On April 24, 2013, the Public Company Accounting Oversight Board issued its inaugural “Policy Statement Regarding Credit for Extraordinary Cooperation in Connection with Board Investigations.” The Policy Statement reiterates many of the themes of the SEC’s “Seaboard Report,” and therefore many may view it as largely plowing over well-trodden ground. But, the Policy Statement merits close attention, because it is the first such statement the Board has issued since it was formed, it sets forth specific examples of conduct that is likely to earn credit for cooperation, and it focuses specifically on the auditing profession.
The Policy Statement identifies three forms of “extraordinary” cooperation that could result in audit firms and/or individuals receiving credit in enforcement investigations:
- remedial or corrective action; and
- substantial assistance.
According to the Board, “[a] firm or associated person may earn credit for self-reporting by making voluntary, timely and full disclosure of the facts relating to violations before the conduct comes to the attention of the Board or another regulator.” And, the sooner self-reporting is made, the more likely it will result in credit. The Board stressed, however, that self-reporting is “not eligible for cooperation credit” if it is “required by legal or regulatory obligations,” e.g., the auditor’s obligation under Section 10A of the Securities Exchange Act of 1934 to report a client’s illegal acts. Read More
On October 10, 2012, a federal district judge in Missouri granted in part and denied in part class action plaintiffs’ motion to compel certain documents that KPMG had supplied to the Public Company Accounting Oversight Board (“PCAOB”) in a 2006 investigation.
Judge Ortrie D. Smith held that KPMG was not required to produce the bulk of its withheld documents relating to a 2006 PCAOB inspection because those documents were privileged under SOX. Specifically, SOX provides that documents and information prepared or received by or specifically for the PCAOB are confidential and privileged and not subject to disclosure. Not all documents fell under the privilege, the court held: documents from the underlying transaction and work that was the subject of the investigation were not prepared for the PCAOB and so could not claim the privilege protection.
The court rejected plaintiffs’ arguments that the SOX privilege only covers documents “in the hands” of the PCAOB and not third parties, like KPMG, because the privilege covered materials both prepared for, and received by, the PCAOB. Finally, KPMG had not waived the privilege when it shared some of the information with Sprint employees or defendants in the litigation.
The Public Company Accounting Oversight Board (PCAOB)’s new accounting standard, Accounting Standard No. 16, seeks to bolster the relationship between audit committees and outside auditors, especially by encouraging ongoing, two-way tailored communications, as opposed to after-the-fact or boiler-plate notices. Auditing Standard No. 16, adopted August 15, 2012, was issued in light of requirements in Sarbanes-Oxley and the Dodd-Frank Act that relate to oversight and accounting, and replaces interim standards AU section 380 and AU section 310. The SEC is expected to approve the new rule, which could become effective as early as December of this year depending on the timing of SEC approval. Read More