 148, the Board did not receive comment on 
these proposed amendments and is adopting them as proposed.
---------------------------------------------------------------------------

    Form 3: Special Report Form. Under Rule 2203, registered public 
accounting firms must report certain information to the Board as a 
special report filed on Form 3. The amendments revise Form 3 to call 
for relevant information concerning firms' audits of brokers and 
dealers.\180\ The amendments also revise Form 3 to require firms to 
report circumstances where a former issuer audit client does not comply 
with Item 4.01 of Commission Form 8-K.\181\
---------------------------------------------------------------------------

    \180\ See, e.g., Form 3, Items 2.5, 2.6, 2.8, 2.9, and 4.1. The 
amendments also make a technical change to General Instruction 8 of 
Form 3 to more closely conform the instruction to Rule 2300. See 
supra note 144.
    \181\ Form 3, Items 2.1-C and 3.2.
---------------------------------------------------------------------------

    Withdrawn broker and dealer audit reports. Among other events that 
trigger an obligation to file a special report, firms are required to 
file Form 3 if they have withdrawn an audit report on an issuer's 
financial statements, and the issuer failed to comply with Commission 
reporting requirements (Item 4.02 of SEC Form 8-K) concerning the 
matter.\182\ The proposed amendments would have extended the obligation 
to report withdrawn audit reports on Form 3 to firms' broker and dealer 
audit clients.\183\
---------------------------------------------------------------------------

    \182\ Form 3, Items 2.1 and 3.1.
    \183\ Proposed Form 3, Items 2.1-BD and 3.2.
---------------------------------------------------------------------------

    Commenters generally agreed that it is important for the PCAOB and 
financial statement users to be aware of instances in which an audit 
report has been withdrawn, but said that the Board should coordinate 
with the SEC (or FINRA) in this area, and suggested that the SEC 
establish a process, comparable to the one in place for issuers, that 
would require a broker or dealer to report to the SEC when an auditor 
has withdrawn an audit report or consent for a broker or dealer, and 
the Board would require auditor reporting only where the broker or 
dealer has not notified the SEC in accordance with its 
obligations.\184\ One commenter argued that unlike the requirements for 
issuers, the proposal would require that withdrawn audit reports be 
disclosed directly by the auditor potentially causing the auditor to 
disclose the company's private information while jeopardizing the 
auditor's ethical responsibilities related to confidentiality.\185\ 
Until a coordinated reporting process is developed, some commenters 
suggested that AU 561, Subsequent Discovery of Facts Existing at the 
Date of the Auditor's Report, provides a framework for registered 
public accounting firms to notify users if an audit report is 
withdrawn.\186\
---------------------------------------------------------------------------

    \184\ See CAQ Comment Letter; D&T Comment Letter; Grant Thornton 
Comment Letter; KPMG Comment Letter; McGladrey Comment Letter; PWC 
Comment Letter.
    \185\ See Grant Thornton Comment Letter.
    \186\ See CAQ Comment Letter; KPMG Comment Letter; PWC Comment 
Letter.
---------------------------------------------------------------------------

    The Board does not believe it is necessary at this time to require 
Form 3 reporting of withdrawn broker and dealer audit reports because 
the requirement would go beyond current SEC notification requirements. 
The Board may revisit such a proposal in the future once more 
information is gathered through its inspections and other oversight 
functions. Firms should note that AU 561 applies to broker and dealer 
audits. Consistent with that standard, under certain circumstances the 
auditor should, among other things, notify the regulatory agencies 
having jurisdiction over the broker and dealer audit client that the 
auditor's report should no longer be relied upon.\187\
---------------------------------------------------------------------------

    \187\ See AU Sec.  561.08(b).
---------------------------------------------------------------------------

    Issuer auditor changes. The Board is adopting amendments to address 
circumstances where an issuer audit client encounters a change in its 
principal auditor (or an auditor upon whom the issuer's principal 
auditor expressed reliance in its report regarding a significant 
subsidiary) and the issuer does not comply with the Commission's four 
business day reporting requirement concerning the change in auditors 
pursuant to Item 4.01 of Form 8-K.\188\
---------------------------------------------------------------------------

    \188\ If an issuer audit client has a change in its principal 
auditor (or an auditor upon whom the issuer's principal auditor 
expressed reliance in its report regarding a significant subsidiary) 
within 24 months prior to or in any period subsequent to the date of 
the most recent financial statements, the issuer must provide the 
required information in Item 4.01 of Form 8-K within four business 
days of the change. See Item 304(a) of Regulation S-K; Item 4.01 of 
Form 8-K.
---------------------------------------------------------------------------

    Two commenters supported this proposed reporting requirement.\189\ 
Two commenters suggested that the proposed Form 3 reporting requirement 
appeared redundant to Section 1000.08(m) of the SECPS membership 
requirements and encouraged the Board to develop a single solution for 
reporting auditor changes.\190\ Commenters were also concerned about 
the scope of the proposed Form 3 reporting, some of which commenters 
suggested would be difficult for the auditor to know or would not be 
relevant in circumstances where the auditor resigns or does not stand 
for reappointment.\191\ Finally, one commenter said requiring auditors 
to make a Form 3 filing in these circumstances would inappropriately 
put auditors in the position of publicly reporting information that has 
not yet been reported by the issuer.\192\
---------------------------------------------------------------------------

    \189\ See EY Comment Letter; KPMG Comment Letter.
    \190\ See CAQ Comment Letter; KPMG Comment Letter (recommending 
that the SECPS requirement be eliminated).
    \191\ See CAQ Comment Letter; Crowe Horwath Comment Letter; KPMG 
Comment Letter; McGladrey Comment Letter; PWC Comment Letter.
    \192\ See D&T Comment Letter (suggesting, as an alternative, 
that the PCAOB be copied, on a confidential basis, on the five-day 
SECPS letter so that the Board could be timely informed of issuer 
auditor changes).
---------------------------------------------------------------------------

    The PCAOB has further considered this proposal in light of the 
comments and determined to adopt these proposed amendments largely as 
proposed. To ensure that the Board and public are made aware of these 
events, the Board is amending the instructions to Form 3 to require 
firms to file a special report with the Board if a client-auditor 
relationship has ended and the issuer has not reported the change in 
auditors on a Form 8-K.\193\ Specifically, if a firm resigns, declines 
to stand for re-appointment, or is dismissed from an issuer audit 
engagement, and the issuer does not comply with Item 4.01 of Form 8-K, 
the firm within 30 days must report on Form 3 the issuer's name and

[[Page 6320]]

CIK number, if any, whether the firm resigned, declined to stand for 
re-election or was dismissed, and the date thereof.\194\
---------------------------------------------------------------------------

    \193\ Form 3, Item 3.2 is only triggered by an issuer's failure 
to comply with Item 4.01 of SEC Form 8-K. This reporting requirement 
does not apply to foreign private issuers (that are required to 
report issuer auditor changes on Item 16F of Form 20-F) or 
investment companies other than business development companies (that 
are required to report auditor changes on Item 77K of Form N-SAR).
    \194\ See Form 3, Item 2.1-C and Item 3.3. If the issuer comes 
into compliance with an SEC requirement to make a report concerning 
the matter pursuant to Item 4.01 of Form 8-K during this 30-day 
period, the firm would not be required to report the change in 
auditors on Form 3.
---------------------------------------------------------------------------

