Additional aspects of Sarbanes-Oxley Act explained.

• Author: Miller, Rich
• Position: News update

Last month's CPA Letter highlighted some of the more significant and better known provisions of the Sarbanes-Oxley Act of 2002. In response to member inquiries, this follow-up article briefly describes some additional provisions that have important ramifications, especially for public accounting firms auditing public companies.

Registration Process

After the new Public Company Accounting Oversight Board established by the Act is "certified" (that is, the Securities and Exchange Commission declares the PCAOB operational and able to carry out its responsibilities), which must occur no later than the end of Apr. 2003, public accounting firms will have 180 days to register with the board. Most of the provisions affecting practitioners will be effective upon the firm becoming registered.

The board has 45 days to act upon any application, and audit services cannot be performed for a public company after the 180-day period. Therefore, firms are cautioned to allow sufficient time to get registered--up to 135 days (180-45).

Who needs to register? Accounting firms that "prepare or issue" or "participate" in the preparation of an audit report for an "issuer" must sign up with the board. The term "issuer" is defined in the Act and is a key factor in determining whether registration is required. But the definition still leaves many unanswered questions that need to be addressed before the full breadth of the Act is known. Likewise, it is unclear what is meant by the word "participate" in the preparation of an audit report for an issuer. This, too, will have to await rulemaking to clarify what firms need to register.

Filing the registration is significant because it includes consent by the firm to cooperate with the board in requests for documents and testimony and an agreement to obtain similar consents from each person providing any audit services to issuers. It also requires similar consents and agreements for foreign firms. Finally, firms are required to update this information at least annually.

Funding

The only fees firms pay to the board are for the cost of processing and reviewing the applications and annual reports. The board will get its major funding from issuers in proportion to their equity market capitalization.

Non-Audit Services

Most of the non-audit services that the Act says cannot be performed by audit firms for their public company clients were already prohibited by the SEC's auditor independence rules. New to the list of banned...