SEC rule amends certain broker/dealer reporting, audit and notification requirements

The amendments issued by the Securities and Exchange Commission (the “SEC”) last month include:

  • a requirement that broker-dealer audits be conducted in accordance with standards of the Public Company Accounting Oversight Board (the “PCAOB”) “in light of explicit oversight authority provided to the PCAOB by the Dodd-Frank Wall Street Reform and Consumer Protection Act  to oversee these audits;”
  • a requirement that  a broker-dealer that clears transactions or carries customer accounts agree to allow representatives of the Commission or the broker-dealer’s designated examining authority (“DEA”) to review the documentation associated with certain reports of the broker-dealer’s independent public accountant, and to allow the accountant to  discuss the findings relating to the reports with those representatives when requested in connection with a regulatory examination of the broker-dealer;  and
  • a requirement that a broker-dealer file a new form with its DEA that elicits information about the broker-dealer’s practices with respect to the custody of securities and funds of customers and non-customers.

New Hong Kong accounting rules raise concerns of fraud

Just as global investors are turning to Hong Kong for stakes in China’s growth, they will no longer be able to rely on the comfort of a Hong Kong auditor signing off on financial statements—or more importantly, a local regulator to hold the auditors accountable. A recent change in rules for accounting standards on the Hong Kong’s stock exchange is
raising concerns that fraud will slip through the regulatory cracks. The new rules will cut costs for mainland companies seeking to list in Hong Kong if they choose to prepare one set of financial statements instead of two, but now the companies will have to rely on mainland Chinese authorities to root out fraud.

The rules also go against the trend in other jurisdictions, where regulators are pushing for more due diligence. In the U.S., where 21 of the 27 foreign offerings this year were Chinese, the Public Company Accounting Oversight Board warned auditors not to rely on financials prepared by mainland Chinese accountants and urged them to visit China to check out the companies.

January 5th, 2011|Fraud|

Challenging the constitutionality of the Public Company Accounting Oversight Board (PCAOB)

The U.S. Supreme Court, on June 28, 2010, issued its decision in the constitutional lawsuit that challenged the PCAOB, affirming in part and reversing in part the judgment of the Court of Appeals in favor of the PCAOB. The case, Free Enterprise Fund vs. Public Company Accounting Oversight Board, was brought on behalf of a Nevada accounting firm, Beckstead & Watts, which challenged the constitutionality of the law after objecting to the PCAOB’s inspection findings. The Free Enterprise Fund, a group opposed to government regulation, has lost the case twice before, in district and appeals courts.

The PCAOB Web site (http://pcaobus.org/Pages/default.aspx) posted the following: “The Supreme Court held that the Sarbanes-Oxley Act’s provisions making PCAOB Board members removable by the Securities and Exchange Commission (SEC) only for good cause were inconsistent with the Constitution’s separation of powers. Because the Court severed these provisions from the Act, however, no legislation is necessary to bring the Board’s structure within constitutional requirements. The consequence of the Court’s decision is that PCAOB Board members will be removable by the SEC at will, rather than only for good cause. All other aspects of the SEC’s oversight, the structure of the PCAOB and its programs are otherwise unaffected by the Court’s decision. Accordingly, all PCAOB programs will continue to operate as usual, including registration, inspection, enforcement, and standard-setting activities.”

July 18th, 2010|Educational Series, Judgment|

Disciplinary actions filed by the Public Company Accounting Oversight Board (PCAOB)

The PCAOB Web site now maintains records of disciplinary and settlement orders of registered firms and/or their associated persons for violations of any provisions of the Sarbanes-Oxley Act, professional standards, rules of the PCAOB or the SEC, or U.S. securities laws relating to the preparation and issuance of audit reports. These records date back to 2005 and can be found at http://pcaobus.org/Enforcement/Decisions/Pages/default.aspx.

As required by the Sarbanes-Oxley Act, contested Board disciplinary proceedings are confidential and nonpublic, unless and until there is a final decision imposing sanctions. The PCAOB Web site also contains a section for orders granting petitions to terminate bars, at http://pcaobus.org/Enforcement/Petitions/Pages/default.aspx.

June 28th, 2010|Educational Series|
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