PCAOB 2012 Annual Report

7/22/2019 PCAOB 2012 Annual Report

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2012 Annual Report 10 Years o Protecting Investors


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Public comPany accounting oversight board

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Jan. 6Washington, D.C., ofce opens

April 16Board adopts interim standards for auditing public company nancial

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10 years o ulilling our missionTe PCAOB is a nonprot corporation established by Congress to oversee the audits o public

companies in order to protect the interests o investors and urther the public interest in the

preparation o inormative, accurate and independent audit reports. Te PCAOB also oversees the

audits o broker-dealers, including compliance reports led pursuant to ederal securities laws, to

promote investor protection.

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: Matters Relating to Timing

and Accounting for Option Grants


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for registered public accounting rms audits of brokers and dealers

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Our ounding Board and tiny sta began work in January 2003, building

systems and processes or the registration and inspection o public audit

rms, or the development o auditing standards and or the enorcement

o the Boards standards and rules. Te mission that drove our earliest

Board and sta is the same one that inspires our work today: protectingthe interests o investors and urthering the public interest in the preparation

o inormative, accurate and independent audit reports or public companies

as well as brokers and dealers.

Our accomplishments in 2012 have their roots in the ground that was prepared 10 years ago and tended by the Board

members and sta who have served the PCAOB in the years since. From the beginning, the PCAOB recognized the

importance o global audit oversight. In May 2003, the Board decided it would notexempt non-U.S. accounting rms

rom PCAOB oversight.

Te importance o that decision, to oster a cross-border inspection regime, has been justied by ensuing events. Investors

have suered losses in the securities o companies based in emerging markets but trading in U.S. markets. In addition, the

reliance by multinational corporations on global networks o accounting rmsrms linked by name but registered as

individual entities in the countries where they are domiciledhas proven that the ability o the PCAOB to inspect and

hold accountable U.S. and non-U.S. rms is a vita l component o investor protection.

Te model o oversight, independent o the audit proession, has inspired and been taken up by governments and regulators

across the globe. oday, the PCAOB and its Board members play a leading role in the International Forum o Independent

Audit Regulators. en years ago, ew bodies would have even qualied or membership in the orum, had it existed then.

Yet, in the short time since its ounding in 2006, IFIAR has grown to a membership encompassing regulators in 44 countries,

acilitating exchanges o inormation and collaboration that can only expand the umbrella o protection or investors.

Indeed, an exchange o inspections ndings among these IFIAR members in 2012 ound that many share the primary

concerns o the PCAOB: globally, inspections reveal a disturbing number o common deciencies in the audits o publicly

traded companies.

o help address these concerns in 2012, the PCAOB continued its eorts to speed up the delivery o inspections ndings

to registered rms, and the Board met with representatives o the largest rms to encourage top-down attention to the

imperative o accurate and independent audit reports.

From the Chairman

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o remind auditors o their specic duties under existing standards, the PCAOB published

a Sta Audit Practice Alert,Maintaining and Applying Proessional Skepticism in Audits .

Concern or independence, skepticism and objectivitythe behavioral DNA o the

eective auditoroccupies investors, regulators and capital markets around the world. o add

to our own knowledge, the Board hosted three roundtable discussions, centering on our 2011

concept release on auditor independence and audit rm rotation, in which we received a

range o inormation rom a wide variety o interested parties, rom ormer regulators to

proessional investors to corporate executives and leaders o accounting rms.

One o the most compelling and persistent themes we heard rom participants in those

roundtables was the importance o the role o the audit committee in closely monitoring,

supervising and even challenging auditors. Te role o the audit committee had been a

point o ocus within the PCAOB, and I was pleased that in 2012 we brought to ruition

two projects that should help all audit committees: a new auditing standard requiring enhanced communication between

the auditor and the audit committee and a release intended to help audit committees understand the ndings o our inspections

and tailor their inquiries about our inspection results.

Te Board cannot compel an audit rm to disclose inormation in the nonpublic portion o an inspection report to an audit

committee. Beyond the public portion o an inspection report, seeking disclosure by the inspected audit rm is an auditcommittees only means o obtaining inormation concerning a PCAOB inspection. Our release is meant to help audit committees

understand our inspection reports and encourage voluntary, meaningul disclosure by rms.

I am immensely proud o what the Board and sta accomplished in 2012, much more o which is described in the pages

that ollow. At the PCAOB, every inspection, report, international agreement, standard under consideration and enorcement

action is done with a singular purpose: to protect investors.

With the support o the SEC, we have worked hard to live up to the vision set out in the acts o Congress that gave us our

mandate and to the vision o the Board members who preceded us in the last 10 years. I trust that investors and uture

Boards will nd our eorts worthy.

James R. Doty, ChairmanPublic Company Accounting Oversight Board

Washington, D.C.

July 1, 2013

James R. Doty, Chairman

Pcaob | 10 years 3


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Audit Reports per Registered FirmReprt r pubic cmpnie nd mutu und Dec. 31, 2012 (ued r pnning 2013 inpectin)

U.S. NoN-U.S. ToTal

Firms that issued no issuer audit reports 999 716 1,715

Firms that issued audit reports or 1-5 issuers 265 144 409





Firms that issued audit reports or >100 issuers 9 0 9

ToTals 1,452 911 2,363

RegistrationAny accounting rm that prepares

or issues an audit report or a public

company or an SEC-registered broker

or dealer, or plays certain roles in

those audits, must be registered with

the PCAOB.

Te public accounting rms registered

with the PCAOB vary in size, ranging

rom sole proprietorships to large audit

rms that are members o extensive

global networks, comprising numerous

separately registered accounting rms

in multiple jurisdictions.

In 2012, the Board considered and

approved registration applications o

110 accounting rms, including 41

non-U.S. rms. Te Board disap-

proved three registration applications.

Te Board also considered and granted

129 requests to withdraw rom

registration in 2012.

At the end o 2012, there were 2,363 frms

registered with the PCAOB, including

1,452 domestic rms and 911 non-U.S.

rms located in 87 jurisdictions. O

these registered rms, approximately

800 issued audit reports on the

nancial statements o brokers and

dealers or scal periods ended during

2012 that were led with the SEC.

