PCAOB amendment addresses registration of inactive firms

The PCAOB adopted a rule amendment that enables the board to address situations in which a registered firm doesn’t file annual reports and doesn’t pay annual fees for two consecutive reporting years.

The amendment creates a procedural mechanism that would permit the PCAOB, under specified conditions, to:

• Treat a PCAOB-registered firm’s failures to file annual reports with the PCAOB and to pay annual fees to the PCAOB for at least two consecutive reporting years as a constructive request for leave to withdraw from PCAOB registration; and
• Deem the firm’s registration withdrawn.

As of the end of August, 80 registered firms had not filed annual reports via PCAOB Form 2 and had not paid annual fees for both the 2022 and 2023 reporting years, according to a news release.

Pending SEC approval, the amended rule will take effect initially for annual reports and annual fees that are due in 2025, meaning that a registered firm that does not file an annual report and does not pay an annual fee for both the 2025 and 2026 reporting years could be deemed withdrawn from registration beginning in the fall of 2026.

Firms facing withdrawal will receive written notice and have 60 days to respond.

“The amendment adopted today will not only make registration information more useful for investors, audit committees, and other stakeholders, it will also improve the efficiency and effectiveness of our organization,” PCAOB Chair Erica Y. Williams said in the news release. 

PCAOB report summarizes current NOCLAR responsibilities

A recently updated summary of the PCAOB’s standard-setting and rulemaking agendas lists 2024 as the anticipated timing for the adoption of amendments to an auditor’s responsibilities related to a company’s noncompliance with laws and regulations, better known as NOCLAR.

However, with the effective date for the amendments expected to be no earlier than 2026, the PCAOB recently reminded auditors of their current responsibilities in a staff report, Auditor Responsibilities for Detecting, Evaluating, and Making Communications About Illegal Acts.

The report reminds auditors that, under federal securities laws, they are expected to:

• Detect illegal acts;
• Evaluate information indicating that an illegal act has or may have occurred;
• Determine whether it is likely that an illegal act has occurred, and, if so, to consider the possible effect of the illegal act on the company’s financial statements; and
• Make appropriate communications about illegal acts — unless “clearly inconsequential” — to management, the audit committee, and possibly the SEC.

The proposed amendments to NOCLAR were issued June 6, 2023. In March of 2024, the PCAOB hosted a daylong virtual roundtable related to the much-discussed proposal.

New PCAOB series focuses on smaller public companies

A series of staff publications designed to assist PCAOB-registered auditors of smaller companies debuted this week with the publication of Audit Focus: Critical Audit Matters.

The PCAOB staff said it has continued to identify a large number of deficiencies related to critical audit matters (CAMs). In light of that concern, the staff publication includes:

• Key reminders on determination, communication, and documentation of CAMs;
• Perspectives on some of the common deficiencies, such as not accurately describing how a CAM was addressed in the audit; and
• Good practices that the staff has observed related to CAMs, such as the use of practice aids.

— To comment on this article or to suggest an idea for another article, contact Bryan Strickland at Bryan.Strickland@aicpa-cima.com.