In recent months, issues related to internal control systems and reporting have taken on an increased profile and significance. For example, as previously noted by the authors here and here, the SEC has sought to prioritize compliance with internal controls by initiating a growing number of investigations into companies based on allegations of inadequate internal controls.
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