Firms with More than 100

Public Company Audit

Clients in 2011

Inspected in 2012 by the PCAOB

BDO USA, LLP

Crowe Horwath LLP

Deloitte & ouche LLP

Ernst & Young LLP

Grant Tornton LLP

KPMG LLPMaloneBailey, LLP

McGladrey & Pullen, LLP

PricewaterhouseCoopers LLP

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Pcaob | 10 years 5


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Number o Registered Public Accounting Firms by Jurisdiction

( Dec. 31, 2012)

JURISDICTIoN NUMBER oF REGISTERED FIRMS

United States 1,452

China* 96

India 67

United Kingdom** 63

Canada 46

Australia 42

Germany 41

France 25

Singapore 22

Mexico 20

Chile, Russian Federation, Spain 18 each

Argentina, Israel, Netherlands, Peru 17 each

Brazil, Italy, Japan, Malaysia 16 each

Belgium 15

Ireland, Republic o Korea, aiwan 13 each

New Zealand, South Arica 12 each

Colombia 10

Indonesia, Philippines, Sweden, United Arab Emirates 8 each

Cayman Islands, Poland, Venezuela 7 each

Austria, Czech Republic, Greece, Hungary, Pakistan, Switzerland 6 each

Costa Rica, Denmark, Finland, Portugal, Tailand, Uruguay 5 eachBermuda, Egypt, Luxembourg, Paraguay, Romania 4 each

Bahamas, Bolivia, Kazakhstan, Panama, Vietnam 3 each

Dominican Republic, Iceland, Nigeria 2 each

Armenia, Bahrain, Barbados, Belize, Croatia, Curacao, Cyprus, Ecuador, El Salvador,Estonia, Ghana, Haiti, Jamaica, Malta, Mauritius, Nicaragua, Papua New Guinea,Saudi Arabia, Slovakia, anzania, unisia 1 each

ToTal 2,363

* Te number o registered rms in China includes 49 rms located in Hong Kong.

** Te number o registered rms in the United Kingdom includes rms located in Jersey, Isle o Man and the British Virgin Islands.

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Registered rms that issue audit reports

or more than 100 public companies

and other issuers are required to be

inspected annually. In 2012, the PCAOB

inspected nine such rms. As part o

these inspections, PCAOB inspectors

examined portions o more than

290 audits perormed by these rms.

Registered rms that issue audit

reports or 100 or ewer issuers are, in

general, inspected at least once every

three years. At any time, the PCAOB

may also inspect any other registered

rm that plays a role in the audit o an

issuer. Te PCAOB inspected 244 rms

in these categories in 2012, including

77 non-U.S. rms located in 25

jurisdictions. In the course o those

inspections, PCAOB sta examined

portions o more than 620 audits.

Many rms registered with the Board

perorm no audit work or issuers,

brokers or dealers, and the Board does

not inspect those rms.

Board inspections are designed to

identiy and address weaknesses and

deciencies related to how a rm

conducts audits. o achieve that goal,

Board inspections include an evalua-tion o the rms perormance in

selected audit engagements and

evaluation o the design and operating

eectiveness o a rms quality control

policies and procedures.

Te review o a rms work on issuer

audit engagements typically ocuses on

the engagements, and areas o those

engagements, identied by PCAOB

sta as presenting the more signicant

risks o nancial reporting misstate-

ments, related auditing challenges and

audit deciencies.

Evaluation o a rms system o qualitycontrol typically includes review o

policies, procedures and practices

concerning audit perormance, training

and compliance with independence

requirements; client acceptance and

retention; and the establishment o

policies and procedures. Other areas

reviewed may include the rms tone

at the top as it relates to audit quality;

partner management, including

evaluation, compensation, admission and

discipline; use o the work perormed by

oreign aliates; and the rms sel-mon-

itoring o its practice through the rms

internal inspections and analyses o, and

responses to, identied weaknesses.

Te PCAOB prepares a report on each

inspection and makes portions o each

report publicly available, subject to

statutory restrictions on public disclosure.

In 2012, the PCAOB issued 257 reports

on inspections o rms that auditpublic companies.

I an inspection report includes

criticisms o or identies potential

deects in a rms system o quality

control, the Board is prohibited rom

publicly disclosing those criticisms i

the rm addresses those criticisms to

the Boards satisaction within

12 months o the issuance o the report.

Any criticisms that a rm ails to

address to the Boards satisaction in

that period are made public. In 2012,

the Board published portions o

27 inspection reports relating to

quality control criticisms rom prioryear inspections that were not

addressed to the Boards satisaction.

Te Board may, at any time, publish

summaries, compilations or other

general reports concerning the proce-

dures, ndings and results o PCAOB

inspections. Such reports may include

discussion o criticisms o, or potential

deects in, quality control systems o

any rm or rms that were the subject

o a Board inspection, provided that the

report does not identiy the rm or

rms to which such criticisms relate, or

at which such deects were ound,

unless that inormation has previously

been made public.

In 2012, the PCaoB issued

the fwing reprts reted t

inspectins:a Report on the Progress

o the Interim Inspection Program

Related to Audits o Brokers andDealers; Inormation or Audit

Committees About the PCAOB

Inspection Process; and Observations

rom 2010 Inspectionso Domestic

Annually Inspected Firms Regarding

Deciencies in Audits o Internal

Control Over Financial Reporting.

Inspections

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Inspections continued

Audits of SEC-Registered

Brokers and DealersTe Dodd-Frank Wall Street Reorm

and Consumer Protection Act gave

the PCAOB authority or inspection,

standard setting and enorcement

over the rms that perorm audits o

brokers and dealers registered with the

SEC. In 2012, under a temporary rule

or an interim inspection program, the

PCAOB inspected 45 such rms and

examined portions o 64 audits o

brokers and dealers.

Te interim inspection program is

carried out under rules that took eect

in August 2011. Te program enables

the Board to assess the compliance o

registered rms and their associated

persons conducting audits o brokers

and dealers with the Sarbanes-Oxley

Act; Board and SEC rules; and

proessional standards. Te program willinorm the Boards eventual determi-

nation about the scope and elements o

a permanent inspection program.

Based on inspections o broker-dealer

auditors conducted between October

2011 and February 2012, the Board

issued a progress report Aug. 20, 2012.

PCAOB inspectors reviewed portions

o 23 audits o brokers and dealers

perormed by 10 registered publicaccounting rms and identied

deciencies in the portions o a ll

23 audits chosen or inspection.

Te audits and rms selected or the

reviews covered by the August 2012

report were not necessarily representative

o all broker and dealer audits and

their auditors. While the results

cannot be generalized to all brokerand dealer audits, the nature and

extent o the ndings were o concern

to the Board.

Te report noted that all registered

public accounting rms that issue

audit reports or SEC-registered

brokers and dealers should consider

whether the audit deciencies

described in this report might be

present in audits they currentlyperorm, and should take appropriate

action to prevent or correct any such

deciencies identied.

Te report discusses deciencies in

three areas: audit deciencies related to

SEC rules or customer protection and

net capital rules; audit deciencies

o o. 7, 2003, b p f p f

registered public accounting rms, including annual inspections

of rms that do the largest volume of audit work and inspections

at least once every three years for rms that do some volume of

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opened its New York ofce Sept. 8, 2003, to serve as a base for

inspections; inspectors are now based in 15 ofces across the

u s.

8 Pcaob | 10 years


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related to the nancial statement

audit; and ailures to satisy indepen-dence requirements. Te ull report,

including details about the identied

deciencies, is available on the

PCAOBs website.

In 2013, the interim inspection program

is expected to include inspections o

approximately 100 registered public

accounting rms covering portions

o more than 170 audits. Inspections

under the interim inspection programwill continue until rules or a perma-

nent inspection program take eect.

