to investors in other companies.\104\ In addition, by clarifying and
strengthening the auditor's responsibilities, including by specifying
additional situations where alternative procedures may be necessary and
providing additional examples of information that indicates that a
confirmation request or response may have been intercepted and altered,
the new standard takes into account past inspection findings by the
Board that auditors did not obtain sufficient appropriate audit
evidence when using confirmation.
---------------------------------------------------------------------------

    \104\ See Yang Bao, Bin Ke, Bin Li, Y. Julia Yu, and Jie Zhang,
Detecting Accounting Fraud in Publicly Traded US Firms Using a
Machine Learning Approach, 58 Journal of Accounting Research 199,
200 (2020).
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    One commenter on the proposing release expressed the view that the
proposed standard would not achieve a significant reduction in
inspection findings or improvements to audit quality because adverse
inspection findings have historically focused on a failure to
appropriately execute existing requirements. As discussed above,
however, the need for this rulemaking is not limited to noncompliance
with the current standard detected through our inspections program, but
also reflects undetected financial reporting frauds and developments in
practice. The Board continues to believe, therefore, that the rule will
achieve its intended benefits, which include increased clarity from the
new standard.
Developments in Practice
    The new standard modernizes existing AS 2310 by accommodating
certain developments in practice,

including the use of electronic communications and intermediaries.
    Specifically, the new standard accommodates changes in how
communications occur between the auditor and confirming parties. It
clarifies the auditor's responsibilities by taking into account current
confirmation practices among auditors and acknowledging differing
methods of confirmation. These methods include longstanding methods,
such as the use of paper-based confirmation requests and responses sent
via postal mail. They also include methods that have become commonplace
since the existing standard was adopted, including confirmation
requests and responses communicated via email and the use of
intermediaries to facilitate the direct electronic transmission of
confirmation requests and responses. This additional clarity may
enhance the reliability of audit evidence by decreasing the risk that a
confirmation request or response is intercepted and altered. In
addition, the new standard includes requirements specific to an
intermediary's controls that mitigate the risk of interception and
alteration. The requirements are expected to standardize the procedures
auditors perform to support their use of intermediaries and reduce
audit deficiencies in this area.
    With regard to both cash and accounts receivable, the new standard
accommodates the potential for future evolution of audit tools by
allowing auditors to directly obtain access to relevant and reliable
audit evidence from knowledgeable external sources other than through
confirmation without the involvement of the company. This change allows
for the use or development of technology-based auditing tools, subject
to the requirement that they provide audit evidence by directly
accessing information maintained by knowledgeable external sources
about the relevant financial statement assertion. Accordingly, this
change could potentially improve the efficiency and effectiveness of
the audit.
    Some commenters on the 2022 Proposal questioned the benefits of the
proposed requirements, arguing that the auditor's inability under the
proposed standard to overcome the presumption to confirm cash and a
high threshold to overcome the presumption to confirm accounts
receivable unduly restricted the ability to use professional judgment
to determine the appropriateness of confirmation procedures. While the
Board agrees that professional judgment plays an important role in the
execution of audit procedures, the Board's experience indicates that it
is also important for investor protection that auditors obtain relevant
and reliable audit evidence for both cash and accounts receivable when
they are significant accounts. With regard to accounts receivable, the
new standard retains the presumption to perform audit procedures to
obtain relevant and reliable evidence through confirmation, or
otherwise by directly accessing information maintained by a
knowledgeable external source, so would not decrease or remove the
auditor's current responsibility. Furthermore, the new standard
includes a provision to address situations when obtaining audit
evidence directly from knowledgeable external sources, whether through
confirmation procedures or other means, would not be feasible to
execute for accounts receivable. Accordingly, the new standard strikes
a balance intended to benefit investors by recognizing the value of
professional judgment generally with respect to the use of confirmation
while ensuring that cash and accounts receivable, when they are
significant accounts, are subject to confirmation or other audit
procedures designed to obtain relevant and reliable audit evidence from
knowledgeable external sources.
