PCAOB issued for public comment a proposal for a new PCAOB rule 2400


The Public Company Accounting Oversight Board (PCAOB) issued for public comment a proposal for a new PCAOB Rule 2400, False or Misleading Statements Concerning PCAOB Registration and Oversight. It would address how the public accounting firm and its employees present the firm’s PCAOB registration status, including the scope of the board’s oversight.

Why The PCAOB Is Issuing This Proposal:

  • Under the Sarbanes-Oxley Act, public accounting firms must register with the PCAOB before they can prepare or issue an audit report for an issuer or a broker-dealer or play a substantial role in those audits.
  • When they perform such work, PCAOB-registered firms must follow PCAOB auditing standards and are subject to PCAOB inspection and potential enforcement actions.
  • The “PCAOB has observed instances where registered firms have misrepresented PCAOB registration as a ‘seal of approval’ or a ‘mark of excellence.
  • Almost half of the firms that are registered with the PCAOB today do not engage in any audit work for issuers or broker-dealers that is subject to regulatory oversight
  • Furthermore, the PCAOB does not endorse registered firms or their services. Nevertheless, the PCAOB has observed instances where registered firms have misrepresented PCAOB registration as a “seal of approval” or a “mark of excellence”.

Key Component of the proposal:

Proposed Rule 2400 seeks to strengthen investor protection and confidence in three principal ways.

  • Proposed Rule 2400 would establish a general prohibition on false or misleading statements about the firm’s registration, including the extent of the board’s oversight over the firm’s services.
  • The proposal would specify about the application of that general prohibition. It would set forth a non-exhaustive list of scenarios that would violate the rule (Refer list below).
  • Further, Rule 2400 would codify the board’s practice of considering any prior misleading statements when reviewing a registration application.

List of scenarios that would violate the rule:

These include certain statements that:

  • State or imply the PCAOB sponsors, recommends, or otherwise endorses the firm or its services;
  • Are made by a firm that is not currently subject to PCAOB oversight;
  • Refer to particular services that are not subject to PCAOB oversight; 
  • Appear in auditor’s reports for clients other than issuers or broker-dealers; 
  • Are made about a firm with a pending request to withdraw from PCAOB registration.
SW Point of View:  The proposal would enhance public understanding and investor protection by establishing new restriction on statements auditors can make concerning a firm’s PCAOB registration status, including the extent of PCAOB oversight of the firm’s work. 

Rishi Singh, Audit Associate, SW India