In addition to providing insight or the

development o a permanent inspection

program, the interim inspection

program, along with other research

and outreach, will inorm the Boards

uture standard-setting activities relevant

to the audits o SEC-registered brokersand dealers. At the end o 2012, SEC

rules continued to require that audits

o brokers and dealers be carried out

under GAAS, or generally accepted

auditing standards, although the

Commission has proposed rule changes

that would require those audits to be

conducted under PCAOB standards.

During the interim inspection program,

the Board will provide annual publicreports on its progress and signicant

issues identied. In the absence o

unusual circumstances, the Board will

not issue rm-specic inspection reports

beore inspection work is perormed

under the permanent program and will

not issue irm-speciic inspection

reports on any rms that are eventually

excluded rom the scope o the permanent

program. Te PCAOB did not issuerm-specic reports in 2012 under the

interim inspection program or auditors

o brokers and dealers.

In conormance with the Dodd-Frank

Act, the Board proposed amendments

Feb. 28, 2012, to tailor certain o its

rules to the audits and auditors o

SEC-registered brokers and dealers.

Te proposed amendments wouldinclude reerences to audits and

auditors o brokers and dealers in

relevant Board rules and call or

relevant inormation about broker and

dealer audit clients on registration,

withdrawal and reporting orms led

with the PCAOB.

Douglas Grande (left), associate director in the Denver ofce, and Paul Bijou,

deputy director and inaugural head of the PCAOBs New York ofce, joined

p ff J 2003.

Pcaob | 10 years 9
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Inspections continued

Te proposed amendments would also

require that registered rms that audit

brokers and dealers comply with the

Boards auditing and certain o the

Boards proessional practice standards.

Te proposals would also update a

number o Board rules and orms in

light o administrative experience and

make certain amendments to the

Boards Ethics Code.

In 2012, the PCAOB hosted our

broker-dealer orums to provide

registered public accounting rms with

observations rom the Boards interim

inspection program, developments

in Board standard-setting initiatives

and updates rom the SEC and the

Financial Industry Regulatory Authority.

he orums drew 506 auditors to

day-long sessions in Chicago, Houston,

Jersey City and San Diego.

Information for Audit Committees

about the PCAOB Inspection Process

Te PCAOB issued a release Aug. 1,

2012, with a goal o better equipping

audit committees o public company

boards o directors to engage in

meaningul discussion with PCAOB-

registered audit rms about the results

o inspections.

Te release provides inormation about

the meaning and signicance o PCAOB

inspection ndings in the context o

both engagement reviews and quality

control reviews. Te release also

suggests specic approaches that an

audit committee might consider or

initiating or enhancing inspection-

related discussions with an audit rm.

Te ull release is available on the

PCAOBs website.

Under the Sarbanes-Oxley Act, the

Board cannot disclose to an audit

committee the nonpublic portion o an

inspection report or other nonpublic

inspection inormationincluding

whether the inspection identied

deciencies in the audit that the audit

committee overseesand the Board

cannot compel an audit rm to disclose

such inormation to an audit committee.

Beyond the public portion o an

inspection report, voluntary disclosure

by the inspected audit rm is an audit

committees only means o obtaining

inormation concerning a PCAOB

inspection.

During public meetings on auditor

independence and audit rm rotation

and other orums, members o audit

committees indicated that it would

be helpul or the PCAOB to provide

more inormation about the PCAOB

inspection process and the meaning o

reported inspection results.

Specically, the Board has heard rom

audit committee members about some

instances in which they received rom

their audit rm nonpublic inspection

inormation that was signicant to the

audit committee in its oversight role,

and the Board has also heard, rom

those and other audit committee

members, that audit committees

would benet rom access to more

inspection inormation.

Te release highlights certain areas o

inquiry that audit committees may wish

to address with their auditors. Tese

include: whether the audit overseen by

the audit committee was selected by

the PCAOB or an inspection and

whether any ndings were made;potentially relevant inspection ndings

on other audits perormed by the

rm; the rms response to PCAOB

ndings; and the rms remedial

eorts in light o any quality control

deciencies that may have been

identied by the PCAOB.

Te PCAOB encourages auditors to

communicate this inormation to

their audit clients. In the Boardsview, an audit rms candid discussion

o its PCAOB inspection results with

an audit committee can have value

or an audit committee not only in

relation to the audit committees

oversight and evaluation o the audit

engagement generally, but also in

relation to the audit committees role

10 Pcaob | 10 years
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in the oversight o the companys

nancial reporting process.

Audits of Internal Control

Over Financial Reporting

Te PCAOB released areport Dec. 10,

2012, summarizing observations drawn

rom inspections o 309 audits o

internal control over nancial reporting

at public companies.

Te report stated the Boards concern

about the number and signicance o

deciencies identied in rms audits

o internal control during the inspec-

tions, which generally involved reviews

o the integrated audits o nancial

statements and internal control or

issuers scal years ending in 2009.

Te report describes the most pervasive

deciencies identied during PCAOB

inspections in 2010 in rms auditing

o internal control and includes

inormation on the potential root

causes o the deciencies. Te ull report

is available on the PCAOBs website.

Te deciencies identied do not mean

the issuers nancial statements were

materially misstated or that the issuers

internal controls were inadequate.

Generally, the deciencies related

to execution issues on the part o

individual engagement teams that did

not meet the requirements o the

rms methodologies.

Te rms whose internal control

audits were covered by the report are

BDO USA, LLP; Crowe Horwath

LLP; Deloitte & ouche LLP; Ernst &

Young LLP; Grant Tornton LLP;

KPMG LLP; McGladrey LLP; and

PricewaterhouseCoopers LLP.

In an audit o internal control over

nancial reporting, the auditors

objective is to express an opinion on the

eectiveness o the companys internal

control over nancial reporting.

An audit o internal control includes,

among other things, assessing the risk

that material weaknesses exist; testing

important entity-level controls and

important controls over signicantnancial statement accounts and

disclosures based on the assessed risks;

and evaluating whether identied

deciencies in internal control are

material weaknesses. Deciencies in

the testing and assessment o internal

control may increase the risk o the

auditor ailing to identiy a material

misstatement since the level o

substantive testing is predicated on the

auditors assessment o the eective-ness o the issuers internal controls.

In 46 o the 309 integrated audit

engagements (approximately 15 percent)

that were inspected in 2010, the

PCAOB ound that the rm, at the

time it issued its audit report, had ailed

to obtain sucient audit evidence to

support its audit opinion on the

eectiveness o internal control due

to one or more deciencies identied

by the PCAOB. In 39 o those

46 engagements (approximately

85 percent) in which the rm did not

have sucient evidence to support theinternal control opinion (representing

approximately 13 percent o the 309

integrated audit engagements that were

inspected), the rm also ailed to obtain

sucient audit evidence to support the

nancial statement audit opinion.