    Together, the amendments to the SECPS membership requirements and 
Form 3 establish a reporting system that begins, for firms that are 
former members of the SECPS, with a required non-public filing with the 
SEC's Office of the Chief Accountant within five business days,\195\ 
and, if the former audit client is still not in compliance within 30 
days, requires auditors to make an abbreviated public filing on Form 3 
with the PCAOB.\196\ The Board sees value both in streamlining the 
SECPS membership requirement for Form 8-K filers and also, after a 
period of time, requiring that the Board and the public receive notice 
of these changes if the issuer still has not satisfied its reporting 
obligations under Item 4.01 of Form 8-K.
---------------------------------------------------------------------------

    \195\ See supra notes 49-57 and accompanying text.
    \196\ Firms that are not former members of the SECPS are only 
required to report these events on Form 3.
---------------------------------------------------------------------------

    Because Form 3 filings are public, and the Board does not 
anticipate needing as much information as was proposed, the Board is 
requiring that a Form 3 filing only report the issuer's name and CIK 
number, whether the firm resigned, declined to stand for re-election or 
was dismissed, and the date thereof.\197\ The PCAOB is not persuaded 
that requiring auditors to report information in these circumstances 
ahead of their former clients poses a serious problem. This Form 3 
reporting requirement is only triggered in circumstances where a former 
audit client is delinquent in publicly reporting the information 
mandated by Item 4.01 of Form 8-K.
---------------------------------------------------------------------------

    \197\ As proposed, the Form 3 reporting would have also included 
whether: (i) The firm's audit report(s) for either of the past two 
years contained an adverse opinion or a disclaimer of opinion, or 
was qualified or modified as to uncertainty, audit scope, or 
accounting principles; (ii) the former audit client's audit 
committee (or equivalent body), or board of directors (or equivalent 
body) recommended or approved the change; and (iii) there were any 
disagreements with the former client in the two most recent fiscal 
years and any subsequent interim period on any matter of accounting 
principles or practices, financial statement disclosure, or auditing 
scope or procedure, which, if not resolved, would have caused the 
firm to make reference to the subject matter of the disagreements in 
connection with its audit report(s). Because the Board will be able 
to assess these additional categories of information, if necessary, 
through the inspections process or other means, the Board is not 
adopting these proposals.
---------------------------------------------------------------------------

    Relationships with persons subject to a bar or suspension. Form 3 
also requires firms to disclose information about new relationships 
with persons or entities that are effectively restricted from providing 
auditing services. Specifically, a firm is required to file a Form 3 
special report if it enters into certain specified relationships with 
individuals or entities that are currently subject to (1) a Board 
disciplinary sanction suspending or barring an individual from being an 
associated person or a registered public accounting firm, or (2) a 
Commission order under Rule 102(e) of the Commission's Rules of 
Practice suspending or denying the privilege of appearing or practicing 
before the Commission.\198\ Consistent with the changes to Item 5.1 of 
Form 1, the Board is revising this reporting criteria to encompass 
persons currently subject to any Commission order denying the privilege 
of, or any court-ordered injunction prohibiting, appearance or practice 
before the Commission.\199\
---------------------------------------------------------------------------

    \198\ Form 3, Items 2.12 and 2.13, and Items 5.1 and 5.2.
    \199\ Form 3, Items 2.12 and 2.13, and Items 5.1 and 5.2. Other 
than the comment discussed supra in note 148, the Board did not 
receive comment on these proposed amendments and is adopting them as 
proposed.
---------------------------------------------------------------------------

    Form 4: Succeeding to Registration Status of Predecessor. Under 
Rules 2108 and 2109, a registered public accounting firm can, in 
certain circumstances, succeed to the registration status of a 
predecessor registered firm by filing Form 4. As proposed, the Board is 
amending Form 4 to conform with the Dodd-Frank amendments by adding a 
new ``yes'' or ``no'' question to Item 3.2 of Form 4. The amendments 
require a firm seeking to succeed to the registration status of a 
predecessor firm to indicate whether any firm involved in the 
transaction underlying the succession issued an audit report with 
respect to a broker or dealer audit client for financial statements 
with years ending after December 31, 2008 while not registered with the 
Board, and did not thereafter have an application for registration 
approved by the Board.\200\ The Board did not receive comment on the 
proposed amendments to Form 4.
---------------------------------------------------------------------------

    \200\ See Form 4, Item 3.2.e.3. The amendments clarify that 
succession is allowed where a firm was sanctioned for a registration 
violation but subsequently was allowed to register with the PCAOB. A 
conforming change is also being made to Form 4, Item 3.2.e.2. 
Separately, the amendments also make a technical change to General 
Instruction 8 of Form 4 to more closely conform the instruction to 
Rule 2300. See supra note 144.
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    Effective date. One firm suggested that the effective date of the 
Form 2 amendments should provide sufficient time for firms to collect 
the necessary information related to brokers and dealers prior to the 
June 30 annual report filing deadline.\201\ The Board's staff is 
reprogramming the Board's Web-based Registration, Reporting, and 
Special Reporting system. The amendments to Form 2 will take effect 
April 1, 2015. The Board expects that this will provide firms with 
sufficient time to collect necessary information. The amendments to 
Forms 1, 1-WD, 3, and 4 will take effect July 1, 2014.
---------------------------------------------------------------------------

    \201\ See Grant Thornton Comment Letter.
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Ethics Code

    The Board is amending six of the Ethics Code's provisions: EC2, 
``Definitions;'' EC4, ``Financial and Employment Interests;'' EC5, 
``Investments;'' EC7, ``Gifts, Reimbursements, Honoraria and Other 
Things of Value;'' EC8, ``Disqualification;'' and EC12, ``Post-
Employment Restrictions.'' Several of these amendments conform the 
Ethics Code with the Board's authority under the Dodd-Frank amendments 
by adding the words ``broker'' and ``dealer'' to the Ethics Code in 
appropriate places. Other amendments are more technical in nature, 
reflecting the Board's experience in applying the Ethics Code. The 
Board did not receive comment on its proposed amendments to the Ethics 
Code and is adopting these amendments as proposed.
    The Board is amending the note accompanying the definition of 
``practice'' in EC2(f).\202\ As part of its ``revolving-door 
restrictions,'' the Ethics Code restricts Board members and 
professional staff from ``practicing'' before the Board, and the 
Commission with respect to Board-related matters, for one year 
following termination of employment or Board membership.\203\ The note 
accompanying the definition of ``practice'' clarifies that 
participating in the financial reporting process as the officer or 
director of an issuer, or participating in an audit of an issuer's 
financial statements does not, in and of itself, constitute practice 
before the Board or the Commission. The amendments extend the note to 
former Board members and professional staff participating in the 
financial reporting

[[Page 6321]]

