
[Federal Register Volume 79, Number 33 (Wednesday, February 19, 2014)]
[Notices]
[Pages 9511-9512]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-03556]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-71525; File No. PCAOB-2013-02]


Public Company Accounting Oversight Board; Order Granting 
Approval of Proposed Rules, Auditing Standard No. 17, Auditing 
Supplemental Information Accompanying Audited Financial Statements, and 
Related Amendments to PCAOB Standards

February 12, 2014.

I. Introduction

    On October 30, 2013, the Public Company Accounting Oversight Board 
(the ``Board'' or the ``PCAOB'') filed with the Securities and Exchange 
Commission (the ``Commission''), pursuant to Section 107(b) \1\ of the 
Sarbanes-Oxley Act of 2002 (the ``Sarbanes-Oxley Act'') and Section 
19(b) \2\ of the Securities Exchange Act of 1934 (the ``Exchange 
Act''), proposed rules to adopt Auditing Standard No. 17, Auditing 
Supplemental Information Accompanying Audited Financial Statements, and 
related amendments to PCAOB standards (collectively, the ``Proposed 
Rules''). The Proposed Rules were published for comment in the Federal 
Register on November 15, 2013.\3\ At the time the notice was issued, 
the Commission designated a longer period to act on the Proposed Rules, 
until February 13, 2014.\4\ The Commission received one comment letter 
in response to the notice.\5\ This order approves the Proposed Rules.
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    \1\ 15 U.S.C. 7217(b).
    \2\ 15 U.S.C. 78s(b).
    \3\ See Release No. 34-70843 (November 8, 2013), 78 FR 68872 
(November 15, 2013).
    \4\ Ibid.
    \5\ See letter to the Commission from Deloitte & Touche LLP, 
dated December 5, 2013 (``Deloitte Letter'').
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II. Description of the Proposed Rules

    Auditing Standard No. 17, which would supersede PCAOB interim 
auditing standard AU section 551, Reporting on Information Accompanying 
the Basic Financial Statements in Auditor-Submitted Documents, applies 
when the auditor of the company's financial statements is engaged to 
perform audit procedures and report on supplemental information that 
accompanies financial statements audited pursuant to PCAOB standards. 
Such supplemental information includes:
     Supporting schedules that brokers and dealers are required 
to file pursuant to Exchange Act Rule 17a-5; \6\
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    \6\ See 17 CFR 240.17a-5.
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     Supplemental information (i) required to be presented 
pursuant to the rules and regulations of a regulatory authority and 
(ii) covered by an independent public accountant's report on that 
information in relation to financial statements that are audited in 
accordance with PCAOB standards; or
     Information that is (i) ancillary to the audited financial 
statements, (ii) derived from the company's accounting books and 
records, and (iii) covered by an independent public accountant's report 
on that information in relation to the financial statements that are 
audited in accordance with PCAOB standards.
    Historically, when auditors reported on supplemental information, 
they often expressed their opinions on the supplemental information 
``in relation to'' the basic financial statements taken as a whole.\7\ 
Audit procedures regarding that supplemental information generally have 
been performed in conjunction with the audit of the financial 
statements. The auditor's report on supplemental information under AU 
sec. 551 is rooted in the concept that the supplemental information is 
fairly presented ``in relation to'' the financial statements as a 
whole. The Proposed Rules retain the existing ``in relation to'' 
language in the auditor's report; however, they also update the report 
to describe the auditor's responsibilities for the supplemental 
information.
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    \7\ See AU sec. 551.12.
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    The Proposed Rules establish procedural and reporting 
responsibilities for the auditor regarding supplemental information 
accompanying financial statements. Specifically, the Proposed Rules 
establish:
     Requirements that the auditor perform audit procedures to 
test the supplemental information;
     Requirements that the auditor evaluate the supplemental 
information, which include evaluating (1) whether the supplemental 
information, including its form and content, is fairly stated, in all 
material respects, in relation to the financial statements as a whole, 
and (2) whether the supplemental information is presented in 
conformity, in all material respects, with the relevant regulatory 
requirements or other applicable criteria;
     Requirements that promote enhanced coordination between 
the work performed on the supplemental information with work performed 
on the financial statement audit and, if applicable, other engagements, 
such as an attestation engagement for brokers and dealers; and
     Reporting requirements that clearly articulate the 
auditor's responsibilities when reporting on supplemental information.
    As part of the Proposed Rules, the Board adopted conforming 
amendments to several PCAOB standards, including superseding PCAOB 
interim auditing standard AU section 551.
    The Proposed Rules would be effective for audit procedures and 
reports on supplemental information that accompanies financial 
statements for fiscal years ending on or after June 1, 2014.