Costs
    The Board expects the costs associated with the new standard to be
relatively modest. The PCAOB staff's review of audit firm methodologies
related to the confirmation process indicates that some firms have
already incorporated into practice some of the new requirements. For
example, the methodologies of some GNFs include requirements for
confirmation of cash that are similar to the requirements in the new
standard. Both the GNF and NAF methodologies reviewed generally include
guidance on maintaining control over the confirmation process and the
use of intermediaries to facilitate the electronic transmission of
confirmation requests and responses.
    To the extent that audit firms need to make changes to meet the new
requirements, they may incur certain fixed costs (i.e., costs that are
generally independent of the number of audits performed) to implement
the new standard. These include costs of updating audit methodologies
and tools, and costs to prepare training materials and conduct internal
training. GNFs are likely to update methodologies using internal
resources, whereas NAFs are more likely to purchase updated
methodologies from external vendors. The costs of updating these
methodologies likely depend on the extent to which the new requirements
have already been incorporated in the firms' current methodologies. For
firms that have implemented confirmation procedures like those required
by the new standard, the costs of updating methodologies may be lower
than for firms that currently do not have such procedures. In this
regard, large firms may also benefit from economies of scale. As
mentioned above, one commenter indicated that some larger audit firms
have already established confirmation centers to centrally process the
sending of confirmation requests and receiving of confirmation
responses. For these firms, costs to implement the new standard may be
further diminished as these firms may benefit from lower training costs
and more efficient performance of the enhanced procedures. Smaller
audit firms may not have adequate resources to establish such
confirmation centers and may not recognize similar efficiency gains.
The commenter observed that the establishment of confirmation centers
within audit firms would require significant resources, which smaller
audit firms may not have.
    In addition, audit firms may incur certain engagement-level
variable costs related to implementing the new standard. For example,
the requirement to confirm certain cash balances or otherwise obtain
relevant and reliable audit evidence by directly accessing information
maintained by a knowledgeable external source could impose engagement-
level costs on some auditors if additional procedures need to be
performed. Similarly, limiting the use of negative confirmation
requests to situations where the auditor is also performing other
substantive audit procedures could lead to additional time and effort
by the auditor to perform the other audit procedures.
    The magnitude of the variable costs likely depends on the extent to
which existing practice differs from the new requirements. As discussed
above, the PCAOB staff's review of firm methodologies, which included
the methodologies of certain NAFs, suggests that the new standard
likely will lead to a greater impact on confirmation procedures
performed by smaller firms. Because the new standard generally applies
a risk-based approach (i.e., by providing that the use of confirmation
may be part of the auditor's response to the assessed risks of material
misstatement), the costs of performing the additional procedures are
unlikely to be disproportionate to the benefits.
    To the extent that auditors incur higher costs to implement the new
standard and are able to pass on at least

part of the increased costs through an increase in audit fees,
companies being audited could incur an indirect cost.\105\ Moreover,
confirming parties could incur additional costs from supporting the
confirmation process as a result of the enhanced requirements of the
new standard, although the additional costs are expected to be limited.
One commenter agreed that confirming parties may incur additional costs
as they may have to allocate resources to respond to confirmation
requests. As discussed above, however, confirmation is already commonly
used by audit firms, and the Board therefore does not expect confirming
parties to incur significant additional costs to respond to
confirmation requests as a result of the new standard.
---------------------------------------------------------------------------

    \105\ One commenter stated that the cost of audit would increase
if auditors were required to send confirmations on any and all
information that can be confirmed by external parties. While the
Board notes that the new standard does not require confirmations on
any and all information that can be confirmed, it agrees that
companies being audited can incur indirect costs to the extent that
auditors pass on at least part of the increased costs in terms of
increased audit fees to companies.
---------------------------------------------------------------------------

    Some requirements under the new standard may result in more costs
than others. The following discussion describes the potential costs
associated with specific changes to existing confirmation requirements.