process for, or in an audit of, a broker or dealer.\204\
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    \202\ EC2(f) defines the term ``practice'' to mean knowingly 
acting as an agent or attorney for, or otherwise representing any 
other person in any formal or informal appearance before the Board 
or Commission, or making any oral or written communication on behalf 
of any other person to, and with an intent to influence, the Board 
or Commission.
    \203\ EC12(b)(1). Additionally, former Board members and 
professional staff may not ``switch sides'' and work on a particular 
matter after leaving the Board that they personally and 
substantially participated in while at the Board. EC12(b)(2).
    \204\ The Board is also making a technical amendment to the note 
accompanying the definition of ``honoraria'' in EC2(e) to clarify 
that meals provided to all conference participants are not 
considered ``honoraria'' that Board members and professional staff 
are prohibited from accepting under EC7(a).
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    EC5(d) requires that Board members and professional staff annually 
disclose their holdings in securities of issuers, including exchange-
traded options and futures. The Board is making technical amendments to 
EC5(d) to clarify that disclosure should be made to the Ethics Officer, 
and, to permit flexibility, the amendments allow the Ethics Officer to 
prescribe a different date for annual disclosure.
    Under EC7(b), Board members and professional staff are generally 
prohibited from accepting payment for or reimbursement of official 
travel-related expenses from any organization. This prohibition is 
subject to an exception for travel-related expenses that are in direct 
connection with an employee's participation in an educational forum 
that is principally sponsored by certain tax-exempt entities.\205\ 
These tax-exempt entities, however, may not be principally funded from 
one or more public accounting firms or issuers. The Board's amendments 
include brokers and dealers among the categories of entities that may 
not principally fund these tax-exempt entities.
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    \205\ See EC7(b)(2)(C).
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    EC8(a) provides that if a Board member or professional staff 
becomes, or reasonably should become, aware of facts which would lead a 
reasonable person to believe that he or she (or his or her spouse, 
spousal equivalent, and dependents) may have ``a financial interest or 
other similar relationship'' which might affect (or reasonably create 
the appearance of affecting) his or her independence or objectivity, 
then he or she must, at the earliest possible date, disclose such 
circumstances and facts and recuse himself or herself from further 
Board functions or activities involving or affecting the financial 
interest or relationship. Because the phrase ``or other similar 
relationship'' has not provided sufficient clarity, the Board is 
replacing it with ``or personal interest.'' Thus, under the amendments, 
EC8's disclosure and recusal provisions apply to ``a financial or 
personal interest'' a reasonable person would believe might affect (or 
reasonably create the appearance of affecting) his or her independence 
or objectivity.
    Under EC12(a), Board members and professional staff may not 
negotiate prospective employment with a registered public accounting 
firm or issuer without first disclosing the identity of the prospective 
employer and recusing himself or herself from all matters directly 
affecting that prospective employer. Because the Dodd-Frank amendments 
gave the Board oversight over auditors of brokers and dealers, the 
Board is amending EC12(a) to require Board members and professional 
staff to disclose employment negotiations with brokers or dealers, in 
addition to registered accounting firms and issuers.

D. Request to Apply Conforming Amendments to Audits of Emerging Growth 
Companies

    The PCAOB is sensitive to the compliance burden incurred by 
auditors and other market participants due to its regulatory 
requirements and has attempted in a variety of ways to minimize burdens 
on affected entities while also satisfying the objectives of Congress 
and the SEC. These include the Board's efforts to tailor its ethics and 
auditor independence requirements, in Rules 3520 through 3526, to the 
organizational structure of brokers and dealers, and, in particular, 
not at this time extending to broker and dealer audits Rule 3523's 
prohibition on providing tax services to persons in financial reporting 
oversight roles. A number of other cost-minimization measures are 
discussed below.
    In its proposal, the PCAOB invited commenters to submit comment on 
all aspects of the proposed amendments. Several commenters addressed 
the economic consequences of the proposed amendments in qualitative 
terms. These comments are addressed below.
    As discussed in the release, the PCAOB's objective in adopting 
today's amendments is to conform its rules, forms, and ethics code to 
the Dodd-Frank amendments to Sarbanes-Oxley and the SEC's amendments to 
Rule 17a-5. In amending the PCAOB's rules, forms, and ethics code the 
PCAOB has endeavored to achieve Congress's and the SEC's objectives in 
a cost-effective manner.
    To the extent that these amendments reflect the statutory 
requirements of Dodd-Frank, the PCAOB's action is technical and non-
substantive. It will not result in economic consequences beyond those 
resulting from Congress's determinations. Similarly, to the extent that 
these amendments reflect the SEC's Rule 17a-5 determinations, the 
PCAOB's action is housekeeping that will not result in separate 
economic consequences. However, to the extent that the amendments 
reflect the PCAOB's own determinations regarding implementation of 
Dodd-Frank's provisions or the SEC's Rule 17a-5 determinations, these 
determinations may result in additional economic consequences. These 
additional economic consequences (resulting from the PCAOB's own 
determinations) are separately considered below.
    The baseline the Board uses to analyze the economic consequences of 
these amendments is the determinations made by Congress in 2010 to 
amend Sarbanes-Oxley and by the SEC in July 2013 to require that audits 
of brokers and dealers are to be conducted in accordance with the 
standards of the PCAOB. To conform to the determinations made by 
Congress and the SEC, the PCAOB's rules, forms, and ethics code are 
being amended to reflect the amendments to Sarbanes-Oxley and Rule 17a-
5.\206\
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    \206\ The SEC included an economic analysis of its amendments to 
Rule 17a-5 in the release issued in July 2013. See Broker-Dealer 
Reports, Exchange Act Release No. 70073, at nn. 724-870 and 
accompanying text.
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Amendments Involving no PCAOB Discretion

    Because Congress amended Sarbanes-Oxley and the SEC amended Rule 
17a-5, the PCAOB's action to amend its rules, forms, and ethics code to 
conform to these amendments is technical and non-substantive. They do 
not reflect an exercise of PCAOB discretion. Instead, the PCAOB is 
adopting these amendments to implement statutory directives and the 
regulatory directives of the SEC. The PCAOB does not expect that these 
conforming amendments will result in any economic consequences, beyond 
reflecting the actions of Congress and the SEC.
    To reflect the Dodd-Frank amendments, the Board is making technical 
conforming revisions, and including references to audits and auditors 
of brokers and dealers, in rules, ethics code provisions, and Form 1 
parts that formerly applied only to issuers. These amendments include 
the revisions to: (1) The Rule 1001 definitions of ``audit,'' ``audit 
report,'' ``foreign auditor oversight authority,'' ``other accounting 
services,'' ``person associated with a public accounting firm,'' ``play 
a substantial role in the preparation or furnishing of an audit 
report,'' ``professional standards,'' and ``suspension;'' (2) the 
Board's registration and reporting rules (Rule 2100, Rule 2106, and 
Rule 2107); (3) certain of the Board's rules governing investigations 
and adjudications (Rule

[[Page 6322]]

5105, Rule 5108,\207\ Rule 5112, Rule 5200, Rule 5204, and Rule 5420); 
(4) certain provisions of the Board's ethics code (EC2(f), EC7(b), and 
EC12(a)); and (5) Parts III, V, VI, VII, and X of Form 1. These 
amendments simply reflect the amended statutory and regulatory 
provisions. They are not expected to result in any economic 
consequences, beyond reflecting the actions of Congress and the SEC.
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    \207\ Separately, Section 1161(h) of the Housing and Economic 
Recovery Act of 2008, Public Law 110-289, 122 Stat. 2654, 2781 
(2008) amended Sarbanes-Oxley to authorize the PCAOB to share 
information gathered in Board inspections and investigations with 
the Director of the Federal Housing Finance Agency (with respect to 
audits of institutions within the Federal Housing Finance Agency's 
jurisdiction). The PCAOB is adopting amendments to conform to 
Section 1161(h) of the Housing and Economic Recovery Act. See Rule 
5108(a)(2)(b).
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    Other technical amendments and non-substantive updates include the 
revisions to: (1) The Rule 1001 definitions of ``party'' and 
``secretary;'' (2) Rules 3101, 3201T, and 3600T, (3) the Board's 
inspections rules (Rule 4009, Rule 4020T); (4) certain of the Board's 
rules governing investigations and adjudications (Rule 5102, Rule 5105, 
Rule 5110, Rule 5201, Rule 5205, Rule 5300, Rule 5407, Rule 5421, Rule 
5426, Rule 5427, Rule 5442, Rule 5445, Rule 5460, and Rule 5462); (5) 
Rules 7103 and 7104 of the Board's funding rules; (6) certain 
provisions of the Board's ethics code (EC2(e), EC5(d), EC8(a)); and (7) 
certain Form 1 items (general instruction 6, Item 2.1(e), Item 2.2(e)), 
a Form 1-WD item (general instruction 7), certain Form 3 items (general 
instruction 8, Item 2.12, Item 2.13, Item 5.1, Item 5.2), and certain 
Form 4 items (general instruction 9, Item 3.2.e.1-2). To the extent 
these amendments are being made to conform to the determinations of 
Congress and the SEC, they will reflect the actions of Congress and the 
SEC; the other amendments are not expected to result in separate 
economic consequences.