III. Comment Letters

    As noted above, the Commission received one comment letter 
concerning the Proposed Rules. The commenter expressed unqualified 
support for the Proposed Rules, noting that they are consistent with 
the Commission's amended Rule 17a-5 and are necessary to enable 
auditors of brokers and dealers to comply with the requirements 
therein.\8\ The commenter further noted that the requirements for 
auditors included in the Proposed Rules are

[[Page 9512]]

consistent with the goal of improving the confidence of investors and 
other stakeholders in the quality and consistency of supplemental 
information.\9\
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    \8\ See Deloitte Letter.
    \9\ Ibid.
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IV. The PCAOB's EGC Request

    Section 103(a)(3)(C) of the Sarbanes-Oxley Act provides that any 
additional rules adopted by the PCAOB subsequent to April 5, 2012 do 
not apply to the audits of emerging growth companies (``EGCs''), unless 
the Commission determines that the application of such additional 
requirements is necessary or appropriate in the public interest, after 
considering the protection of investors and whether the action will 
promote efficiency, competition, and capital formation.\10\ Having 
considered those factors, and as explained further below, the 
Commission finds that applying the Proposed Rules to audits of EGCs is 
necessary or appropriate in the public interest.
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    \10\ Section 103(a)(3)(C) of the Sarbanes-Oxley Act, as amended 
by Section 104 of the Jumpstart Our Business Startups Act (the 
``JOBS Act''). The term ``emerging growth company'' is defined in 
Section 3(a)(80) of the Exchange Act.
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    The PCAOB has proposed application of its Proposed Rules to audits 
of all issuers, as applicable, including EGCs; and the PCAOB requested 
that the Commission make the determination to the extent necessary 
required by Section 103(a)(3)(C). To assist the Commission in making 
its determination, the PCAOB prepared and submitted to the Commission 
its own EGC analysis. The PCAOB's EGC analysis includes discussions of: 
(1) The economic baseline for consideration of the Proposed Rules; (2) 
the PCAOB's consideration of alternatives; (3) economic considerations; 
and (4) characteristics of EGCs. In its analysis, the PCAOB noted that, 
according to its research, the PCAOB is not aware of EGCs for which 
auditors would be required to apply the Proposed Rules, but that 
issuers may voluntarily file supplemental information to which the 
standard could apply.
    The PCAOB's EGC analysis was included in the Commission's public 
notice soliciting comment on the Proposed Rules. No comments were 
received on the analysis. Based on the analysis submitted, we believe 
the information in the record is sufficient for us to make the EGC 
determination in relation to this standard. Specifically, the PCAOB's 
EGC analysis discussed its approach to developing the new standard and 
its consideration of alternatives, as well as the characteristics of 
EGCs and economic considerations. The Commission also takes note, in 
particular, of the PCAOB's analysis which explained that the PCAOB is 
not aware of EGCs for which auditors would be required to apply the 
Proposed Rules, and the only entities that are currently required to 
file supplemental information to which Auditing Standard No. 17 would 
apply are: (1) Brokers and dealers pursuant to Rule 17a-5; and (2) Form 
11-K \11\ filers that elect to file plan financial statements and 
schedules prepared in accordance with the financial reporting 
requirements of the Employee Retirement Income Security Act of 
1974.\12\ Nonetheless, audited supplemental information can be provided 
by an EGC voluntarily. Although electing to do so is rare, the 
Commission believes that the Proposed Rules represent an improvement 
over PCAOB interim auditing standard AU section 551 for auditing and 
reporting on such information and should therefore be applied in such 
circumstances. Applying the same standard to audits of EGCs who 
voluntarily file supplemental information would be efficient for 
issuers and auditors and because of its scalability should not 
disproportionately affect EGCs.\13\ Approving the Proposed Rules for 
audits of EGCs also ensures that PCAOB standards continue to include 
appropriate direction for auditors when engaged to audit supplemental 
information.
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    \11\ 17 CFR 249.311. Form 11-K is used for annual reports 
pursuant to Exchange Act Section 15(d) with respect to employee 
stock purchase, savings and similar plans.
    \12\ 29 U.S.C. 1001 et seq. (1974).
    \13\ To the extent the Commission considers in the future to 
amend filing requirements to require any new supplemental 
information to which the Proposed Rules would be applicable, the 
application of such requirements to EGCs could be considered in 
connection with any such rulemaking.
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V. Conclusion

    The Commission has carefully reviewed and considered the Proposed 
Rules and the information submitted therewith by the PCAOB, including 
the PCAOB's EGC analysis and the comment letter received. In connection 
with the PCAOB's filing and the Commission's review,
    A. The Commission finds that the Proposed Rules are consistent with 
the requirements of the Sarbanes-Oxley Act and the securities laws and 
are necessary or appropriate in the public interest or for the 
protection of investors; and
    B. Separately, the Commission finds that the application of the 
Proposed Rules to EGC audits is necessary or appropriate in the public 
interest, after considering the protection of investors and whether the 
action will promote efficiency, competition, and capital formation.
    It is therefore ordered, pursuant to Section 107 of the Act and 
Section 19(b)(2) of the Exchange Act, that the Proposed Rules (File No. 
PCAOB-2013-02) be and hereby are approved.

    By the Commission.
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-03556 Filed 2-18-14; 8:45 am]
BILLING CODE 8011-01-P


