In an unusual request, the Center for Audit Quality (CAQ) asked the Public Company Accounting Oversight Board (PCAOB) to delay sending two significant standards—quality control (QC) and general responsibilities of the auditor—it adopted two weeks ago to the Securities and Exchange Commission (SEC) for approval by at least 45 days.
If the board has already filed with the commission, the CAQ in a May 22, 2024, letter asked the PCAOB to withdraw and resubmit in 45 days to provide sufficient time “to review and consider the complex proposals and standards.”
This ask for the delay is unusual as the board has already voted to adopt the standards, and standard-setters do not open just-finalized rules for further comment.
But as the capital market regulator, the SEC oversees the PCAOB, and the board’s standards and budget must be approved by the commission before they can become effective.
Under Section 19(b)(2)(A) of the Securities Exchange Act of 1934, the SEC has 45 days to act after publishing the board’s rule for public comment. The commission gives the public 21 days for comment following publication in the Federal Register.
The provision allows the SEC to extend the period by an additional 45 days if the agency determines that a longer period is appropriate.
PCAOB’s Ambitious Agendas and Comment Period
The CAQ, an affiliate of the AICPA that represents accounting firms that audit public companies, also forwarded the letter to SEC Chief Accountant Paul Munter.
The request comes as the PCAOB under the leadership of Erica Williams has been pursuing the most ambitious standard-setting and rulemaking agendas in the board’s history. And the CAQ wrote the letter to the PCAOB about what is sees as insufficient time provided for comment letters.
In particular, the CAQ also asked the PCAOB to extend the comment period for two separate but related proposals intended to increase audit firm transparency. The board issued them on April 9, and comments are due by June 7.
One proposal would require firms to disclose a set of 11 standardized metrics that are intended to give some insight into the performance of audits. The other proposal would require firms to provide more disclosure, such as financial data and governance information in annual and special reporting forms filed with the PCAOB.
“Given the complexity and significance of the proposals and simultaneous standard-setting activities, we find that a 60-day comment period does not provide sufficient time for stakeholders to provide the most comprehensive and meaningful feedback,” the CAQ wrote, in asking for 120 days.
As for QC 1000 and Auditing Standards (AS) 1000, the CAQ said that “there are ways in which the current proposals interact with QC 1000 and AS 1000 that require us to study and consider the effects in combination.”
In a separate statement to Thomson Reuters, the CAQ said it continues to support the PCAOB’s goal to modernize standards. Many of the board’s standard-setting activities relate to updating interim standards it adopted from the AICPA in 2003 following the enactment of the Sarbanes-Oxley Act of 2002.
The CAQ pointed out, however, that small accounting firm Forvis, LLP and the CFA Institute sent letters in August 2023 to express concerns about the 60-day comment period for significant rulemakings.
“We believe extending the comment periods and delaying the 19b-4 filings [with the commission] would enable stakeholders to have adequate time to carefully weigh and consider proposed and final standards and provide meaningful feedback to the PCAOB and SEC,” the CAQ said.
The PCAOB declined to comment.
It is unclear whether the PCAOB sent the two standards to the SEC, which has yet to post them on its website for public comment as of mid-afternoon of May 24.
It is also unclear whether the SEC will take 45 or 90 days to approve or reject the standards. Because the SEC’s Office of the Chief Accountant works closely with the PCAOB, the commission has not historically disapproved the board’s changes to its standards. This is especially true when the PCAOB chair is appointed by the current leadership at the SEC.
However, regulators do consider comment letters submitted after deadline.
‘Back-door Way of Getting a Longer SEC Comment Period’
In the meantime, former PCAOB member Daniel Goelzer assumed that the CAQ’s request on the 19b-4 filings “is just a kind of back-door way of getting a longer SEC comment period.”
Goelzer agreed with the CAQ that the relationships between new AS 1000, QC 1000, and pending proposals, such as noncompliance with laws and regulations, “is potentially complex and deserves careful study.”
While the PCAOB adopted the QC 1000 and AS 1000 largely as proposed, and the CAQ could have done the analysis already, “in fairness to the CAQ, they couldn’t know whether changes to the proposals would be made until adoption actually occurred,” Goelzer said.
“The CAQ could ask the SEC to allow a longer-than-normal comment period, but I suppose they thought there was no harm in first asking the PCAOB to delay the filing,” he speculated.
“That said, I would be surprised if the PCAOB delayed the filing—I think they often have it ready to go at the time of the open meeting on a final standard,” Goelzer added. “I would also be surprised if the SEC ordered anything other than the standard comment period” of 21 days.
This article originally appeared in the May 28, 2024, edition of Accounting & Compliance Alert, available on Checkpoint.
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