Amendments Involving Some PCAOB Discretion

    In certain respects Congress and the SEC left to the PCAOB the 
determination of which Board rules, forms, and ethics code provisions 
should apply to broker and dealer audits and how the Board should 
implement other Dodd-Frank provisions. These amendments in part reflect 
the PCAOB's own determinations and, to some extent, entail economic 
consequences beyond those resulting from Congress's statutory 
directives or the SEC's Rule 17a-5 determinations.
    These amendments: (1) Make the Rule 1001 definitions of ``audit 
services'' and ``other accounting services'' applicable to broker and 
dealer audits; (2) require that auditors of brokers and dealers comply 
with the PCAOB's rules establishing auditing, attestation, and quality 
control standards (Rules 3200T, 3300T, and 3400T); (3) require that 
broker and dealer auditors adhere to certain of the PCAOB's ethics and 
auditor independence rules (Rules 3500T, 3501, 3502, 3520, 3521, 3522, 
and 3526) but not to others (Rules 3523, 3524, and 3525); and (4) 
tailor certain Form 1, Form 2, Form 3 and Form 4 items to call for 
relevant broker and dealer audit client information and implement the 
Dodd-Frank amendments (Items 3.1 and 3.2 of Form 1, Items 3.1, 3.2, 
3.3, 4.3, 4.4, 7.1, and 7.3 of Form 2, Items 2.5, 2.6, 2.8, 2.9, and 
4.1 of Form 3, and Item 3.2.e.3 of Form 4).
    The PCAOB is also amending some rules and form items in light of 
administrative experience and to make a number of updates to address 
recent events. These amendments include the revisions to: (1) Rule 
5422; (2) Section 1000.08(m) of the SEC Practice Section Requirements 
of Membership; (3) Items 2.1, 2.2, and 2.4 of Form 1, and General 
Instruction 4 of Form 1-WD; and (4) Items 2.1-C and 3.2 of Form 3. The 
PCAOB considers the economic consequences of these amendments below.
    Rule 1001 amendments. The PCAOB is amending the Rule 1001 
definitions of ``audit services'' and ``other accounting services'' to 
encompass the professional services auditors provide to broker and 
dealer audit clients. Pursuant to Section 102(b)(2)(B) of Sarbanes-
Oxley, public accounting firms applying for PCAOB registration will use 
these definitions, along with the definition of ``non-audit services'' 
(which is not being amended), to attribute the annual fees they 
received from each broker and dealer audit client to one of the defined 
categories of services on Items 3.1 and 3.2 of Form 1. Commenters did 
not address the proposed amendments to the definitions of ``audit 
services'' and ``other accounting services,'' and the PCAOB is adopting 
the amendments as proposed. The PCAOB does not expect that these 
amendments will result in cost-related implications apart from the 
related Form 1 amendments discussed below.
    Section 3 amendments. The amendments also generally make Rules 
3200T, 3300T, and 3400T, the PCAOB's rules establishing auditing, 
attestation, and quality control standards, applicable to audits of 
brokers and dealers. Several commenters opposed the proposed 
application of the PCAOB's rules and standards--focusing particularly 
on the Board's quality control, ethics, and independence standards--to 
audits of ``introducing'' or ``non-carrying'' brokers and dealers.\208\ 
One commenter asserted that requiring auditors of brokers and dealers 
to follow PCAOB quality control, ethics, and independence standards is 
not warranted until the PCAOB decides the scope and elements of its 
permanent inspection program for broker and dealer audits.\209\ 
Additionally, one commenter suggested that Rule 3400T's application of 
the requirements of the SEC Practice Section (``SECPS'') of the 
American Institute of Certified Public Accountants only to the auditors 
of brokers and dealers that were members of the SECPS in 2003 could 
result in an unbalanced and disparate application of the Board's 
requirements.\210\
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    \208\ See AICPA Comment Letter; Crowe Horwath Comment Letter; 
KPMG Comment Letter; Rothstein Kass Comment Letter; WeiserMazars 
Comment Letter.
    \209\ See AICPA Comment Letter.
    \210\ See Grant Thornton Comment Letter.
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    In response to these comments, the PCAOB has further considered the 
application of the PCAOB's rules establishing auditing, attestation, 
and quality control standards to auditors of brokers and dealers. As 
explained in the release, the SEC has decided that all audit reports 
filed with the SEC and designated examining authorities by brokers and 
dealers must be prepared in accordance with PCAOB standards. A final 
Board decision regarding the scope of the Board's inspection program 
will be made at a later date. The Board is not delaying adoption of the 
amendments to its rules. The PCAOB has also determined to make 
operative the two SECPS requirements that are applicable to broker and 
dealer engagements only to firms that were members of the SECPS in 
2003.
    The benefit of these amendments is that they will clarify the 
applicability of these rules to audits of brokers and dealers. The 
amendments will promote investor protection by clarifying that 
registered firms must comply with the PCAOB's rules establishing 
auditing, attestation, and quality control standards in audits of SEC-
registered brokers and dealers. Consistent compliance with PCAOB 
standards for these audits will facilitate the Board's regulatory 
oversight over broker and dealer audits, and, among other things, 
facilitate the PCAOB's development and implementation of a permanent 
inspection program for these audits. The amendments will also 
facilitate the SEC's regulatory oversight of auditors,

[[Page 6323]]

brokers, and dealers (because the SEC has direct oversight authority 
over the PCAOB, including the authority to approve or disapprove the 
Board's rules and standards).
    The PCAOB has determined that these amendments will create some 
additional compliance costs for affected market participants. These 
costs include the one-time implementation costs for registered firms to 
update their broker and dealer audit methodologies to reflect PCAOB 
standards and train their personnel. These costs are attributable to 
SEC Rule 17a-5. Thus, the PCAOB does not anticipate that its conforming 
rule changes will result in significant costs to auditors (or to 
brokers and dealers in the form of increased audit fees).
    Similarly, the Board notes that only two of the five SECPS 
membership requirements adopted by the PCAOB apply to the audits of 
brokers and dealers. These two requirements relate to continuing 
professional education requirements for audit firm personnel and the 
firm communicating through a written statement to its professional 
personnel the firm's broad policies and procedures related to 
accounting principles, client relationships, and services provided. The 
Board notes that all firms (including those that were members of the 
SECPS in 2003) are required to comply with state and professionally 
mandated continuing professional education requirements that satisfy 
most, if not all, of these education requirements, and expects that 
firms distribute such information to their professional personnel to 
effectively manage their firms.\211\ The PCAOB therefore estimates that 
application of these requirements to audits of brokers and dealers that 
were members of the SECPS in 2003 will not result in a significant 
compliance burden on auditors of brokers and dealers.
---------------------------------------------------------------------------

    \211\ State CPE requirements range from a minimum of 0 hours (in 
one state) to a maximum of 120 hours every three years (in 45 
states), and the PCAOB is requiring 120 hours every three years 
(with a minimum of at least 20 hours every year).
---------------------------------------------------------------------------

