Companies' capital raising activities and equity-based employee benefit plans would be adversely affected if the PCAOB adopts its reproposed amendments to require disclosure in the auditor's report of (1) the name of the engagement partner on the most recent period's audit, (2) the names, locations, and extent of participation (as a percentage of total audit hours) of other independent public accounting firms that took part in the audit, and (3) the locations and extent of participation of other persons not employed by the auditor that took part in the audit. The proposed disclosures about other participants in the audit would only be required if such other participants provided audit services in individual amounts of hours that exceeded 5% of the total hours in the audit engagement. All of the requirements in the proposal are disclosure requirements and would not change auditors' performance of audits.

The inclusion in the auditor's report of the name of the engagement partner and any other accounting firm that meets the disclosure threshold would require a company to file with the SEC a consent of such named person if the company incorporates by reference the auditor's report into any registration statement filed under the Securities Act of 1933. Section 7 of the Securities Act of 1933 requires companies to file with the SEC the consent of any accountant who is named as having prepared or certified any part of a registration statement filed with the SEC. Auditors who issue an auditor's report that is filed with or incorporated by reference in a registration statement meet the criteria in section 7 of the Securities Act and therefore must consent to inclusion of their names in a Securities Act registration statement. Consequently, engagement partners and other accounting firms named in an auditor's report would have to consent to the inclusion of their names through the inclusion or incorporation by reference of such auditor's report in a registration statement filed under the Securities Act, including to register equity-based awards under employee benefit plans.

The requirement that a company file the consent of the engagement partner or another accounting firm either in an Annual Report on Form 10-K or in connection with the filing of a registration statement for an offering of securities could complicate the offering process. If the engagement partner is no longer with the firm, the engagement partner may not be willing to provide a consent. Other accounting firms participating in the audit may be concerned about the potential additional liability they may incur as a result of the consent. It is likely that companies would incur additional costs to obtain such additional consents, thereby increasing the costs related to an offering. These costs would include additional audit costs because of additional procedures that the participating accounting firm may determine are required to ensure that they can give the consent. In summary, the PCAOB's proposal is likely to complicate securities offerings and increase costs for issuers.

The PCAOB is currently accepting comments on the proposal with the comment period ending on February 3, 2014.

This article is provided as a general informational service and it should not be construed as imparting legal advice on any specific matter.