PCAOB Forms Rules for Advisory Groups
Also Sets Registration Fees in Countdown to Compliance

By Simon Eskow

The Public Company Accounting Oversight Board in June adopted a rule on the formation of advisory groups, including the establishment of a standing advisory group (SAG) to be headed up by the board’s chief auditor, Douglas Carmichael.

The PCAOB passed Rule 3700 in June allowing it to establish “one or more advisory groups” of experts in “accounting, auditing, corporate finance and corporate governance and investing in public companies” or any other field deemed relevant to auditing and other professional practice standards, according to a PCAOB statement.

A rule issued in tandem with the advisory group rule reiterates the board’s exclusive authority to establish such auditing and related practice standards for registered accounting firms.

The Securities and Exchange Commission must grant approval for the rules to take effect, which it had yet to do as of this writing. Passage of these rules would give the PCAOB the green light to begin its standards-setting responsibilities with the aid of industry experts, like SAG, which Carmichael said he wanted to be formed when he was hired in April. A spokesperson for the board said that once Rule 3700 was finalized, the PCAOB would proceed to establish SAG.

Carmichael in April said review and revamping of 900 pages of auditing standards would not take SAG long to accomplish, which would allow it take on other pressing issues, such as rules governing internal control. (The PCAOB held a roundtable discussion on internal control on July 29.)

Rule 3700 sets guidelines for membership and responsibilities of advisory groups. Prospective members would be selected from candidates self-nominated or nominated by any organization or individual, and if selected, a member would be subject to the board’s ethics code. Under the code, members must avoid real or perceived conflicts of interest, and disclose—and even recuse themselves in light of—matters that may hamper their objectivity.

Solidifying SAG

Additionally the rule states SAG would be comprised of 25 members drawn from various fields and would include practicing auditors, financial statement preparers and members of the investment community, state accountancy regulators, academics, and other nominees the board may select. The board, according to the rule, would select nominees with working knowledge of generally accepted auditing standards (GAAS), public company financial statements and corporate governance, among other areas.

SAG members would be subject to further ethics conditions, requiring members to “act in the public interest in their individual capacities,” according to the PCAOB statement. They would have to withdraw themselves from “matters that pose potential conflicts” and commit to 50 to 100 hours of work every year or more when needed, on a voluntary basis.

As chief auditor and director of professional standards, Carmichael would serve as SAG’s first chair, under Rule 3700. The SAG would hold at least two open meetings a year. Final decision on recommendations to the board would be made during an open meeting, the PCAOB said in its statement.

Countdown to Compliance: Registration

The PCAOB, meanwhile, has moved ahead with other administrative matters in anticipation of an Oct. 22 deadline when CPAs must register in order to provide auditing services to public companies.

The board in mid-July launched its registration system, with fees (approved by the SEC) set according to the firm’s number of public company clients. If a firm has no issuer clients, the fee to register is $250; with one to 49 clients, it’s $500; 50 to 100, $3,000; 101 to 1,000, $29,000, and 1,001 and up, $390,000.

For more information on registering a firm, visit www.pcaobus.org.