SEC Relaxes PCAOB's Authority to Deregister Accounting Firms
The U.S. Securities and Exchange Commission (SEC) approved new rules on January 2, granting the Public Company Accounting Oversight Board (PCAOB) greater authority to initiate deregistration procedures for accounting firms that have failed to submit annual reports and pay annual fees for two consecutive years. The new rules apply to reports and fees due this year, with deregistration potentially triggered as early as fall 2026. SEC Chairman Gary Gensler stated that the move aims to prevent inactive entities from continuing to promote themselves as PCAOB-registered. Currently, 80 firms are at risk due to failing to meet obligations in 2022 and 2023.
Key Takeaways
- The U.S. Securities and Exchange Commission (SEC) has granted the public company audit oversight body greater authority to initiate deregistration proceedings against accounting firms that fail to submit annual reports and pay annual fees for two consecutive years.
- Part of the new rule aims to ensure that non-compliant accounting firms can no longer market themselves as PCAOB-registered entities, SEC Chair Gary Gensler said in a statement on Thursday (January 2). He noted that 80 firms failed to submit annual reports and pay annual fees in 2022 and 2023.
- Gensler said: "If a firm neither submits its required annual report nor pays its fees, it is reasonable to presume it is no longer active. Such entities should not be allowed to advertise to the public that they are registered with the PCAOB."
In-Depth Analysis
The new rule will apply to annual reports and fees due this year and could trigger PCAOB deregistration proceedings as early as fall 2026, the SEC said in its approval announcement.
The standard includes a 60-day waiting period, giving firms time to indicate to the PCAOB their intent to remain registered before final deregistration.
Under current rules, the PCAOB can only remove firms that have been subject to disciplinary action or have voluntarily applied for deregistration.
The new standard will enable the PCAOB to remove firms that no longer exist, have ceased operations, or "through inaction have indicated they no longer wish to remain registered," Gensler said. There are currently 1,544 accounting firms registered with the PCAOB.
The SEC noted: "The presence of persistently delinquent firms on the PCAOB's registration list impedes several regulatory objectives, including: maintaining an accurate public record of public accounting firms that are active and wish to remain registered; ensuring that information required by annual reports is disclosed to the public and the PCAOB; collecting mandatory annual fees; and efficiently utilizing PCAOB staff time and resources."
Deloitte supported the new rule in a December 12 letter to the SEC, stating that the standard would "establish a more accurate public record of public accounting firms that wish to remain registered."
The SEC said that despite requirements under the Sarbanes-Oxley Act of 2002 and repeated PCAOB reminders, more than 50 firms have failed to meet registration requirements for at least six consecutive years.
PCAOB Chair Erica Williams said in a statement: "The new rule will not only make PCAOB registration information more useful to investors, audit committees, and other stakeholders, but will also help the organization use its staff time and resources more efficiently and effectively."