Pcaob | 10 years 11
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12 Pcaob | 10 years12 Pcaob | 10 years


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Transparency of Non-U.S. Auditor

Oversight and Audit Risks

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Pcaob | 10 years 13Pcaob | 10 years 13
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i o continued

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14 Pcaob | 10 years14 Pcaob | 10 years
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Ofce of Research

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Pcaob | 10 years 15Pcaob | 10 years 15


20/66

Developing and maintaining

high-quality auditing and relatedproessional standards is a key priority

o the PCAOB. Te PCAOB regularly

monitors audit risks, challenges and

the prevailing economic environment

as it maintains and adjusts its standard-

setting agenda.

Te standard-setting agenda is determined

based on consideration o, among other

things, the results o the PCAOBs

oversight o registered public accounting

rms; monitoring o the economic

environment; consultation with the

Boards Standing Advisory Group

(SAG); input rom the Boards Investor

Advisory Group (IAG); and discussions

with the Securities and Exchange

Commission sta.

PCAOB standards are rules o the

Board. Te Board uses a notice-and-comment process similar to the process

used by ederal agencies and other

standard setters, under which the Board

proposes standards or public comment

beore adopting new standards or

amendments to existing standards in

a public meeting. All Board standards

must be approved by the Securities and

Exchange Commission beore they can

become eective.

In addition to proposing new standardsand amendments to existing standards,

the PCAOB issues concept releases and

hosts public discussions to obtain

eedback on possible auditing standards

and related proessional standards

rom investors, auditors, representatives

o public companies and other

interested parties.

Te PCAOB also publishes Sta Audit

Practice Alerts to highlight new,emerging or otherwise noteworthy

circumstances that may aect how

auditors conduct audits under the

existing requirements o PCAOB

standards and relevant laws.

Ecnmic Cnidertin Reting

t PCaoB stndrd

Te Boards processes or standard

setting and rulemaking have historically

incorporated certain elements oeconomic analysis, such as consideration

o advantages, disadvantages and

potential unintended consequences o

proposed rules.

In early 2012, the PCAOB began

exploring ways to urther incorporate

economic considerations throughout the

Standards

Greg Scates, deputy chief auditor, joined the PCAOBs Ofce of Chief Auditor in June 2003.

16 Pcaob | 10 years


21/66

standard-setting process commensurate

with the potential signicance o therule under consideration.

While this work was underway, the

Jumpstart Our Business Startups Act, or

JOBS Act, became law April 5, 2012.

Te JOBS Act amended the Sarbanes-

Oxley Act, in part, by providing that

any standards or rules adopted by the

Board ater April 5, 2012, shall not

apply to an audit o any emerging

growth company, unless the [Securities

and Exchange] Commission determines

that the application o such additional

requirements is necessary or appropriate

in the public interest, ater considering

the protection o investors and whether

the action will promote eciency,

competition, and capital ormation.

Tis new requirement had an impact on

standard setting in 2012 as the PCAOBcareully considered the criteria

prescribed in the provisions and began

to perorm the analyses and provide

inormation to help the Commission

determine whether new standards

should apply to audits o emerging

growth companies.

Cmmunictin with

audit Cmmittee

With the adoption o Auditing Standard

No. 16, Communications with AuditCommittees, the Board issued new

requirements intended to enhance the

relevance and timeliness o the commu-

nications between a public companys

auditor and its audit committee,

encouraging constructive dialogue

between the two on signicant audit

and nancial statement matters.

Auditing Standard No. 16 is aligned

with the requirements o the Sarbanes-Oxley Act, which placed the audit

committee at the center o the relation-

ship between a public company and

its auditor. Te standard requires the

auditor to communicate certain

signicant matters regarding the audit

and the nancial statements to the audit

committee, which should assist the audit

committee in ullling its oversight

responsibilities regarding the nancial

reporting process. Eective two-waycommunication between the auditor

and the audit committee on such

relevant matters also will benet the

auditor in perorming an eective audit.

Te Board approved the standard

Aug. 15, 2012. Te SEC approved

Auditing Standard No. 16 and related

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pf p f

registered public accounting rms to follow in the preparation and

f p. o ap 16, 2003, b p x f , , q ,

p .

Pcaob | 10 years 17
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amendments to other PCAOB standards

Dec. 17, 2012. Te standard and related

amendments became eective or public

company audits o scal periods

beginning on or ater Dec. 15, 2012.

Te standard was the rst adopted by

the Board ater the enactment o theJOBS Act. In developing the nal

standard, the PCAOB worked closely

with the SEC in considering the type

o data and analyses that would aid the

Commission in making the necessary

determination under the JOBS Act. Te

SEC determined that the standard and

related amendments will apply to audits

o emerging growth companies under

the JOBS Act.

auditr Independence, objectivity

nd Prein skepticim

Observations rom the PCAOBs

oversight activities continue to raise

concerns about whether auditors

consistently and diligently apply

proessional skepticism in their audits o

public company nancial statements.

Te Board hosted three public meetings

in 2012 to solicit comment on waysto enhance auditor independence,

objectivity and proessional skepticism,

including through mandatory rotation

o audit rms. Mandatory rotation

would limit the number o consecutive

years or which a registered public

accounting rm could serve as the

auditor o a public company. Te

meetings were held in Washington, San

Francisco and Houston.

Te discussions were based on a concept

release,Auditor Independence and Audit

Firm Rotation, issued by the Board

Aug. 16, 2011, and eatured a total o

97 panelists, including investors andinvestor advocates; ormer regulators

(including ormer chairmen o the SEC),

senior executives and audit committee

chairs o major corporations; chie

executive ocers o audit rms;

academicians; and other interested

parties. Panelists statements are posted

on the PCAOBs website.

On Dec. 4, 2012, the PCAOB pub-

lished Sta Audit Practice Alert No. 10,Maintaining and Applying Proessional

Skepticism in Audits, to remind auditors

o the requirement to appropriately

apply proessional skepticism through-

out their audits.

PCAOB standards dene proessional

skepticism as an attitude that includes

a questioning mind and a critical

assessment o audit evidence. Te

standards also state that proessionalskepticism should be exercised through-

out the audit process. While proessional

skepticism is important in all aspects o

the audit, it is particularly important in

those areas o the audit that involve

signicant management judgments or

transactions outside the normal course

o business.

Proessional skepticism also is important

as it relates to the auditors consideration

o raud in an audit. When auditors

do not appropriately apply proessional

skepticism, they may not obtain

sucient appropriate evidence to

support their opinions or may not

identiy or address situations in

which the nancial statements are

materially misstated.

Te Sta Audit Practice Alert describes

certain circumstances that can impede

the appropriate application o proes-

sional skepticism and allow unconscious

biases to prevail, including incentives

and pressures resulting rom certain

conditions inherent in the audit

environment, scheduling and workloaddemands or an inappropriate level o

condence or trust in management. Te

Sta Audit Practice Alert reminds audit

rms and individual auditors to be alert

or these impediments and take

appropriate measures to assure that

proessional skepticism is applied

appropriately throughout all audits

perormed under PCAOB standards.