    The amendments also require that broker and dealer auditors adhere 
to certain of the PCAOB's ethics and auditor independence rules (Rules 
3500T, 3501, 3502, 3520, 3521, 3522, and 3526) but not to others (Rules 
3523, 3524, and 3525).
    These rules establish a standard of ethical behavior for the 
conduct of persons associated with registered firms (Rules 3502 and 
3520). They also prohibit broker and dealer auditors from: (1) Entering 
into a contingent fee or commission arrangement (Rule 3521); or (2) 
providing any non-audit service related to transactions that are 
``confidential transactions'' or ``aggressive tax positions'' under 
Internal Revenue Service regulations (Rule 3522). The PCAOB is also 
adding a definition of ``audit committee'' to Rule 3501 so that Rule 
3526 (Communication with Audit Committees Concerning Independence) 
applies to brokers and dealers that may not have organizational 
structures that include audit committees. No commenters opposed or 
suggested that these ethics and auditor independence rules does not 
apply audits of brokers and dealers. The PCAOB is not prohibiting firms 
from providing tax services to persons in financial reporting oversight 
roles (Rule 3523) in part due to commenter concerns about additional 
cost-related implications for auditors and brokers and dealers.
    The PCAOB believes applying Rules 3500T, 3501, 3502, 3520, 3521, 
3522 and 3526 to audits of brokers and dealers is consistent with 
investor protection. The amendments will promote investor protection by 
clarifying that auditors of brokers and dealers are required to adhere 
to certain of the PCAOB's ethics and independence rules. These rules, 
among other things, prohibit auditors from entering into contingent 
fees or commission arrangements or providing non-audit services related 
to aggressive tax positions to broker and dealer audit clients. 
Although these amendments will result in some new compliance costs on 
auditors of brokers and dealers, the Board does not anticipate that 
these costs will be significant. These costs will relate primarily to 
the one-time costs to update the firm's policies and procedures and 
training for these ethics and independence rules. Firms will also have 
recurring monitoring costs related to these amendments.
    Form amendments. The amendments also tailor certain Form 1, Form 2, 
Form 3, and Form 4 items to call for relevant broker and dealer audit 
client information and reflect the Dodd-Frank amendments (Items 3.1 and 
3.2 of Form 1, Items 3.1, 3.3, 4.3, 4.4, 7.1, and 7.3 of Form 2, Items 
2.5, 2.6, 2.8, 2.9, and 4.1 of Form 3, and Item 3.2.e.3 of Form 4). 
This information will further the PCAOB's understanding of the market 
for broker and dealer audit services and enable the Board to make 
regulatory decisions (like how to allocate its inspections program 
resources) that will protect the interests of investors. This 
information may also help inform investors and the market generally 
about auditors' broker and dealer audit practice.
    Form 1. In addition to the conforming amendments to Form 1, which 
were discussed earlier, the PCAOB is adding Items 3.1 and 3.2 to Form 1 
to require general identifying information about the applicant's broker 
or dealer audit practice. Items 3.1 and 3.2 require the name of the 
broker or dealer, its business address, CRD number, and CIK number, as 
well as the date of the audit report, and the total amount of fees 
billed for audit services, other accounting services, and non-audit 
services (as defined by the PCAOB). The PCAOB expects that the Form 1 
disclosure requirements for broker and dealer audit clients will not 
affect most registered firms, which have already filed Form 1. Going 
forward, the PCAOB expects that most new firms will not have prepared 
audit reports for broker or dealer clients during the preceding or 
current calendar year (without having been previously registered). The 
PCAOB is also taking steps to minimize the compliance burden associated 
with these amendments. Recognizing that firms with broker and dealer 
audit clients have not necessarily been maintaining billing records in 
a way that readily facilitates precise reporting according to the fee 
categories in Sarbanes-Oxley (as the PCAOB has defined them), the PCAOB 
is adopting a note that provides that estimated amounts may be used in 
responding to these Form 1 items, to the extent that these fees have 
not previously been disclosed or otherwise known to an applicant. 
Commenters did not address these Form 1 items. The PCAOB expects these 
amendments will result in small additional compliance costs related to 
reporting this information for a small number of applicant firms. The 
PCAOB is adopting these amendments as proposed.
    Form 2. The amendments to Form 2 require that firms annually 
disclose general information about their broker and dealer audit 
practice. Specifically, the amendments require that firms indicate 
whether they issued any audit reports with respect to any broker or 
dealer during the annual reporting period, and, if they did not issue 
any such audit reports, to indicate whether they played a substantial 
role in the preparation or furnishing of an audit report with respect 
to a broker or dealer (Item 3.1). The amendments also require firms to 
disclose information concerning each audit report the firm issued for a 
broker or dealer audit client during the reporting period (Item 4.3). 
If the firm did not issue any broker or dealer audit reports during the 
reporting period, the amendments require the firm to disclose

[[Page 6324]]

the names and identifying information for each broker or dealer audit 
report the firm played a substantial role in preparing or furnishing in 
the reporting period (Item 4.4). Firms are also required to report 
information about certain types of relationships with individuals and 
entities that have specified disciplinary and other histories involving 
brokers or dealers (Items 7.1 and 7.3). Commenters generally asserted 
that firms should not be required to report audit fee information for 
broker and dealer audit clients on an ongoing basis on Form 2.\212\ The 
PCAOB has determined to mitigate firm costs by not imposing an annual 
reporting requirement with respect to fees for services provided to 
broker and dealer audit clients. The PCAOB did not receive other 
comments on these Form 2 amendments and is adopting them as proposed.
---------------------------------------------------------------------------

    \212\ See CAQ Comment Letter; Crowe Horwath Comment Letter; EY 
Comment Letter; KPMG Comment Letter; McGladrey Comment Letter.
---------------------------------------------------------------------------

    The amendments to Form 2 also reflect the Dodd-Frank amendment 
requiring certain foreign public accounting firms to designate to the 
SEC or PCAOB an agent in the United States upon whom may be served any 
request by the SEC or PCAOB under Section 106 of Sarbanes-Oxley or upon 
whom may be served any process, pleading, or other papers in any action 
to enforce Section 106 of Sarbanes-Oxley (Item 3.3). One commenter said 
proposed Item 3.3 could result in confusion and efforts by persons 
other than the SEC or PCAOB to serve subpoenas or process on foreign 
firms' designated agents.\213\ The PCAOB has determined to adopt Item 
3.3 as proposed. This amendment imposes only a new reporting 
requirement and does not confer rights on anyone.
---------------------------------------------------------------------------

    \213\ See KPMG Comment Letter.
---------------------------------------------------------------------------