Focus on Obtaining Reliable Audit Evidence From the Confirmation
Process
    The new standard: (1) identifies certain accounts for which the
auditor should perform confirmation procedures or otherwise obtain
relevant and reliable audit evidence by directly accessing information
maintained by a knowledgeable external source, (2) enhances the
requirements for assessing the reliability of confirmation responses,
(3) addresses the performance of alternative procedures when the
auditor is unable to obtain relevant and reliable audit evidence
through confirmation, (4) strengthens requirements regarding the use of
negative confirmation requests, and (5) specifies certain activities in
the confirmation process that should be performed by the auditor and
not by other parties.
    For some firms, the requirement in the new standard to confirm
certain cash balances or otherwise obtain relevant and reliable audit
evidence by directly accessing information maintained by a
knowledgeable external source could be expected to result in the
revision of firm methodologies and the performance of additional audit
procedures. As discussed above, the methodologies of some GNFs already
include requirements for cash confirmation that are similar to the new
requirement described in the new standard. In addition, the risk-based
approach in the new requirement should encourage the auditor to
determine the extent of confirmation with regard to an assessment of
the risks of material misstatement and conduct only the work necessary
to obtain sufficient audit evidence.
    Commenters on the 2022 Proposal asserted that confirming cash
balances under the proposed standard would lead to increased costs,
given the lack of discretion and ability to overcome the presumption in
the proposed standard. In addition, some commenters on the 2022
Proposal asserted that the ``at least as persuasive as'' threshold in
the proposed standard for overcoming the presumption to confirm
accounts receivable would limit the auditor's use of professional
judgment and could result in greater costs without a commensurate
benefit to audit quality.
    As discussed above, there is a presumption in the new standard that
the auditor should obtain audit evidence from a knowledgeable external
source by performing confirmation procedures or using other means to
obtain audit evidence by directly accessing information maintained by
knowledgeable external sources. In addition, the new standard provides
that if, based on the auditor's experience, it would not be feasible
for the auditor to obtain audit evidence about accounts receivable
pursuant to paragraph .24, the auditor should obtain external
information indirectly by performing other substantive procedures,
including tests of details. Insofar as the final standard does not
otherwise provide auditors with the discretion to avoid obtaining audit
evidence directly from a knowledgeable external source for cash, and
the only exception applicable to accounts receivable is for situations
where obtaining audit evidence directly from a knowledgeable external
source would not be feasible, firms may, therefore, incur additional
costs to comply with the presumptive requirements of the new standard
for cash and accounts receivable. These costs, however, are necessary
to the achievement of the standard's intended benefits of emphasizing
the quality and strength of the audit evidence to be obtained from
knowledgeable external sources.
    The new standard also requires the auditor to evaluate the
reliability of confirmation responses and provides examples of
information that indicate that a confirmation response may have been
intercepted and altered. The costs associated with this requirement,
however, are expected to be limited. First, the Board's auditing
standards already require the auditor to obtain sufficient appropriate
audit evidence to provide a reasonable basis for the auditor's report,
and to evaluate the combined evidence provided by confirmation and
other auditing procedures performed when the auditor has not received
replies to confirmation requests (i.e., nonresponses) to determine
whether sufficient evidence has been obtained about all the applicable
financial statement assertions.\106\ Second, the methodologies of some
firms reflect application material in ISA 505 regarding factors
(similar to indicators in the new standard) that may indicate doubts
about the reliability of a confirmation response. One of these factors
is analogous to the requirement in the new standard (i.e., the
confirmation response appears not to come from the originally intended
confirming party), which may further limit the potential costs for
firms that have incorporated this factor in their methodologies. One
commenter on the 2022 Proposal stated that the proposed standard's
requirement for evaluating the reliability of confirmation responses
might cause the auditor to need to authenticate confirmation responses,
which would add significant expense to the audit. However, as discussed
above, AS 1105 already establishes the requirements for evaluating the
reliability of audit evidence, and the new standard does not change
those requirements.