Reted Prtie nd signicntUnuu Trnctin

On Feb. 28, 2012, the Board issued or

public comment a proposed auditing

standard, Related Parties; amendments

to certain PCAOB auditing standards

regarding signicant unusual transac-

tions; and other amendments to

PCAOB auditing standards.

Standards continued

18 Pcaob | 10 years
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Te auditors evaluation o a companys

identication o, accounting or and

disclosure about its relationships and

transactions with related parties is

important to the protection o the

interests o investors and to the prepara-

tion o inormative, accurate and

independent audit reports. ransactions

with related parties can pose signicant

risks o material misstatement, as their

substance might dier materially rom

their orm.

Likewise, signicant transactions that

are outside the normal course o business

or that otherwise appear to be unusual

due to their timing, size, or nature can

create complex accounting and nancial

statement disclosure issues and, in some

instances, have been used to engage in

raudulent nancial reporting.

In addition, incentives and pressures

or executive ocers to meet nancial

targets can result in risks o material

misstatement to a companys nancial

statements. Such incentives and

pressures can be created by a companys

nancial relationships and transactions

with its executive ocers (e.g., executivecompensation, including perquisites,

and any other arrangements).

Te proposed standard and proposed

amendments address the ollowing areas

or auditors: (1) evaluating a companys

identication o, accounting or and

disclosure o relationships and

transactions with related parties; (2)

identiying and evaluating a companys

signicant unusual transactions; and

(3) obtaining an understanding o a

companys nancial relationships and

transactions with its executive ocers as

part o the auditors risk assessment.

Te proposed standard and proposed

amendments were discussed with the

SAG May 17, 2012.

On May 7, 2013, the Board issued or

public comment a reproposed auditing

standard and reproposed amendments

addressing the same areas that the

February 2012 proposal did. Te

reproposal included certain changes in

response to comments received on theproposal. Te reproposal was discussed

with the SAG May 15, 2013.

Future stndrd setting

In addition to the proposed standard

on related parties and the project on

auditor independence, objectivity, and

proessional skepticism, projects on the

Boards standard-setting agenda as o

March 2013 included:

Reorganization o PCAOB Auditing

Standards. On March 26, 2013, the

Board issued or public comment a

potential ramework or reorganizing

the Boards existing interim and

PCAOB-issued auditing standards into

a topical structure with a single

integrated numbering system, along

with certain implementing amendments

to its rules and standards. Te

proposed reorganization is intended to

present the standards in a logical order

that generally ollows the fow o the

audit process and is intended to help

users navigate the standards more easily.

Auditors Reporting Model. Te Board

issued a concept release or public

comment June 21, 2011, on alternatives

or potential changes to the auditors

reporting model that could increase its

transparency and relevance to nancial

statement users. Te concept release

was preceded by several discussions

with the PCAOBs SAG and IAG, in

addition to extensive outreach by

PCAOB sta in 2010 and 2011. Te

Board solicited urther comment at a

roundtable discussion Sept. 15, 2011.

Auditors Responsibilities with Respect

to Other Accounting Firms, Individual

Accountants and Specialists. Te PCAOB

is considering possible revisions to

standards related to audits involving

other accounting rms, individual

accountants and specialists. Te

project is intended to improve the

planning, supervision and other

aspects o such audits.

Audit ransparencyIdentication o the

Engagement Partner. On Oct. 11, 2011,

the Board proposed amendments to its

standards and rules that would improve

the transparency o public company

Pcaob | 10 years 19


24/66

audits by requiring that audit reports

disclose the name o the engagement

partner. Te amendments also would

require registered public accounting

rms to disclose the name o the

engagement partner or each audit

report listed on the rms annual lings

with the PCAOB.

Audits o Brokers and Dealers . In June

2011, the SEC proposed to amend its

rules to require that certain audit and

attest reports led by SEC-registered

brokers and dealers be prepared by

PCAOB-registered auditors using

standards established by the PCAOB.

On July 12, 2011, the Board proposed

attestation standards or auditors o

brokers and dealers tailored to theSEC-proposed rule amendments. Te

Board also proposed a standard or

audits o supplemental inormation

accompanying audited nancial

statements that would apply to audits o

brokers and dealers and audits o issuers.

Further action on the Boards proposals

is dependent on the SECs adoption o

the proposed amendments to its rules.

Going Concern. Te PCAOB is

considering possible revisions to theauditing standard on the auditors

evaluation o a companys ability to

continue as a going concern. Among

other things, the PCAOB is consider-

ing how to enhance the auditors

evaluation process and the useulness

o the auditors communication to

investors regarding going concern

uncertainty. he PCAOB also i s

monitoring the activities o the FASB

and IASB in this area. Any new

auditing standard would take into

consideration any relevant changes

to the accounting standards proposed

by the FASB and/or IASB.

Audit ransparencyIdentication o

Other Public Accounting Firms or Persons

Not Employed by the Auditor. On Oct. 11,

2011, the Board proposed amendments

to its standards that would improve the

transparency o public company audits

by requiring that audit reports disclose

the names o other independent public

accounting rms and other persons that

took part in the audit.

Quality Control Standards. Te PCAOB

is developing a concept release to

explore potential improvements to

the existing quality control standards,

including the SEC Practice Section

requirements. Tis project also

includes consideration o potential

improvements to the quality control

standards regarding rm supervisory

responsibilities.

Auditing Accounting Estimates, IncludingFair Value Measurements and Related

Disclosures. Te PCAOB is considering

possible revisions to the auditing

standards on accounting estimates,

including air value measurements and

related disclosures. Tis project is being

inormed by input rom the PCAOB

Pricing Sources ask Force, which has

ocused on the auditing o the air value

o nancial instruments that are not

actively traded and on the use o

third-party pricing sources.

Conrmation. Te Board proposed a

standard July 13, 2010, to update and

expand requirements related toauditors use o conrmationsthe

direct communications between an

auditor and a third party about a

particular item aecting a companys

nancial statements.

Subsequent Events. Te PCAOB is also

evaluating potential improvements to

the auditing standards related to events

or transactions that occur subsequent

to the balance-sheet date.

Standards continued

20 Pcaob | 10 years


25/66

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Pcaob | 10 years 21
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22 Pcaob | 10 years

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22 Pcaob | 10 years


27/66

Te Board uses its investigative

authority to address serious audit

deciencies that pose signicant risks

to investors. Te Board uses its

disciplinary authority to demonstrate

that auditors who run aoul o their

proessional obligations will ace real

consequences. Te Board also takesdisciplinary action against auditors

who threaten the Boards regulatory

processes, such as by ailing to

cooperate in a Board inspection

or investigation.

Te Board issued eight settled disci-

plinary orders in 2012, imposing

sanctions on auditors ranging rom

censures to monetary penalties to bars

on their association with registered

accounting rms. In all, the Boarddisciplined our registered accounting

rms and 11 associated persons in

those proceedings. In all o the settled

proceedings, the rms and the

associated persons neither admitted nor

denied the Boards ndings.