    The PCAOB believes the Form 2 amendments strike an appropriate 
balance between the Board's need for general identifying information to 
assist the Board in overseeing registered firms' broker and dealer 
audit practices, and facilitate the PCAOB's and SEC's ability to track 
foreign firm designations, and the time and resources firms will need 
to spend compiling, preparing, and reporting this information. These 
reporting requirements will contribute to investor protection by 
providing additional information upon which the PCAOB can base future 
program adjustments to ensure efficient deployment of the PCAOB's 
resources. This information may also help inform investors and the 
market generally about auditors' broker and dealer audit practice. 
These reporting requirements will also result in cost-related 
implications for auditors of brokers and dealers and foreign registered 
firms. Specifically, one-time costs that relate primarily to updating 
their records to facilitate annual reporting of their broker and dealer 
audit practice to the PCAOB and reporting their Section 106 designee. 
Recurring costs will include the costs of compiling and reviewing 
information responsive to these additional items in their annual 
reports. Over time, the PCAOB expects that firms will develop certain 
efficiencies in filing their annual reports, allowing these costs to 
decrease to some extent.
    Form 3. The amendments to Form 3 require firms to report 
information about certain types of relationships with individuals and 
entities that have specified disciplinary and other histories involving 
auditors of brokers or dealers (Items 2.5, 2.6, 2.8, 2.9, and 4.1). The 
PCAOB did not receive comment on these Form 3 amendments and has 
determined to adopt them as proposed. The PCAOB believes the Form 3 
amendments will contribute to investor protection by providing the 
PCAOB and the public with general information about disciplinary and 
other histories involving auditors of brokers and dealers. These 
reporting requirements are expected to result in small compliance costs 
for firms related to monitoring and compiling this information.
    Form 4. The amendments to Form 4 require a firm succeeding to the 
registration status of a predecessor firm to indicate whether the firm 
issued an audit report with respect to a broker or dealer audit client 
for financial statements with years ending after December 31, 2008 
while not registered with the PCAOB and has never had an application 
for registration approved by the Board (Item 3.2.e.3). The PCAOB did 
not receive comment on this Form 4 amendment and has determined to 
adopt it as proposed. The PCAOB believes the Form 4 amendment will 
contribute to investor protection by providing the PCAOB with useful 
information. This reporting requirement is expected to result in small 
compliance costs related to reporting this information for a small 
number of firms.
    Amendments made in light of administrative experience. Under the 
amendments to Rule 5422 the Division of Enforcement and Investigations 
(``DEI'') need not make available for inspection and copying any 
document prepared by persons retained by the PCAOB or the PCAOB's staff 
to provide services in connection with a PCAOB investigation, 
disciplinary proceeding, or hearing on disapproval of registration. The 
amendments also permit DEI to withhold documents accessed from 
generally available public sources except to the extent that DEI 
intends to introduce such documents as evidence. Commenters were 
concerned that there is no parallel provision in the SEC's comparable 
rule, and that they could enable DEI to withhold exculpatory documents. 
Because the SEC's rule is structured differently, and the PCAOB does 
not agree that the amendments permit DEI to withhold exculpatory 
documents, the PCAOB has determined to adopt the amendments as proposed 
in most respects. The amendments to Rule 5422 are designed to correct 
an anomaly in DEI's document production requirements. These amendments 
will facilitate the PCAOB's efficient deployment of its enforcement 
program's resources. The PCAOB does not expect that the amendments to 
Rule 5422 will result in increased compliance burdens for registered 
firms or other market participants.
    The Board is also amending Section 1000.08(m) of the SECPS 
membership requirements requiring that registered firms (that are 
former members of the SECPS) notify the Commission's Office of the 
Chief Accountant of the end of an auditor's relationship with an issuer 
audit client (including an EGC audit client) only if the issuer has not 
timely filed Form 8-K.\214\ Previously, these notices were required 
irrespective of whether the issuer audit client reported the change in 
auditors in a timely filed Form 8-K. This amendment is designed to 
streamline the SECPS reporting requirement and to make firm notices 
more meaningful.\215\ The PCAOB is also updating Appendix I of SECPS 
Section 1000.43 to reflect the SEC's updated contact information and 
preference for email notifications.\216\
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    \214\ See SECPS sec. 1000.08(m)(1). As amended, if by the end of 
the fifth business day after a client-auditor relationship has 
ended, and the issuer has not reported the change in auditors in a 
timely filed Form 8-K, then a former SECPS member firm must 
simultaneously send a written report of this fact to the former 
client and to the SEC's Office of the Chief Accountant.
    \215\ For SEC Registrants that do not file current reports on 
Form 8-K, Section 1000.08(m) remains unchanged. Notices for these 
former clients are due by the end of the fifth business day 
following the end of the firm's determination that the client-
auditor relationship has ended, irrespective of whether or not the 
registrant has reported the change in auditors in a timely filed 
report. See SECPS sec. 1000.08(m)(2).
    \216\ The SEC staff strongly encourages emailing the SECPS 
report notification to [email protected]. See Appendix I, SECPS 
sec. 1000.43. See also http://www.sec.gov/about/offices/oca/10a1notices.htm (``The Office of the Chief Accountant strongly 
encourages sending the SECPS report notification to 
[email protected]. The staff will accept the date the email is 
received as the notification date.'').

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[[Page 6325]]

    Commenters generally supported reporting issuer auditor changes 
under Section 1000.08(m) only if the issuer audit client has not 
reported the change in auditors in a timely filed SEC form (exception 
reporting).\217\ But one commenter suggested that Section 1000.08(m) 
should be eliminated entirely,\218\ and one other commenter said 
Section 1000.08(m) reporting is ``working, helpful, and appropriate'' 
and should not be amended.\219\ After considering these comments, the 
PCAOB has determined that more focused Section 1000.08(m) reporting for 
SEC Registrants that are required to file current reports on Form 8-K 
should enhance the SEC's ability to monitor issuer auditor changes. The 
amendments to Section 1000.08(m) of the SECPS membership requirements 
are designed to make firms' SECPS notices more meaningful. These 
amendments will contribute to the SEC's oversight of issuer auditor 
changes.
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    \217\ Crowe Horwath Comment Letter; EY Comment Letter; Grant 
Thornton Comment Letter; McGladrey Comment Letter; PWC Comment 
Letter.
    \218\ KPMG Comment Letter.
    \219\ D&T Comment Letter.
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    Requiring that issuer auditor changes be reported only on an 
exception basis for Form 8-K filers will also mean that auditors will 
be required to make fewer SECPS reports to the SEC, eliminating 
duplicative reporting of issuer auditor changes in most cases. At the 
same time, the PCAOB understands that there will be some incremental 
costs associated with the amendment to Section 1000.08(m). Auditors 
that are former SECPS members will bear some additional expense in 
monitoring whether their former audit clients reported the change in 
auditors in a timely filed Form 8-K. Given that former SECPS member 
firms are already required to make these reports, and that moving this 
reporting requirement to an exception basis is a fairly subtle change, 
the Board anticipates that these additional expenses will be minimal.
    Finally, the PCAOB is amending Form 1 to require issuer CIK numbers 
\220\ (in Items 2.1, 2.2, and 2.4), amending Form 1-WD to eliminate the 
requirement that ``original hard copies'' of requests for leave to 
withdraw from Board registration be submitted (General Instruction 4), 
and amending Form 3 to require firms to report circumstances where a 
former issuer audit client does not comply with Item 4.01 of Commission 
Form 8-K (Item 3.2). The PCAOB did not receive comment on these 
proposed amendments to Forms 1 and 1-WD and has determined to adopt 
them as proposed. Requiring applicants to provide issuer CIK numbers on 
Form 1 will increase reporting costs slightly for a small number of 
applicants, but it will enable the PCAOB to more easily identify 
issuers (as well as reducing search costs for investors, the SEC, and 
others). The Form 1-WD requirement will reduce compliance burdens for 
withdrawing firms by eliminating an unnecessary filing requirement.
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    \220\ CIK numbers are unique, publicly-available identifiers and 
access codes issued by the SEC's Electronic Data Gathering, 
Analysis, and Retrieval System.
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    The Board also received comment on these proposed amendments to 
Form 3. Two commenters supported this proposed reporting 
requirement.\221\ Two commenters suggested that the proposed Form 3 
reporting requirement appeared redundant to Section 1000.08(m) of the 
SECPS membership requirements and encouraged the Board to develop a 
single solution for reporting auditor changes.\222\ Commenters were 
also concerned about the scope of the proposed Form 3 reporting, some 
of which commenters suggested would be difficult for the auditor to 
know or would not be relevant in circumstances where the auditor 
resigns or does not stand for reappointment.\223\ Finally, one 
commenter said requiring auditors to make a Form 3 filing in these 
circumstances would inappropriately put auditors in the position of 
publicly reporting information that has not yet been reported by the 
issuer.\224\
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    \221\ See EY Comment Letter; KPMG Comment Letter.
    \222\ See CAQ Comment Letter; KPMG Comment Letter (recommending 
that the SECPS requirement be eliminated).
    \223\ See CAQ Comment Letter; Crowe Horwath Comment Letter; KPMG 
Comment Letter; McGladrey Comment Letter; PWC Comment Letter.
    \224\ See D&T Comment Letter (suggesting, as an alternative, 
that the PCAOB be copied, on a confidential basis, on the five-day 
SECPS letter so that the Board could be timely informed of issuer 
auditor changes).
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    The PCAOB has further considered this proposal in light of the 
comments and determined to adopt these proposed amendments to Form 3 
largely as proposed. To ensure that the Board and public are made aware 
of these events, the Board is amending the instructions to Form 3 to 
require firms to file a special report with the Board if a client-
auditor relationship has ended and the issuer has not reported the 
change in auditors on a Form 8-K.\225\ Specifically, if a firm resigns, 
declines to stand for re-appointment, or is dismissed from an issuer 
audit engagement, and the issuer does not comply with Item 4.01 of Form 
8-K, the firm within 30 days must report on Form 3 the issuer's name 
and CIK number, if any, whether the firm resigned, declined to stand 
for re-election or was dismissed, and the date thereof.\226\ The Form 3 
requirement will ensure that the Board and public are made aware of 
issuer auditor changes. This reporting requirement is expected to 
result in small compliance costs for firms related to monitoring and 
reporting this information.
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    \225\ Form 3, Item 3.2 is only triggered by an issuer's failure 
to comply with Item 4.01 of SEC Form 8-K. This reporting requirement 
does not apply to foreign private issuers (that are required to 
report issuer auditor changes on Item 16F of Form 20-F) or 
investment companies other than business development companies (that 
are required to report auditor changes on Item 77K of Form N-SAR).
    \226\ See Form 3, Item 2.1-C and Item 3.3. If the issuer comes 
into compliance with an SEC requirement to make a report concerning 
the matter pursuant to Item 4.01 of Form 8-K during this 30-day 
period, the firm would not be required to report the change in 
auditors on Form 3.
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Applicability to Audits of Emerging Growth Companies
Statutory Background
    The Board is adopting these amendments pursuant to its authority 
under Sarbanes-Oxley.\227\ Before rules adopted by the Board can take 
effect, they must be approved by the SEC. Pursuant to Section 107(b)(3) 
of Sarbanes-Oxley, the SEC shall approve a proposed rule if it finds 
that the rule is ``consistent with the requirements of [the] Act and 
the securities laws, or is necessary or appropriate in the public 
interest or for the protection of investors.''
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    \227\ Under Section 101 of the Act, the mission of the PCAOB is 
to oversee the audits of 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. 
Section 101(g) authorizes the Board to adopt rules to provide for 
``the exercise of its authority, and the performance of its 
responsibilities under [the] Act.'' Section 103 of the Act 
authorizes the Board to adopt auditing standards for use by 
registered public accounting firms in the preparation and issuance 
of audit reports ``as required by [the] Act or the rules of the 
Commission, or as may be necessary or appropriate in the public 
interest or for the protection of investors.''
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    Section 104 of the Jumpstart Our Business Startups Act (``JOBS 
Act'') amended Sarbanes-Oxley to provide that any additional rules 
adopted by the PCAOB after April 5, 2012 do not apply to audits of 
emerging growth companies (``EGCs'') \228\ unless the SEC

