I support adopting temporary rules relating to the interim inspection program for SEC registered non-public broker-dealers.
Although the Sarbanes-Oxley Act in 2002 authorized and directed the Board to register auditors of SEC registered non-public broker-dealers, the Act did not give the PCAOB authority to inspect, set standards or engage in investigation and enforcement actions with respect to these entities. Last July, the Dodd-Frank Act extended this important authority to the PCAOB and charged the Board with setting standards for inspecting, and, if necessary, sanctioning accounting firms that audit SEC registered non-public brokers and dealers. Notably, the Dodd-Frank amendments did not prescribe a specific program of inspection of registered public accounting firms. Rather, the Dodd-Frank amendments authorized the Board to determine the specific elements of an inspection program.
The rules the Board is adopting today relating to the interim inspection program is the first step in the Board's process of creating a program specifically focused on inspecting auditors of SEC registered non-public broker-dealers.
I believe that the Board is taking a very thoughtful approach by starting with an interim inspection program to learn more about how auditors conduct audits of different types of brokers and dealers, including clearing and introducing brokers and dealers. As Michael Stevenson stated, the interim inspection program will allow the Board to assess registered public accounting firms' current compliance with laws, rules, and standards as they perform audits of brokers and dealers. It also will inform the Board's decisions about significant elements of a permanent inspection program, including whether to differentiate among classes of brokers and dealers, whether to exempt any categories of public accounting firms, and what minimum inspection frequency schedules to establish.
When the Board began its operations in 2003, the Board conducted limited inspections of the Big 4 accounting firms. The limited inspections provided invaluable information to the Board as the Board determined how to set up the permanent inspection program for registered public accounting firms that audit public companies.
The adoption of the temporary rules relating to the interim inspection program for auditors of SEC registered non-public broker dealers will provide the Board will a similar opportunity to develop an inspection program that is best suited for its oversight of auditors who audit non-public brokers and dealers.
We plan to take a careful and informed approach in establishing a permanent program that appropriately protects the public interest and the interests of investors, and we intend to look carefully at the potential costs and regulatory burdens that would be imposed on different categories of registered public accounting firms and classes of brokers and dealers. The goal is to thoughtfully and carefully analyze the information that will be gathered during the interim inspection program and to use that information to inform the Board's thinking regarding how to structure the permanent inspection program, including whether to differentiate between different classes of brokers and dealers, whether to exempt certain auditors of non-public brokers and dealers, and how frequently the auditors should be inspected.
Many of the commenters on the proposal were concerned about the inclusive scope of the interim program. I would like to note that the inclusive scope should not be construed as either foreshadowing the likely scope of a permanent program or suggesting that every broker or dealer auditor will be inspected as part of the interim program. My expectation is that we will be able to gather the necessary information to inform our consideration of a permanent inspection program without having to inspect most firms during the interim program. I believe that my fellow Board members and I will carefully consider whether there should be exemptions from the permanent program. For example, we plan to give careful consideration to whether a broker's or dealer's meaningful access to client assets is a relevant factor in determining the investor protection and public interest benefits of PCAOB oversight of the auditor of that broker or dealer. I look forward to the information that will be gathered during the interim inspection program to inform our thinking regarding how to structure the permanent inspection program of auditors that audit SEC registered non-public brokers and dealers.
As I conclude my remarks, I would like to thank the organizations and individuals who took the time to comment on the Board's proposal. Your insightful comments were of great assistance to the Board in finalizing the temporary rules. I also would like to thank Michael Stevenson and Jennifer Williams from our Office of General Counsel who worked on this project and presented the finalized temporary inspection rules for the Board's consideration today.
I support the adoption of the final rules and amending the existing PCAOB funding rules relating to the equitable allocation of the accounting support fee among issuers and SEC registered non-public broker-dealers.
The final rules provide for an equitable allocation and assessment among brokers and dealers of an appropriate portion of the accounting support fee established under the Sarbanes-Oxley Act, and as amended by the Dodd-Frank Act. Specifically, the final rules allocate a portion of the accounting support fee among brokers and dealers, establish classes of brokers and dealers for funding purposes, describe the methods for allocating the appropriate portion of the accounting support fee to each broker and dealer within each class, and address the collection of the assessed share of the broker-dealer accounting support fee from brokers and dealers.
For funding purposes, one of the most important aspects of the final rules is the establishment of different classes of brokers and dealers. These classes allow the Board to allocate the broker-dealer accounting support fee to those brokers and dealers whose audits, due to their relative size and complexity, may require more Board time and resources during an inspection than other audits of brokers and dealers with relatively small and less complex operations. Specifically, the accounting support fee will only be allocated among brokers and dealers with average, quarterly tentative net capital of greater than $5 million. During the proposal process, the Office of Administration and Office of General Counsel staff researched and analyzed the net capital of brokers and dealers. The staff's thoughtful analysis resulted in the Board proposing that brokers and dealers with average, quarterly tentative net capital of less than or equal to $5 million should not be assessed an accounting support fee. The commenters supported the proposed allocation and the rules are being adopted today as proposed.
The final rules also amend the Board's existing rules for the allocation, assessment, and collection of the issuer accounting support fee. Specifically, the amendments include changing to the definition of issuer market capitalization and changing the descriptions of the existing classes of issuers, among others.
As I conclude my remarks, I would like to thank the organizations and individuals who took the time to comment on the Board's proposal. I also would like to thank Bob Burns, Nina Mojiri-Azad, and Annie Braswell for researching, analyzing and proposing a well balanced approach relating to allocating the accounting support fee among issuers, brokers, and dealers.