Fiure t Cmpy with PCaoB

Rue nd auditing stndrd

In a settled disciplinary order

announced Feb. 8, 2012, the Board

imposed a $2 million civil monetarypenalty against Ernst & Young

LLPthe largest monetary penalty

imposed by the Board in its rst

10 years o operation. Te Board also

censured the rm and sanctioned our

o its current and ormer partners or

violating PCAOB rules and standards.

Te order related to three Ernst &

Young audits o Medicis Pharmaceutical

Corp. and a consultation stemming

rom an internal Ernst & Young audit

quality review o one o the audits.

In the audits o Mediciss Dec. 31, 2005,

2006 and 2007 nancial statements,the Board ound that Ernst & Young

and its partners ailed to properly

evaluate the companys sales returns

reserve, a material component o the

companys nancial statements.

During a 2008 inspection o Ernst &

Youngs audits o Medicis, PCAOB

sta questioned the rms acceptance

o the companys accounting or its

sales returns reserve. Ernst & Youngultimately concluded that Mediciss

reserving or its sales returns was not in

conormity with U.S generally accepted

accounting principles. Te company

corrected its accounting or its sales

returns reserve and led restated

nancial statements with the Securities

and Exchange Commission as a result.

Te Board also ound that, in auditing

the companys Dec. 31, 2005, nancialstatements, Ernst & Young and its

responsible partners violated PCAOB

standards by accepting the companys

basis or reserving at replacement cost

when the auditors knew, or should have

known, that it was not supported by

the audit evidence.

Te Board urther ound that two

months later, during an internal audit

quality review o the Dec. 31, 2005,

audit, Ernst & Young personnel not

associated with the audit identied the

rationale as conficting with both

GAAP and Ernst & Youngs internal

accounting guidance. Rather thanappropriately addressing this material

departure rom GAAP, Ernst & Young

and its personnel decided that another

fawed accounting rationale supported

the companys existing practice o

reserving or most o its product

returns at replacement cost.

Te Board also ound that Ernst &

Young and its responsible partners

violated PCAOB standards in auditing

the companys new methodology or

calculating its year-end product returns

reserve estimates or 2006 and 2007.

Te Board ound that they ailed to

suciently audit key assumptions and

placed undue reliance on managements

representation that those assumptions

were reasonable.

In addition to the censure and ne o

Ernst & Young, the Board barred Ernst

& Young partner Jerey S. Andersonrom associating with a PCAOB-

registered accounting rm, with the

right to petition to remove the bar ater

two years, and imposed a $50,000 civil

monetary penalty against him. Anderson

was the lead partner or the Dec. 31,

2005, and 2007 audits.

Enorcement

Pcaob | 10 years 23
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28/66

Enorcement continued

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public accounting rms and persons associated with such

rms. The Act also directed the Board to establish, by rule,f p f p f

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Te Board barred ormer Ernst &

Young partner Robert H. Tibaultrom associating with a PCAOB-

registered accounting rm, with the


one year, and imposed a $25,000 civil

monetary penalty against him. Tibault

was the independent review partner or

the Dec. 31, 2005, and 2006 audits.

Te Board censured Ernst & Young

partner Ronald Butler Jr., and imposed

a $25,000 civil monetary penalty againsthim. Butler was the second partner,

supervised by Anderson, on the Dec. 31,

2005, audit, and he led the Dec. 31,

2006, audit. Te Board also censured

Ernst & Young partner Tomas A.

Christie, who was the second partner,

supervised by Anderson, on the Dec. 31,

2007, audit.

Fiure t Cmpy with PCaoB

Rue, auditing stndrd ndQuity Cntr stndrd

In three settled cases announced Sept. 7,

2012, the Board took disciplinary

action against Jewett, Schwartz,

Wole & Associates, P.L., based in

Hollywood, Fla., and the rms two

partners who perormed audits o

public companies.

Te Board ound that Jewett,

Schwartz, Wole & Associates violated

PCAOB rules, quality control stan-dards and auditing standards in

connection with the audits o our

public companies. Te Board ound

that the rm ailed to establish,

implement and communicate quality

control policies and procedures

sucient to provide the rm with

reasonable assurance that the work

perormed by engagement personnel

met applicable proessional standards.

Te Board also ound that the quality

control violations resulted in or

contributed to numerous and repeated

violations o PCAOB auditing standards

in connection with the audits. In

addition, the Board ound that Jewett,

Schwartz, Wole & Associates, P.L.

violated PCAOB rules by ailing to pay

its annual ee to the Board in 2011.

Based on its ndings and in responseto an oer o settlement rom Jewett,

Schwartz, Wole & Associates, the

Board censured the rm and revoked

its registration, with the right to

reapply or registration ater ve years.

In a related case, the Board ound that

Lawrence H. Wole, the partner o

24 Pcaob | 10 years
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J a (f) r h, d f

ef i, j Pcaob 2003.

Jewett, Schwartz, Wole & Associates

who was responsible or the our audits,violated PCAOB rules and auditing

standards; violated the anti-raud

provision o the ederal securities laws

in connection with one companys

audit; and directly and substantially

contributed to the rms violation o

PCAOB quality control standards.

Based on these ndings and in

response to an oer o settlement rom

Wole, the Board censured Wole and

permanently barred him rom being an

associated person o a registered public

accounting rm.

In a related settled proceeding, the

Board ound that Uma D. Basso, a

partner in Jewett, Schwartz, Wole &

Associates audit practice, violated

PCAOB rules and auditing standards

in connection with the audits o two

public companies or which she servedas audit manager.

Based on these ndings and in

response to an oer o settlement rom

Basso, the Board censured Basso, and

or a period o two years, limited her

activities in connection with audits by

prohibiting her rom serving in the role

o engagement partner or engagement

quality reviewer. In addition, the Board

required Basso to complete 40 addi-

tional hours o continuing proessional

education in subjects that are directly

related to the audits o issuer nancial

statements under PCAOB standards.

Fiure in Cnnectin with audit

Nn-U.s. Cmpnie

Te PCAOBs ocus on audits o

non-U.S. companies advances the

Boards mission to improve audit

quality and protect investors in theglobal marketplace.

In asettled case announced May 22,

2012, the Board ound that Bualo,

N.Y.-based Brock, Schechter &

Polako, LLP violated PCAOB rules,

quality control standards and auditing

standards in connection with the audits

o three China-based and aiwan-based

companies traded in U.S. markets. In a

related case, the Board ound that the

rms ormer director o accounting and

auditing,James R. Waggoner, CPA,

violated PCAOB rules and auditing

standards in connection with the audits

o the companies.

Te Board ound that when Brock,

Schechter & Polako began auditing

the nancial statements o public

Pcaob | 10 years 25
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companies located in aiwan and China,

the rm had no prior experience auditing

public companies pursuant to PCAOB

auditing standards and had no prior

experience auditing companies based in

aiwan or China.

