PCAOB Rule Change Creates Procedure to Revoke Delinquent Firms' Registrations

Registered audit firms that don’t file annual reports with the Public Company Accounting Oversight Board (PCAOB) and have neglected to pay their required annual fees for two consecutive years could be stripped of their registrations under a new rule amendment approved by the U.S. audit regulator on Nov. 14.

The amendment establishes a new procedural mechanism that will enable the board to address situations in which a registered firm has ceased to exist, is nonoperational, or no longer wishes to remain registered, as demonstrated by its failures to file annual reports via PCAOB Form 2, Annual Report, and pay its annual dues for at least two consecutive reporting years.

As of Aug. 31, 2024, 80 registered firms haven’t filed annual reports and haven’t paid annual fees for both the 2022 and 2023 reporting years, according to the PCAOB.

In its rule amendment, the PCAOB says:

To be clear, the 80 registered firms in question were not merely late in filing their annual reports and paying their annual fees by the respective due dates. These firms have not filed annual reports and have not paid annual fees at all for both the 2022 and 2023 reporting years. It is possible that many of these firms either may no longer exist or may not understand that they remain registered with the PCAOB, given their consecutive failures to file annual reports and pay annual fees. The staff believes that these firms include, for example, sole proprietorships that remain registered even though the sole proprietor has died; firms that registered with the Board years ago but now appear to be defunct; and small firms, often in foreign countries, that cannot be reached through the primary contact person designated by the firm. Additionally, the staff believes that none of these 80 firms has recently issued an audit report for an issuer. For 79 of these firms, there is no indication that they have recently played a substantial role in issuer audits. This suggests that, with respect to the vast majority of consecutively delinquent firms—79 of the 80 identified firms—there is no indication of recent engagement in services requiring PCAOB registration.

Under the new provision to the existing rule, the “constructive withdrawal request” mechanism would permit the PCAOB, under specified conditions, to:

Treat a PCAOB-registered firm’s failures both to file annual reports with the PCAOB and to pay annual fees to the PCAOB for at least two consecutive reporting years as a constructive request for leave to withdraw from PCAOB registration; and
Deem the firm’s registration withdrawn.

Erica Williams

“The amendment adopted today will not only make registration information more useful for investors, audit committees, and other stakeholders, it will also improve the efficiency and effectiveness of our organization,” PCAOB Chair Erica Williams said in a statement last Thursday.

Pending approval by the Securities and Exchange Commission, the amended rule will take effect initially for annual reports and annual fees that are due in 2025, meaning that a registered firm that doesn’t file an annual report and doesn’t pay an annual fee for both the 2025 and 2026 reporting years could have their registration revoked beginning in fall 2026.

Firms facing a withdrawn registration will receive written notice and have 60 days to respond, the PCAOB said.