---------------------------------------------------------------------------

    \106\ See AS 1105.04; AS 2310.33.
---------------------------------------------------------------------------

    The requirement for the auditor to communicate with the audit
committee when the auditor did not perform confirmation procedures or
otherwise obtain audit evidence by directly accessing information
maintained by knowledgeable external sources for significant risks
associated with either cash or accounts receivable could impose a
modest incremental cost. Some commenters on the 2022 Proposal had
expressed concern about the proposed requirement to communicate with
the audit committee in all instances where the presumption to confirm
accounts receivable had been overcome, which could be detrimental if
the communication became a mere compliance exercise for auditors and
audit committees. The new standard's requirement to communicate with
the audit committee, however, is more risk-based and therefore, the
Board continues to believe that the incremental costs will be modest.

    Insofar as the new standard identifies additional situations in
which the auditor generally would be required to perform alternative
procedures, firms may incur additional costs. Specifically, the new
standard extends the requirement in existing AS 2310 to perform
alternative procedures in relation to nonresponses to positive
confirmation requests to other situations, including the auditor's
inability to identify a confirming party and the receipt of an
unreliable response.
    In contrast with existing AS 2310, negative confirmation requests
may not be used as the sole substantive audit procedure under the new
standard. This limitation reflects, among other things, the increase in
the volume of electronic correspondence since existing AS 2310 was
issued and the increasing likelihood that a recipient of a negative
confirmation request would not consider the request. As a result,
auditors may have to perform other substantive audit procedures for
certain financial statement assertions. Although the Board understands
through its oversight activities that few, if any, GNFs use negative
confirmation requests as the sole substantive procedure in practice, as
discussed above, the PCAOB staff's firm methodology review suggests
that all the GNFs and NAFs reviewed will need to review their
methodologies to ensure that negative confirmation requests are not
used as the sole source of audit evidence.
Developments in Practice
    As discussed above, the new standard includes requirements that
clarify the procedures auditors should perform to support their use of
intermediaries to facilitate the direct electronic transmission of
confirmation requests and responses between the auditor and the
confirming party. These requirements may lead to modifications to firm
methodologies. Further, the required procedures may involve additional
auditor time and effort. The resulting costs likely depend on the
extent to which the new requirements have already been incorporated in
a firm's current methodologies. One commenter expressed concern that
the proposed requirement to assess the intermediary's controls would
result in significant additional work for auditors because it is not
currently common practice to directly assess intermediaries in this
manner. The PCAOB staff's review of firm methodologies discussed above
did not suggest that the requirements in Appendix B of the new standard
would create significant additional work for auditors. In particular,
both the GNF and NAF methodologies reviewed generally already include
guidance on maintaining control over the confirmation process and the
use of intermediaries, which may limit the costs. In addition, the
Board notes that the requirements in the new standard relate to
relevant controls that address the risk of interception and alteration
of confirmation requests and responses and that some intermediaries
currently make information about relevant internal controls available
to auditors through a SOC report.
    If the auditor is able to obtain audit evidence by directly
accessing information maintained by knowledgeable external sources
instead of confirmation, such audit evidence could be at least as
persuasive as audit evidence obtained through confirmation procedures,
and the new standard allows the auditor to perform such procedures.
This provision is not expected to impose new costs on firms, as firms
would only obtain relevant and reliable audit evidence by directly
accessing information maintained by a knowledgeable external source to
the extent that technological advancements render it more efficient
than performing confirmation procedures. Thus, to the extent that the
auditor is able to replace confirmation procedures with obtaining audit
evidence by directly accessing information maintained by a
knowledgeable external source, the new standard could reduce costs for
firms.
Potential Unintended Consequences
    In addition to the benefits and costs discussed above, the new
standard could have unintended economic impacts. The following
discussion describes potential unintended consequences the Board has
considered and, where applicable, factors that mitigate the negative
consequences, such as steps the Board has taken or the existence of
other countervailing forces.
