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Rush to register: deadline looms for public-audit firms to file with federal government.

The Securities and Exchange Commission's mid-July approval of federal public-audit CPA firm registration confirmed what the profession had long anticipated: an Oct. 22 deadline to complete the process with the fledgling Public Company Accounting Oversight Board (PCAOB). But even though previously issued SEC rules implementing federal policing measures have provided lengthy requirements for mandatory application documentation, there is room in the brand-new process for confusion on both sides. With the PCAOB urging public-audit firms to initiate the registration process upon its release July 16, it is especially critical that any firms still waiting to apply understand the urgency of doing so quickly and thoroughly, or plan to drop public-audit clients for the pending year. The Oct. 22 deadline is expected to serve as a registration approval cutoff, not an application starting point.

'First Time for Everybody'

Speaking immediately prior to the debut of the online application process at, PCAOB Public Affairs Director Christi Harlan says firms should be mindful of the guideline, that if an application is not complete, the 45-day review process starts over upon the resubmission of information. Harlan says speculatively, "It's possible an application could be rejected, but what might lead to that will have to be determined (based) on the specific application." Due to password protection of the online registration process, which is the only permissible way to register, even before applying firms must complete a one-page form requesting log-in access, available at pdf. While the form is online, it must be printed, signed and faxed to the PCAOB, with an approximate five-day window for receipt of identification and password. PCAOB helpline support, which Harlan said in July the organization was actively working to staff, is available at 202.207.9329. "We're aware that this is the first time for everybody, so we're just trying to take that into consideration as we get the system set up," Harlan says. "We think our system is going to be adequate for the traffic."

Pay to Play

In conjunction with the live registration process, the PCAOB's fee structure, based on issuer clients audited in the previous fiscal year, is as follows:

Chuck Landes, director of audit and attest standards for the AICPA, says he highly doubts any CPA firms with no public-audit clients in the previous fiscal year will choose to register at this time. Growth into public company audits in the midst of so much uncertainty over the process appears unlikely, Landes says.

"If they're not doing audits for public companies today they're really going to take a wait-and-see attitude to see what shakes out with all of this," he notes. "I've not had anybody say to me, we think we're going to go ahead and register anyway because it's an area we're thinking about getting into in the future. Most people are going the other way. I have had firms who say to me, 'We only audit a few of these, I don't want to put up with the additional regulation and oversight. We're just simply going to reassign SEC accounts.' "Time will tell if firms that provide primarily subsidiary support in public audits, defined as "substantial" if at or above 20 percent of the material audit service, will choose to file to continue performing the work."

Conversely, the biggest accounting firms have been collecting information to meet application requirements even while they were still pending, as has been the case with Deloitte & Touche LLP, says Bert Cannon, the firm's audit partner and professional practice director for the Cincinnati office. With public firm audits providing a significant business interest for Deloitte & Touche as with all large firms, preparations to file with the PCAOB began far prior to July 16, Cannon says. "You can imagine how difficult it is to establish a process to get 25,000-30,000 people to respond to in a short period of time," he says. "It's quite an undertaking."

Group Effort

One of the more onerous tasks has been collecting physical signatures for consent verifications from firm accountants involved in audit work, Cannon says. All employees were guided through an electronic questionnaire to capture necessary information, but these accountants, defined by the PCAOB as performing at least 10 hours of work for any issuer during the last calendar year, actually printed and signed their certification. "We wanted to make it as seamless to our people as possible so they could easily answer some questions and get the process completed," Cannon says, noting that Deloitte & Touche relied heavily on already stored electronic information to prepare registration documentation, sometimes referring employees back to it electronically merely to verify accuracy.

The firm submitted electronic questionnaires to half of its U.S. employees one week and the other half the subsequent week, Cannon says, adding that in mid-July questionnaires were still being tracked down for internal receipt. Since the questionnaire proceeded based on responsibilities in the company, which were determined by the answers to each question, most employees only had to spend a short time completing their answers. "Unfortunately the PCAOB wanted some information that wasn't in our system, so the partners had to get that and input it, such as fund addresses and fees ... (They) had to go back and recast it into different buckets for PCAOB reporting," Cannon says.

Long-Form Accounting--of Facts

While there is no way to briefly summarize the information required to register with the PCAOB, the organization goes into great detail in a 110-page document available in conjunction with the online registration process, at Release2003-007.pdf. The main headings are comprised of:

* Self-identification.

* Identification of public company audit clients.

* Statement of quality control processes.

* Listing of "certain" proceedings, including any criminal or civil proceedings involving the applicants and/or its "associated persons."

* Listings of SEC filings disclosing accounting disagreements with public company audit clients (in perpetuity).

* A roster of accountants who contribute to audit report preparation.

* Consent to cooperate with the PCAOB and acceptance of registration, including of an authorized partner or officer of the applicant.

In addition to the many, many subcategories each request for information includes, applicants must also include the following addendums, some of which duplicate application data:

* Listing of offices.

* Statement of quality control policies.

* Discretionary statements regarding proceedings involving audit practice.

* SEC filings disclosing accounting disagreements with public company audit clients.

* Consent of applicant for registration (the voluminous paperwork referred to by Cannon).

* Request for confidential treatment (for example, employees with criminal records).

* Evidence of conflicting non-U.S. law for foreign practitioners.

Trickle-Down Realities

Facing implementation of so many changes to public audit practices, the industry must also cope with increased transparency expectations for the peer review system. Steven Hube, chairman of The Ohio Society's Peer Review Acceptance Committee, says that as peer review transitions from an educational to a punitive tool, there are increasing calls for the results to be made public. While the AICPA's exposure draft of recommendations for the peer review process does not specifically propose to do so, its call for input indicates willingness to further study the issue of public access.

"I guess there's still some uncertainty at least in my mind, even with the new proposed standard in relation to the Sarbanes-Oxley Act and the PCAOB," Hube said in mid-July, expressing confusion over the continuing role peer review will play as the PCAOB takes over monitoring control of public-issue audits. Otherwise, he sees the biggest potential for change in the AICPA proposal to alter system review and engagement review processes, so that findings of modified or adverse reports would be disclosed in the body of the peer review report instead of in a supplemental letter of comment. Comments on the proposal were to have been received by Aug. 8, but the draft is available for review at ED_PostPRB_meting.pdf. Changes to peer review, after final approval, are not scheduled to go into effect until January 2005.

While he is not certain wholesale public access is necessary, Ronald J. Rotaru, executive director of the Accountancy Board of Ohio (ABO), says he welcomes more regulatory teeth in the peer review process. Rotaru says he has long supported increased accountability in peer review, especially when the board has negative findings against a firm with a spotless peer review record. "There's something wrong with the peer review system when you find people who are that grossly negligent ... and their peer review results are fine."

Responding to any direct impact the ABO might have in the future in retaining a firewall between application of PCAOB standards for public-issue auditors vs. AICPA standards for private-firm auditors, Rotaru says, "Until we find out what PCAOB is going to do, I don't think the state of Ohio can do anything about it. I would hope that would not filter down. I think I'm comfortable with the way things are now."

Brent Wilder is a longtime Columbus professional writer who frequently reports on business and accounting market issues. He can be reached at 614.901.2530.
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Author:Wilder, Brent
Publication:Catalyst (Dublin, Ohio)
Geographic Code:1USA
Date:Sep 1, 2003
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