Te Board ound that Brock, Schechter& Polako ailed to comply with

PCAOB quality control standards

because the rm had not developed

policies and procedures sucient to

provide it with reasonable assurance

that the rm undertook only those

public company audit engagements

that it reasonably could expect to

complete with proessional competence.

In addition, the Board ound that

Brock, Schechter & Polako ailedto comply with PCAOB auditing

standards related to the planning,

perormance and supervision o the

audits. Te Board also ound that the

rm ailed to gather sucient compe-

tent evidential matter and ailed to use

due care and exercise proessional

skepticism in the course o the audits.

Based on these ndings and in response

to an oer o settlement rom Brock,

Schechter & Polako, the Board

censured and revoked the rms

registration, with the right to reapply

or registration ater two years, and

imposed a $20,000 civil monetary

penalty against the rm.

Te Board ound that Waggoner, at the

time he had nal responsibility or the

audits, ailed to properly supervise and

review the work o two audit rms,

one located in aiwan and one located

in China, responsible or planning

and perorming the audits o the

non-U.S. companies.

Te Board also ound that Waggonerimproperly created, added and altered

audit working papers ater the

relevant documentation completion

dates or two audits shortly beore a

PCAOB inspection.


to an oer o settlement rom Waggoner,

the Board censured and barred him

rom associating with a PCAOB-

registered accounting rm with the


three years.

In asettled disciplinary order announced

Sept. 7, 2012, the Board imposed

sanctions against Michael . Studer, CPA

and the New York-based rm Michael

. Studer, CPA, P.C. or violating

PCAOB rules, auditing standards and

quality control standards.

Te Board ound that Studer and the

rm ailed to comply with PCAOB

auditing standards in auditing manage-

ments assessment o the eectiveness o

internal control over nancial reporting

and the nancial statements o an

issuer client based in France.

Te Board ound that the rm, at Studers

direction, issued an unqualied audit

report on the clients internal control

over nancial reporting as o Dec. 31,

2008, without sucient basis or the

opinion expressed in the report. Te

rm issued the report despite Studer

and the rms ailure to perorm

required audit procedures including,

among others, identication andtesting o the issuers internal controls.

Te rm concurrently issued an

unqualied audit report (with a going

concern explanatory paragraph) on the

issuers nancial statements as o and

or the year ended Dec. 31, 2008.

In conducting audits o two China-

based issuers, the Board ound that the

rm used assistants based in Canada to

perorm eld work in China and thatthese assistants conducted a signicant

portion o the rms audit procedures.

Te Board also ound that Studer and

the rm ailed to direct the eorts o

these assistants or review the work they

perormed in order to ensure that

the rms audit documentation would

be prepared in accordance with

PCAOB standards.


to an oer o settlement rom Studer andthe rm, the Board censured Studer

and the rm and required the rm to

retain an independent monitor. Te

Board also imposed specic limitations on

the activities, unctions and operations

o Studer and the rm, subject to the

issuance o a certicate o compliance

by the independent monitor.

Enorcement continued

26 Pcaob | 10 years
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Fiure t Cmpy with the Brd

Rue nd Nn-Cpertin with

Brd PrceeTe PCAOB also ocuses on auditors

ailures to comply with the laws and

rules governing the Boards processes,

including ailures to cooperate with

inspections and violations o Board

orders and rules.

On Nov. 13, 2012, the PCAOB

announced settled disciplinary orders

against three auditorso the rm

McGladrey & Pullen, LLP aternding that, shortly beore a PCAOB

inspection, the three improperly

created, added and altered audit

documentation.

Based on these ndings, the Board

accepted oers o settlement rom

partner Dale A. Hotz, director Jyothi

N. Manohar and ormer manager

Michael J. Fadner. Te Board censured

and barred Hotz rom associating witha PCAOB-registered accounting rm

with the right to petition to remove the

bar ater two years. Te Board censured

and suspended Manohar rom being an

associated person o a registered public

accounting rm or a period o one

year. Te Board censured Fadner.

adjudicted Dicipinry

order nd opinin

Under the Sarbanes-Oxley Act, anyperson sanctioned by the Board may

seek review by the SEC in accordance

with SEC rules, and any such application

or review operates as a stay o the

sanction. Te Sarbanes-Oxley Act

prohibits the Board rom reporting the

sanction to the public unless and until

the SEC lits the stay o the sanction.

Because o the stay, the Board does not

publish Board orders and opinions

beore the SEC review has occurred orthe opportunity to seek SEC review has

passed. In addition, because o the stay,

the eective date o the sanctions

imposed by the Board is dierent rom

the date o the Board action imposing

the sanctions.

On Jan. 10, 2012, the SEC sustained

the Boards nal decision and order o

Oct. 6, 2010, imposing sanctions

against exas-based R.E. Bassie & Co.

and R. Everett Bassie ater nding that

Bassie and his rm had engaged in

conduct constituting noncooperation

with an investigation.

A PCAOB hearing ocer had previ-

ously issued a decision permanently

revoking the rms registration with

the Board and permanently barring

How Investigations Begin

Te PCAOB enorcement staf conducts inormal inquiriesas well as ormal investigations that arise rom severalsources including:

PCAOB inspections o registered rms

PCAOB research and analysis

Other regulators, including the Securities and Exchange Commission

Public disclosures o restatements and auditor changes

News reports

Condential tips provided to 800-741-3158 or [email protected]

Pcaob | 10 years 27
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AdministrationTe PCAOB endeavors to use its

resources responsibly to protect

investors and serve the public interest.

Te PCAOB maintains this eort

through its daily operations.

Te Sarbanes-Oxley Act o 2002

established the PCAOB as a nonprot,non-governmental organization. As a

result, the PCAOB does not receive

ederal appropriations or its operations.

Under the provisions o the Sarbanes-

Oxley Act and the Dodd-Frank Act,

the PCAOB is primarily unded by

ees collected rom public companies,

mutual unds and brokers and dealers

registered with the Securities and

Exchange Commission.

In light o its accountability to the SEC

and the public, the PCAOB devotes

resources to analyzing the impacts o

its standards and rules; maintaining

and assessing the eectiveness o its

internal control over nancial reporting;

and monitoring its operations through

its Oce o Internal Oversight and

Perormance Assurance.

sEC overight

Te Sarbanes-Oxley Act gives the SEC

oversight authority over the PCAOB.

Te SEC is responsible or appointing

and removing Board members. On

Feb. 3, 2012, the SEC announced the

appointment o Jeanette M. Franzel

to succeed Board member Daniel L.

Goelzer, whose term had expired.

Board member Franzel began her term

March 5, 2012.

Te PCAOB is subject to rules and

orders promulgated by the SEC.

PCAOB rules, including its auditing

and related proessional practice

standards, are not eective unless

approved by the SEC. In addition,

adverse PCAOB inspection reports,

remediation determinations and

disciplinary actions against registered

rms and their associated persons are

subject to review by the SEC. Te SEC

also is responsible or approving the

PCAOBs annual budget and accounting

support ee.

