PCAOB proposes new rule on how firms present registration status

The Public Company Accounting Oversight Board (PCAOB) is seeking public comment on a proposal about how a firm presents its PCAOB registration status.

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Specifically, PCAOB Rule 2400 would, If adopted, prohibit false or misleading statements regarding firms’ registration status to clients, potential clients, or the public.

PCAOB oversight is aimed at improving audit quality, and registration of audit firms with the PCAOB is a critical component of its oversight. Under the Sarbanes-Oxley Act, public accounting firms must register with the PCAOB before they can prepare or issue an audit report for an issuer or a broker-dealer or play a substantial role in those audits.

However, registration in and of itself does not indicate that a firm provides high-quality service. Furthermore, the PCAOB does not endorse registered firms or their services.

“PCAOB registration is not an advertising gimmick for firms,” PCAOB Chair Erica Williams said. “In order to protect investors from misinformation, there must be consequences when firms misrepresent their registration status or what it means.”

Nevertheless, the PCAOB has observed instances where registered firms have misrepresented PCAOB registration as a “seal of approval” or a “mark of excellence.”

Currently, nearly half of the firms registered with the PCAOB do not engage in any audit-related work for issuers or broker-dealers that is subject to PCAOB oversight. Some of these firms promote their PCAOB registration in a way that could lead investors and other market participants to mistakenly think that their work is subject to PCAOB oversight.

However, no specific PCAOB rule now expressly prohibits auditors from making such statements. This new would change that.

The proposal also includes a new procedural mechanism. The mechanism would enable the board to treat a PCAOB-registered firm’s failures both to file annual reports and to pay annual fees for at least two consecutive reporting years as a constructive request for leave to withdraw from PCAOB registration and to deem the firm’s registration withdrawn.

The deadline for public comment on the proposal is April 12. The public can learn more about submitting comments on PCAOB proposals at the Open for Public Comment page on the board’s website.