Potential Decline in Auditors' Usage of Confirmation
    An unintended consequence of the new standard would occur if,
contrary to the Board's expectation, there were a significant reduction
in the use of confirmation procedures by auditors in circumstances
where confirmation would provide relevant and reliable audit evidence.
    Under the new standard, auditors retain the ability to use
confirmation as one procedure, among others, to audit one or more
financial statement accounts or disclosures. At the same time, the new
standard strengthens the requirements for an auditor regarding
evaluating the reliability of confirmation responses and addressing
confirmation exceptions and incomplete responses, including performing
alternative procedures to obtain audit evidence. Further, the new
standard describes the types of procedures the auditor should perform
in evaluating the effect of using an intermediary on the reliability of
confirmation requests and responses, including determining whether
relevant controls of the intermediary are designed and operating
effectively. In addition, the new standard does not allow the auditor
to use negative confirmation requests as the sole substantive
procedure. As a result, when not required to use confirmation, auditors
might decline to use confirmation and use other audit procedures more
frequently than under existing AS 2310 if they perceive there could be
more time or cost involved in the confirmation process relative to the
performance of other procedures.
    This potential unintended consequence is mitigated, however, by the
requirement that the auditor should perform confirmation procedures for
cash and accounts receivable, or otherwise obtain audit evidence by
directly accessing information maintained by knowledgeable external
sources. In addition, the Board's standards already provide that the
auditor should evaluate whether the combined evidence provided by
confirmation and other auditing procedures provide sufficient evidence
about the applicable financial statement assertions. Several of the
changes to existing requirements in the new standard align with the
Board's understanding of current practice. For example, many audit
firms' methodologies include guidance on maintaining control and the
use of intermediaries. Additionally, the potential unintended
consequence may be mitigated to the extent that a firm has experienced
efficiencies from using newer audit tools for confirmation through
reduced time or costs. Further, the Board does not anticipate that the
requirements of the new standard will cause a significant change in the
timing or extent of confirmation procedures for auditors, as the Board
has not amended the requirements of AS 2301, which is the auditing
standard that addresses those matters. Accordingly, the Board does not
believe that the new standard will lead to a significant decline in the
use of confirmation.

Potential Misinterpretation of the Requirements in the New Standard
Relating to the Confirmation of Cash and Accounts Receivable
    An unintended consequence of the presumed requirement in the new
standard to confirm cash and accounts receivable would arise if
auditors misinterpreted the language in the new standard as requiring
the confirmation of cash and accounts receivable in all situations. For
example, the new standard does not carry forward a provision included
in existing AS 2310 that an auditor could overcome the presumption to
confirm accounts receivable if, among other things, ``[t]he use of
confirmations would be ineffective.'' It is possible that some auditors
might misinterpret the elimination of this language as precluding the
exercise of auditor judgment with respect to the confirmation of
accounts receivable. Some commenters on the 2022 Proposal appeared to
misinterpret the proposed requirement and suggested that confirmation
would be required in all situations. For example, one commenter
asserted that using confirmation regardless of risk assessment may
promote a checklist mentality that does not contribute to audit quality
and an audit approach that may be less efficient and effective.
    The Board does not intend, however, that an auditor send
confirmation requests for accounts receivable in all situations or when
such procedures do not provide relevant and reliable audit evidence. If
the auditor has not determined cash or accounts receivable to be a
significant account, the new standard does not require the confirmation
of cash or accounts receivable. Moreover, to clarify the Board's
intent, it has modified the language in the proposed standard in
several respects. First, paragraph .25 of the new standard addresses
situations when obtaining audit evidence about accounts receivable
directly from knowledgeable external sources, whether through
confirmation procedures or other means, would not be feasible to
execute. If it is not feasible for the auditor to obtain audit evidence
about accounts receivable directly from a knowledgeable external
source, the auditor should obtain external information indirectly by
performing other substantive procedures, including tests of details.
