Chamber of Commerce Seeks Additional Information on PCAOB’s Related Parties Standard
Citing lack of analysis in the Public Company Accounting Oversight Board’s (“PCAOB”) related parties standard concerning the financial impact on emerging growth companies and their auditors, the U.S. Chamber of Commerce (“the Chamber”) has asked the U.S. Securities and Exchange Commission (“SEC”) to send Release No. 2014-002, Auditing Standard (AS) No. 18—Related Parties, back to the PCAOB for additional details. In a comment letter to the SEC on July 28th, the Chamber’s sentiments reflect their belief that the PCAOB hasn’t been thorough in assessing the standard’s costs on emerging growth companies.
Issued in June and awaiting SEC approval, AS 18 reinforces auditor requirements for reviewing corporate officers and directors’ business deals for conflicts of interest. Per the JOBS Act, the SEC can decide whether the standard applies to emerging growth companies, and has been advised by the PCAOB to require such businesses to comply with its standard. As the law currently stands, emerging growth companies are exempt from several SEC reporting requirements until they’re public for five years, hit $1 billion in sales, obtain a stock market value over $700 million or distribute more than $1 billion in debt. According to the Chamber, however, AS 18 does not meet such thresholds.
Further, the Chamber stated that the PCAOB’s initial proposal in 2012, Release No. 2012-001, Proposed Amendments to Certain PCAOB Auditing Standards Regarding Significant Unusual Transactions, did not offer an analysis for small companies. In response to the revised proposal issued last year, the Chamber said the audit regulator’s economic analysis for small companies was flawed, did not offer cost information and increased the complexity of audits. Also in its letter, the Chamber voiced displeasure over the PCAOB’s claim that it hasn’t received any comment letters suggesting AS 18 shouldn’t apply to audits of emerging growth companies.
Pertaining to the comment letter, the SEC and PCAOB have declined to comment. In the meantime, the SEC published AS 18 as Release No. 34-72643, Notice of Filing of Proposed Rules Relating to Auditing Standard No. 18, Related Parties, Amendments to Certain PCAOB Auditing Standards Regarding Significant Unusual Transactions, and Other Amendments to PCAOB Auditing Standards, for seeking comments before deciding whether or not to approve AS 18. The deadline for the comment period will be established once Release No. 34-72643 is published in the Federal Register.
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