Budget nd Funding

Te PCAOBs budget or 2012, as

approved by the Board Nov. 30, 2011,

was $227.7 million. Each year, the

PCAOBs budget-setting process is

subject to SEC oversight, including

review, comment and approval. Te

SEC approved the budget and

accounting support ee Jan. 11, 2012.

Te 2012 budget was 11.4 percent

above the PCAOBs 2011 budget,

largely attributable to stang and

associated expenses, such as travel, or

inspections. Te additional resources

accommodated an increase in the

number o non-U.S. inspections, while

maintaining the scope and pace o

U.S.-based inspections and imple-

menting the oversight o the audits o


On Nov. 28, 2012, the Board approved

abudget o approximately $245.6 million

or 2013 along with astrategic plan or

20122016, which reairmed and

updated the plan adopted Nov. 30,2011. he strategic plan guides the

PCAOBs operations and programs, as

well as development o its budget and

its initiatives to enhance the relevance,

credibility and transparency o the

audit to better serve investors. Te

Chairmans message accompanying

the strategic plan sets orth the Boards

near-term priorities including improving

the timeliness, content and readability

o inspection reports, the timeliness oremediation determinations, a project

to identiy audit quality measures and

enhancing PCAOBs outreach to and

interaction with audit committees.

Under the Sarbanes-Oxley Act, as

amended by the Dodd-Frank Act, the

PCAOB budget provides the oundation

or the assessment o an accounting

support ee paid by public companies

and mutual unds, together reerred

to as issuers as well as SEC-registered brokers and dealers.

Te Boards unding rules are based

on two principles: that the issuer and

broker-dealer accounting support ees

must be allocated in a manner that

refects the proportionate sizes o

issuers, brokers and dealers, and those

Pcaob | 10 years 29
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ees must be allocated in an equitable

manner. Te principles are based on

the premise that the size o an entity

may serve as an indication o the

complexity o an audit, which could be

an equitable measure on which to base

the allocation o the ee.

Te total accounting support ee or

2012 was approximately $215 million,

with $196.8 million allocated to

issuers and $18.2 million allocated to


Issuer accunting Supprt Fee

Te issuer accounting support ee is

allocated annually to public companies

and mutual unds based on their

relative average, monthly U.S. equity

market capitalization during the

preceding calendar year.

Te allocation o the 2012 issuer

accounting support ee was based on

amendments to the PCAOBs unding

rules that were approved by the Board

in 2011. Te amendments increasedthe average, monthly market capital-

ization thresholds or entities eligible

to be assessed a portion o the ee and

resulted in a large reduction in the

number o smaller public companies

and mutual unds being assessed a

portion o the issuer accounting

support ee in 2012. Te amendments

also revised the basis or calculating an

issuers market capitalization to

include the market capitalization o all

classes o an issuers voting and

non-voting common equity rather

than just its common stock.

In 2012, public companies with an

average, monthly market capitalization

greater than $75 million during the

preceding calendar year and mutualunds with an average monthly market

capitalization, or net asset value,

greater than $500 million during the

preceding calendar year were invoiced

a proportionate share o the accounting

support ee. In 2012, public companies

were assessed approximately 93.3

percent o the total issuer accounting

support ee, and mutual unds were

assessed the remaining 6.7 percent,

similar to the allocations in 2011.

Administration continued

Issuer Accounting Support Fee

ISSUER FEE RaNGES

NUMBER oF ISSUERS

2012 2011*

$100500 191 2,138

$5011,000 1,481 1,752

$1,0015,000 3,037 3,054

$5,00110,000 922 900

$10,00150,000 1,331 1,321

$50,001100,000 279 279

$100,001500,000 329 285

$500,0011,000,000 31 30

$1,000,001+ 26 25

ToTal 7,627 9,784

* Fees in 2011 were allocated among equity issuers with an average, monthly market capitalization greater than $25 million and investment company issuers with an average,

monthly market capitalization, or net asset value, greater than $250 million. Te equity issuer and investment company thresholds were raised or the 2012 allocations to

$75 million and $500 million, respectively.

30 Pcaob | 10 years


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Te PCAOB invoiced 7,627 issuers in

2012, compared to 9,784 issuers in

2011. Te reduction in the number o

issuers invoiced was mainly due to the

increased threshold or the average,

monthly market capitalization used to

allocate the issuer accounting support

ee. Approximately 21.9 percent o the

issuers billed received invoices or

$1,000 or less.

BrerDeer accunting Supprt Fee

Te PCAOB invoiced 687 brokers and

dealers approximately $18.2 million in

2012, compared to 681 brokers and

dealers that received invoices totaling

$14.4 million in 2011, the rst year

they were required to pay a portion o

the broker-dealer accounting support

ee. In 2012, approximately 33.2 percent

o the brokers and dealers billed

received invoices or $1,000 or less,

and the largest 100 invoice amounts

comprised approximately 91.4 percent

o the total ee.

As authorized by the Dodd-Frank Act,

the broker-dealer accounting support

ee was allocated to brokers and dealers

with an average quarterly tentative net

capital greater than $5 million during

the preceding calendar year.

Registrtin nd annu Fees

frm accunting Firms

Te Sarbanes-Oxley Act directs

the PCAOB to assess and collect a

registration ee and an annual ee rom

each registered public accounting rm,

in amounts that are sucient to

recover the costs o processing and

reviewing applications and

annual reports.

In 2012, the PCAOB assessed annual

ees totaling approximately $1.65 million

to 2,366 registered accounting rms

based on the rms headcount and the

number o issuer audit clients.

In 2012, the PCAOB collected

approximately $54,000 in registration

application ees rom 108 rms,

compared to $71,000 in registration

ees collected rom 143 rms in 2011.

Broker-Dealer Accounting Support Fee

BRokER-DEalER FEE RaNGES

NUMBER oF BRokERS aND DEalERS

2012 2011

$100-500 74 100

$501-1,000 154 159

$1,001-5,000 263 250

$5,001-10,000 69 65

$10,001-50,000 81 65

$50,001-100,000 12 17

$100,001-500,000 24 16

$500,001-1,000,000 5 6

$1,000,001+ 5 3

ToTal 687 681

Pcaob | 10 years 31


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Annual Fees rom Accounting Firms

FEE aMoUNT

NUMBER oF aCCoUNTING FIRMS

2012 2011

$100,000 4 4

$25,000 3 3

$500 2,359 2,399

ToTal 2,366 2,406

stfng

In 2012, the PCAOBs sta grew

by a net increase o 76, including

64 sta in registration and inspections,

ending the year with 766 sta. More

than 60 percent o PCAOB sta work

in registration and inspections in

Washington and in 14 regional and

satellite oces, which allow or certain

savings in travel, relocation and realestate expenses.

Inrmtin Techngy

Under an enhanced I governance

ramework, the PCAOB established an

I governance program, drated and