    In addition, the Board is not adopting paragraph .07 of the
proposed standard, which referred to situations where evidence obtained
through the confirmation process ``generally is more persuasive than
audit evidence obtained solely through other procedures'' and may have
contributed to a misperception that the Board was proposing to require
confirmation in all circumstances. In the Board's view, the language in
the new standard acknowledges the role of professional judgment in the
auditor's selection of audit procedures to obtain sufficient
appropriate audit evidence, while retaining a presumption to confirm
cash and accounts receivable or otherwise obtain relevant and reliable
audit evidence by directly accessing information maintained by a
knowledgeable external source. This should mitigate the potential
unintended consequence described above.
Alternatives Considered
    The development of the new standard involved considering a number
of alternative approaches to address the problems described above. This
section explains: (i) why standard setting is preferable to other
policy-making approaches, such as providing interpretive guidance or
enhancing inspection or enforcement efforts; (ii) other standard-
setting approaches that were considered; and (iii) key policy choices
made by the Board in determining the details of the new standard-
setting approach.
Why Standard Setting Is Preferable to Other Policy-Making Approaches
    The Board's policy tools include alternatives to standard setting,
such as issuing additional interpretive guidance, or increasing our
focus on inspections or enforcement of existing standards. The Board
considered whether providing guidance or increasing inspection or
enforcement efforts would be effective mechanisms to address concerns
with the auditor's use of confirmation.
    Interpretive guidance inherently provides additional information
about existing standards. Inspection and enforcement actions take place
after insufficient audit performance (and potential investor harm) has
occurred. Devoting additional resources to interpretive guidance,
inspections, or enforcement activities, without improving the relevant
performance requirements for auditors, would at best focus auditors'
performance on existing standards and would not provide the benefits
discussed above associated with improving the standards. The new
standard, on the other hand, is designed to improve existing
requirements for the auditor's use of confirmation. For example, the
new standard, unlike existing AS 2310, includes requirements relating
to the confirmation of cash accounts, imposes additional limitations on
the use of negative confirmation requests, clarifies the circumstances
in which auditors would be expected to perform alternative procedures,
and includes explicit provisions addressing the auditor's
responsibility for selecting items to be confirmed, sending
confirmation requests, and receiving confirmation responses.
Other Standard-Setting Alternatives Considered
    Several alternative standard-setting approaches were also
considered, including: (i) making amendments to the existing standard;
and (ii) adopting an approach based on ISA 505, with certain
modifications to reflect the PCAOB's statutory responsibilities with
respect to audits of public companies and registered broker-dealers.
Amendments to Existing Standard
    The Board considered, but decided against, limiting the amendments
to AS 2310 solely to modifications relating to changes in technology
that have affected the confirmation process. While this approach could
result in fewer changes to firms' audit methodologies, the Board
believes there are a number of other areas discussed throughout this
release, beyond amending AS 2310 to reflect the increasing use of
technology in the confirmation process, where the existing standard
should be improved.
Standard Based on ISA 505
    Some commenters on the 2009 Concept Release and the 2010 Proposal
suggested that the Board should consider adopting ISA 505, the IAASB's
standard on audit confirmation, which was issued in 2008. The Board has
taken the requirements and application material of ISA 505 into account
in developing the new standard (e.g., the ISA 505 application material
relating to the use of a third party to coordinate and provide
responses to confirmation requests).
    The Board concluded, however, that the new standard should also
establish certain requirements that are not included in ISA 505 (e.g.,
requirements to confirm cash and accounts receivable or otherwise
obtain relevant and reliable audit evidence by directly accessing
information maintained by a knowledgeable external source), and should
not include certain provisions that are described in ISA 505 (e.g.,
regarding management's refusal to allow the auditor to send a
confirmation request). In addition, audit practices have continued to
evolve since ISA 505

was issued in 2008, and the Board believes that the new standard should
reflect these developments (e.g., by addressing electronic
communication and the use of intermediaries in the requirements of the
standard rather than in application materials).
