Category: PCAOB Auditing

PCAOB Auditing: On October 21, 2014, the SEC approved amendments to certain auditing standards that impact small cap companies that maintain GAAP compliant audits and file reports with the SEC under the Securities Exchange Act of 1934 (“Exchange Act”). The SEC Order approved proposed rule changes that had been submitted to by the Public Company Accounting Oversight Board (the “PCAOB”) regarding the auditing standards for related party transactions and the standards regarding significant unusual transactions…

Jul112017

SEC Chief Accountant Speaks On Financial Reporting

Nominate Us For ABA Journal’s Top Blog- HERE

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On June 8, 2017, the SEC Chief Accountant, Wesley R. Bricker, gave a speech before the 36th Annual SEC and Financial Reporting Institute Conference. The speech, which this blog summarizes, was titled “Advancing the Role of Credible Financial Reporting in the Capital Markets.” As usual, I’ve included commentary throughout.

Introduction and Role of the PCAOB

The speech begins with some general background comments and a discussion of the role of the PCAOB. Approximately half of Americans invest in the U.S. equity markets, either directly or through mutual funds and employer-sponsored retirement plans. The ability to judge the opportunities and risks and make investment choices depends on the quality of information available to the public and importantly, the quality of the accounting and auditing information. Mr. Bricker notes that “[T]he credibility of financial statements have a direct effect on a company’s cost of capital, which is reflected in the price that

Mar212017

SEC Completes Inflation Adjustment To Civil Penalties

ABA Journal’s 10th Annual Blawg 100

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The SEC has completed the first annual adjustment for inflation of the maximum civil monetary penalties administered under the SEC. The inflation adjustment was mandated by the Federal Civil Penalties Inflation Adjustment Improvements Act of 2015, which requires all federal agencies to make an annual adjustment to civil penalties.

The SEC adjusted civil penalties that can be imposed under the Securities Act of 1933, Securities Exchange Act of 1934, Investment Company Act of 1040, Investment Advisors Act of 1940 and Sarbanes-Oxley Act of 2002. Under the Sarbanes-Oxley Act of 2002 civil penalties are those imposed by the PCAOB in disciplinary proceedings against its accountant members.

The penalty increase applies to civil monetary penalties (“CMP”). A CMP is defined as “any penalty, fine, or other sanction that: (1) is for a specific amount, or has the maximum amount, as provided by federal law; and (2) is assessed or enforced by an agency in an

Nov112014

PCAOB Amends Auditing Standards For Related-Party And Significant, Unusual Transactions

ABA Journal’s 10th Annual Blawg 100

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 On October 21, 2014, the SEC approved amendments to certain auditing standards that impact small cap companies that maintain GAAP compliant audits and file reports with the SEC under the Securities Exchange Act of 1934 (“Exchange Act”).  The SEC Order approved proposed rule changes that had been submitted to by the Public Company Accounting Oversight Board (the “PCAOB”) regarding the auditing standards for related party transactions and the standards regarding significant unusual transactions. 

The amended rules apply to all SEC audits including those for broker-dealers and go into effect for the audits for fiscal year ends beginning on or after December 15, 2014.

Related Party Transactions

The SEC has approved new Auditing Standard No. 18 (AU No. 18) setting forth guidance and procedures for auditors to use in identifying and evaluating related party transactions.  AU No. 18 is intended to strengthen requirements for identifying, assessing and responding to the risks of material misstatement

Mar252014

The NASDAQ Private Market

On Wednesday, March 6, 2013, NASDAQ surprised the small-cap and investment community when it announced it is acquiring Sharepost’s private company market place (PCMP) exchange and rebranding it.  On March 5, 2014, NASDAQ officially launched the NASDAQ Private Market (“NPM”) a new marketplace for private companies.  A PCMP is a trading platform, such as SharePost or SecondMarket, that provides a marketplace for illiquid restricted securities, such as private company securities, 144 stock, debt instruments, warrants, and the like or alternative assets.  It is on a PCMP that pre-IPO Facebook, Groupon and LinkedIn received their trading start.