[[Page 6326]]

``determines that the application of such additional requirements is 
necessary or appropriate in the public interest, after considering the 
protection of investors, and whether the action will promote 
efficiency, competition, and capital formation.'' \229\ Thus, the 
Board's amendments are subject to a separate SEC determination 
regarding their applicability to audits of EGCs.
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    \228\ Section 3(a)(80) of the Exchange Act defines the term 
``emerging growth company.'' An issuer generally qualifies as an EGC 
if it has total annual gross revenue of less than $1 billion during 
its most recently completed fiscal year (and its first sale of 
common equity securities pursuant to an effective Securities Act 
registration statement did not occur on or before December 8, 2011.) 
See JOBS Act Section 101(a), (b), and (d). Once an issuer is an EGC, 
it retains its EGC status until the earliest of: (i) The first year 
after it has total annual gross revenue of $1 billion or more (as 
indexed for inflation every five years by the SEC); (ii) the end of 
the fiscal year after the fifth anniversary of its first sale of 
common equity securities under an effective Securities Act 
registration statement; (iii) the date on which the company issues 
more than $1 billion in non-convertible debt during the prior three-
year period; or (iv) the date on which it is deemed to be a ``large 
accelerated filer'' under the Exchange Act (generally, an entity 
that has been public for at least one year and has an equity float 
of at least $700 million).
    \229\ See Section 103(a)(3)(C) of Sarbanes-Oxley (15 U.S.C. 
7213(a)(3)), as added by Section 104 of the JOBS Act, Public Law 
112-106 (Apr. 5, 2012).
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    To assist the SEC in determining whether the Board's amendments 
should apply to audits of EGCs, this submission sets forth the PCAOB's 
assessment of the economic consequences of these amendments. It also 
considers the potential impact the amendments would have on audits of 
EGCs, including consideration of efficiency, competition, and capital 
formation.
Characteristics of Self-Identified EGCs
    The PCAOB has been monitoring implementation of the JOBS Act in 
order to better understand the characteristics of EGCs and inform the 
Board's considerations regarding whether it should request that the SEC 
apply the amendments to audits of EGCs. To assist the SEC, the Board is 
providing the following information regarding EGCs that it has compiled 
from public sources.\230\
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    \230\ To obtain data regarding EGCs, the PCAOB's Office of 
Research and Analysis has reviewed registration statements and 
Exchange Act reports filed with the SEC with filing dates between 
April 5, 2012, and October 1, 2013, for disclosures by entities 
related to their EGC status. Any filings subsequent to October 1, 
2013 are not included in this analysis. For example, a filing made 
after this date suggesting an entity deregistered and is no longer 
an EGC is not included in this analysis. The PCAOB has not validated 
these entities' self-identification as EGCs. The information 
presented also does not include data for entities that have filed 
confidential registration statements and have not subsequently made 
a public filing.
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    As of October 1, 2013, based on the PCAOB's research, 1,144 SEC 
registrants have identified themselves as EGCs in SEC filings. These 
entities operate in diverse industries. The five most common Standard 
Industrial Classification (``SIC'') codes applicable to these entities 
are: Blank check companies, pharmaceutical preparations, real estate 
investment trusts, prepackaged software services, and computer 
processing/data preparation services.
    A majority of the entities that have identified themselves as EGCs 
have begun reporting information under the securities laws. Of these 
entities, approximately:
     22% identified themselves in registration statements and 
were not reporting under the Exchange Act as of October 1, 2013.
     61% of entities that have identified themselves as EGCs 
began reporting under the Exchange Act in 2012 or later.
     17% of these entities have been reporting under the 
Exchange Act since 2011 or earlier.
    Approximately 24% of these entities have securities listed on a 
U.S. national securities exchange as of October 1, 2013. Approximately 
64% of the entities that have identified themselves as EGCs and filed 
an Exchange Act filing indicated that they were smaller reporting 
companies.\231\
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    \231\ Companies generally qualify to be smaller reporting 
companies, and have scaled disclosure requirements, if they have 
less than $75 million in public equity float. Companies without a 
calculable public equity float qualify as smaller reporting 
companies if their revenues were below $50 million in the previous 
year.
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    Audited financial statements were available for nearly all of the 
entities that have identified themselves as EGCs.\232\ For those 
entities for which audited financial statements were available, based 
on information included in the most recent audited financial statements 
filed as of May 15, 2013:
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    \232\ Audited financial statements were available for 1,134 of 
the 1,144 self-identified EGCs.
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     The reported assets for those entities ranged from zero to 
approximately $18.2 billion. The average and median reported assets of 
the entities were approximately $182.4 million and approximately $0.3 
million, respectively.\233\
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    \233\ For purposes of comparison, the PCAOB compared the data 
compiled with respect to the 898 entities with companies listed in 
the Russell 3000 Index in order to compare the EGC population with 
the broader issuer population. The Russell 3000 was chosen for 
comparative purposes because it is intended to measure the 
performance of the largest 3000 U.S. companies representing 
approximately 98% of the investable U.S. equity market (as marketed 
on the Russell Web site). The average and median reported assets of 
issuers in the Russell 3000 was approximately $12.1 billion and 
approximately $1.5 billion, respectively. The average and median 
reported revenue from the most recent audited financial statements 
filed as of May 15, 2013 of issuers in the Russell 3000 was 
approximately $4.6 billion and $717.2 million, respectively.
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     The reported revenue for these entities ranged from zero 
to approximately $962.9 million. The average and median reported 
revenue of these entities was approximately $60.2 million and $2 
thousand, respectively.
     The average and median reported assets among entities that 
reported revenue greater than zero was approximately $360.8 million and 
$69.3 million, respectively. The average and median reported revenue 
among entities that reported revenue greater than zero was 
approximately $118.7 million and $22.1 million, respectively.
     Approximately 48% of the entities that filed audited 
financial statements identified themselves as ``development stage 
entities'' in their financial statements.\234\
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    \234\ According to FASB standards, development stage entities 
are entities devoting substantially all of their efforts to 
establishing a new business and for which either of the following 
conditions exists: (a) Planned principal operations have not 
commenced or (b) planned principal operations have commenced, but 
there has been no significant revenue from operations. See FASB 
Accounting Standards Codification, Subtopic 915-10, Development 
Stage Entities--Overall.
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     Approximately 38% were audited by firms that are annually 
inspected by the PCAOB (i.e., firms that have issued audit reports for 
more than 100 public company audit clients in a given year) or are 
affiliates of annually-inspected firms. Approximately 62% were audited 
by triennially-inspected firms (i.e., firms that have issued audit 
reports for 100 or fewer public company audit clients in a given year) 
that are not affiliates of annually-inspected firms.
Efficiency, Competition, and Capital Formation Considerations for EGCs
    In this section the PCAOB considers whether the action discussed 
above will promote efficiency, competition, and capital formation in 
audits of EGCs. PCAOB staff has discussed the applicability of the JOBS 
Act to this rulemaking with the SEC staff. The PCAOB is not aware of 
any EGCs that are also registered brokers or dealers. Moreover, the 
reporting regimes for registered brokers and dealers under SEC Rule 
17a-5 are separate and distinct from those for companies subject to 
reporting requirements pursuant to Section 13 and 15 of the Exchange 
Act or for a Securities Act registration statement. The Board defers to 
the SEC on the applicability of the JOBS Act to brokers and dealers.
Amendments Involving No PCAOB Discretion
    As described above, the conforming amendments are technical and 
non-substantive and are not expected to

