Under Sarbanes-Oxley, public company auditors are required to be
registered with the Public Company Accounting Oversight Board
(PCAOB). The PCAOB is required to conduct a continuing program of
inspections to assess the degree of compliance of each registered
public accounting firm with Sarbanes-Oxley, SEC and PCAOB rules,
and professional standards. PCAOB inspections of audit firms are
supposed to be conducted annually for audit firms that regularly
audit more than 100 issuers, and at least once every three years
for all other auditing firms.
For various reasons, the PCAOB has not been able to conduct
examinations of a number of non-US auditors.1 In at
least one comment letter, the SEC staff stated that as a result of
the inability of the PCAOB to perform its inspection of the
issuer's auditor, "investors in the U.S. markets who rely
on your auditor's audit reports are deprived of the benefits of
PCAOB inspections of auditors." The SEC required the issuer to
include in future filings a separate risk factor explaining how the
PCAOB's inability to inspect the non-US audit firm prevents the
PCAOB from regularly evaluating the auditor's audits and
quality control procedures.
Issuers should be alert for any potential issues with respect to
their auditors. If an issuer's auditor has not been inspected
in accordance with the PCAOB rules, or the inspection report notes
any deficiencies, the issuer should consider whether a risk factor
is appropriate. The issuer may want to review the PCAOB's
website, www.pcaobus.org, to view information available
regarding its auditor. Prior to including any risk factor in SEC
filings relating to an auditor, the issuer should first review the
matter with its auditor and legal counsel.
1. See, e.g., Issuer Audit Clients of Non-U.S.
Registered Firms in Jurisdictions where the PCAOB is Denied Access
to Conduct Inspections, available athttp://tinyurl.com/dx4qx74.
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