The official NASDAQ press release announcing the launch of the NPM states that the NPM will “provide qualifying private companies the tools and resources to efficiently

Jan142014

Proposed Crowdfunding Rules – Part IV

As required by Title III of the JOBS Act, on October 23, 2013, the SEC published proposed crowdfunding rules.  The SEC has dubbed the new rules “Regulation Crowdfunding.” The entire text of the rule release is available on the SEC website.  In a series of blogs, I am summarizing the lengthy rule release.  This Part IV of my series continues a discussion of the in-depth disclosure requirements for Issuers for use in their offering statements.  In particular, Parts II and III addressed the Issuer disclosure requirements, other than financial disclosures.  This Part IV in the series discusses Issuer financial disclosure obligations.

Summary Breakdown of Proposed New Rules – Requirements on Issuers

Disclosure Requirements

Pursuant to the CROWDFUND Act as set forth

Nov142012

COMPREHENSIVE REVIEW OF TITLE I OF THE JOBS ACT AS RELATED TO EMERGING GROWTH COMPANIES

On April 5, 2012, President Obama signed the Jumpstart our Business Startups Act (JOBS Act) into law.  The JOBS Act was passed on a bipartisan basis by overwhelming majorities in the House and Senate.  The Act seeks to remove impediments to raising capital for emerging growth public companies by relaxing disclosure, governance and accounting requirements, easing the restrictions on analyst communications and analyst participation in the public offering process, and permitting companies to “test the waters” for public offerings.   The following is an in-depth review of Title I of the JOBS Act related to Emerging Growth Companies.

Introduction – What is an Emerging Growth Company?

The JOBS Act created a new category of company: an “Emerging Growth Company” (EGC).  An EGC is defined as a company with annual gross revenues of less than $1 billion that first sells equity in a registered offering after December 8, 2011.  In addition, an EGC loses its EGC status on the earlier

May212011

Public Company Compliance – Selecting An Auditor

The Sarbanes Oxley Act of 2002 (SOX) created the PCAOB, which is the Public Company Accounting Oversight Board. All public company auditors must be PCAOB licensed and qualified. Prior to the enactment of SOX, the profession was self regulated and any CPA could audit a public company. On its website, the PCAOB describes itself as “[T]he PCAOB is a nonprofit corporation established by Congress to oversee the audits of public companies in order to protect investors and the public interest by promoting informative, accurate, and independent audit reports. The PCAOB also oversees the audits of broker-dealers, including compliance reports filed pursuant to federal securities laws, to promote investor protection.”

Not All PCAOB Auditors are Created Equal

Licensing and membership with the PCAOB has stringent requirements. In fact, shortly after the enactment of SOX the number of accounting firms that provide public company services declined dramatically. Being held to a higher standard isn’t for everyone. However, as time has passed, even

Oct152009

Analysis of Section 404(b) of the Sarbanes-Oxley Act of 2002 for Non-Accelerated Filers

On October 13, 2009, the Securities and Exchange Commission (SEC) officially extended the date for non-accelerated filers to comply with Section 404(b) of the Sarbanes-Oxley Act of 2002 (SOX) until their fiscal years ending on or after June 15, 2010. Since the adoption of the rules implementing Section 404(b) on June 5, 2003, the time period for compliance by non-accelerated filers has been extended several times. It is widely believed that this extension, for six additional months, will be the last. Companies other than non-accelerated filers are already subject to Section 404 compliance. Although “non-accelerated” filers are not specifically defined, such filers include small business entities.

Among other things, Section 404(b) of SOX requires companies to include in their annual reports filed with the SEC, an accompanying auditor’s attestation report, on the effectiveness of the Company’s internal control over financial reporting. In other words, reporting companies must employ their auditor to audit and attest upon their financial internal control process,

Oct012009

Reverse Mergers Hinge on Due Diligence and Cleaning Up Public Shells

When a publicly traded company “goes dark” and becomes delinquent in its filing requirements, it generally becomes a public shell and is no longer quoted on the Over the Counter Bulletin Board Exchange (OTCBB). However, with the assistance of an experienced securities attorney, the shell company can be restored so that a merger candidate can be introduced.

Some of the specific details that constitute the clean-up process include:

  • Reinstating the Company’s corporate charter and paying franchise taxes to the Company’s state of domicile, if necessary
  • Working with a PCOAB (Public Company Oversight Accounting Board) auditor to update all necessary financial statements and audits
  • Holding a shareholder meeting for purposes of electing directors and amending articles of incorporation and bylaws as necessary
  • Updating the Company’s articles of incorporation and bylaws to ensure they suit the needs of the successor Company
  • Conducting reverse splits of the Company’s outstanding shares of common stock in order to decrease the size of the outstanding common
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