[[Page 6327]]

result in economic consequences independent from the directives of 
Congress and the SEC. The PCAOB expects that these amendments will not 
have efficiency, competition, or capital formation effects for audits 
of EGCs.
Amendments Involving Some PCAOB Discretion
    To the extent these amendments apply to EGCs, the PCAOB has no 
reason to think the economic consequences for EGCs would differ 
significantly from those for the general population discussed above. 
The compliance costs associated with these new rule and reporting 
requirements are relatively fixed and may have a somewhat 
disproportionate impact on smaller registered firms. These costs may be 
passed on to firms' audit clients, including smaller and newer public 
companies like EGCs. But the PCAOB has endeavored to minimize the cost-
related implications of these amendments to the extent possible, and 
estimates that the cost-related implications of the amendments for 
issuers, brokers, and dealers will not be significant. Similarly, the 
PCAOB estimates that the amendments will not result in significant 
efficiency, competition, or capital formation effects for EGCs.
    With respect to the amendments affecting broker and dealer audits, 
brokers and dealers enhance the efficiency and liquidity of the 
financial markets by playing the intermediary role of connecting retail 
and institutional investors to investments. The adoption of the form 
amendments will increase, to some extent, the total amount of 
information available about brokers and dealers. In addition, to the 
extent that the additional PCAOB independence rules further enhance 
auditor independence, the quality of the financial reporting of brokers 
and dealers may improve. Enhanced financial disclosures of brokers and 
dealers help reduce information asymmetry between managers and 
customers, and reduce the adverse selection risk for market 
participants. To the extent they do so, the PCAOB believes the 
amendments will promote market efficiency, competiveness, and capital 
formation by informing investors and other market participants of the 
broker and dealer audit practices of registered firms and promoting 
consistent compliance with the PCAOB's rules and standards.
    Furthermore, the new information provided in the newly mandated 
form items can make the audit market more competitive to some extent. 
It enables auditors to learn more about their competitors, and can help 
brokers and dealers make more informed decisions in selecting auditors. 
Brokers and dealers serve an important financial intermediary role, so 
increased competitiveness in the audit market for brokers and dealers 
can, in theory, trickle down to the capital market. Finally, improving 
the financial reporting of brokers and dealers facilitates financial 
transactions of companies, including those of EGCs, which typically 
rely on smaller brokers and dealers.
Conclusion
    The PCAOB requests that the Commission determine that it is 
necessary or appropriate in the public interest, after considering the 
protection of investors and whether the action will promote efficiency, 
competition, and capital formation, to apply these amendments to audits 
of emerging growth companies. The PCAOB will assist the SEC in 
considering any comments the Commission receives on these matters 
during the public comment process.

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

    Pursuant to Section 19(b)(2)(A)(ii) of the Exchange Act, and based 
on its determination that an extension of the period set forth in 
Section 19(b)(2)(A)(i) of the Exchange Act is appropriate in light of 
the PCAOB's request that the Commission, pursuant to Section 
103(a)(3)(C) of the Sarbanes-Oxley Act, determine that the proposed 
rules apply to audits of emerging growth companies, as defined in 
Section 3(a)(80) of the Exchange Act, the Commission has determined to 
extend to May 5, 2014 the date by which the Commission should take 
action on the proposed rules.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views and 
arguments concerning the foregoing, including whether the proposed 
rules are 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 email to [email protected]. Please include 
File Number PCAOB-2013-03 on the subject line.

Paper Comments

     Send paper comments in triplicate to Elizabeth M. Murphy, 
Secretary, Securities and Exchange Commission, 100 F Street NE., 
Washington, DC 20549-1090.

All submissions should refer to File No. PCAOB-2013-03. This file 
number should be included on the subject line if email 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 rules that are filed 
with the Commission, and all written communications relating to the 
proposed rules 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 Web site viewing and printing in 
the Commission's Public Reference Room, 100 F Street NE., Washington, 
DC 20549, on official business days between the hours of 10:00 a.m. and 
3:00 p.m. Copies of such filing will also be available for inspection 
and copying at the principal office of the PCAOB. All comments received 
will be posted without charge; 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 No. PCAOB-2013-03 and should be submitted on or before February 
24, 2014.

    For the Commission, by the Office of the Chief Accountant, by 
delegated authority.\235\
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    \235\ 17 CFR 200.30-11(b)(2).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-00271 Filed 1-31-14; 8:45 am]
BILLING CODE 8011-01-P