Key Policy Choices
    Given a preference for replacing existing AS 2310 in its entirety,
the Board considered different approaches to addressing key policy
issues.
Use of Confirmation Procedures for Specific Accounts
    The new standard provides that when addressing an assessed risk of
material misstatement of cash and cash equivalents held by third
parties, as well as of accounts receivable that arise from the transfer
of goods or services to a customer or a financial institution's loans,
the auditor should perform confirmation procedures or otherwise obtain
relevant and reliable audit evidence by directly accessing information
maintained by a knowledgeable external source. In addition, under the
new standard, when obtaining audit evidence from a knowledgeable
external source regarding cash, the auditor should consider sending
confirmation requests to that source about other financial
relationships with the company, based on the assessed risk of material
misstatement. Also, when the auditor has identified a complex
transaction or a significant unusual transaction, the auditor should
consider confirming those terms of the transaction that are associated
with a significant risk of material misstatement, including a fraud
risk. The new standard does not specify other significant accounts or
disclosures that the auditor should confirm or consider confirming. The
Board considered several alternatives to this approach, as discussed
below.
    First, the Board considered an approach that would have no
requirement for the auditor to confirm specified accounts or
transactions. In the Board's view, this approach might result in the
selection by some auditors of audit procedures that provide less
relevant and reliable audit evidence than confirmation with respect to
cash and accounts receivable (e.g., if an auditor mistakenly assessed
the risk of material misstatement too low for cash or accounts
receivable). Further, confirmation of cash and accounts receivable is
already a standard practice for many auditors and is consistent with
the concept that audit evidence obtained from a knowledgeable external
source is more reliable than evidence obtained only from internal
company sources. Accordingly, the Board has decided against an approach
that does not require the confirmation of any accounts and disclosures
in the new standard.
    In addition, the Board considered including in the new standard a
requirement that the auditor should confirm other accounts in addition
to cash and accounts receivable, such as investments. The Board has
decided against this approach because it would limit auditor judgment
in circumstances where the performance of other auditing procedures
might provide relevant and reliable audit evidence, could be viewed as
unduly prescriptive, and would not allow the auditor to take company-
specific facts and circumstances into account. Instead, under the new
standard, the auditor could decide to perform confirmation procedures
with respect to financial statement assertions relating to other
accounts and disclosures but is not required to do so.
    The Board also considered an additional requirement that the
auditor should perform confirmation procedures in response to
significant risks that relate to relevant assertions, when such
assertions can be adequately addressed by confirmation procedures.
However, the Board believes that such a requirement would be
inconsistent with the Board's risk assessment standards, which allow
for auditor judgment in determining the audit response to significant
risks identified by the auditor. The Board has not included this
provision in the new standard.
Management Requests Not To Confirm
    The Board considered addressing situations where management
requests that the auditor not confirm one or more items in the new
standard. Specifically, the Board considered requiring the auditor to
obtain an understanding of the reasons for management's request,
perform alternative procedures as discussed in Appendix C of the new
standard, and communicate the request to the audit committee. In
addition, the Board considered a requirement that the auditor should
evaluate the implications for the auditor's report if the auditor
determines that management's request impairs the auditor's ability to
obtain sufficient appropriate audit evidence or indicates that one or
more fraud risk factors are present. For the reasons discussed above,
the Board has decided not to include such provisions in the new
standard.
Special Considerations for Audits of Emerging Growth Companies
    Pursuant to Section 104 of the Jumpstart Our Business Startups Act
(``JOBS Act''), rules adopted by the Board subsequent to April 5, 2012,
generally do not apply to the audits of EGCs, as defined in Section
3(a)(80) of the Exchange Act, unless the SEC ``determines that the
application of such additional requirements is necessary or appropriate
in the public interest, after considering the protection of investors,
and whether the action will promote efficiency, competition, and
capital formation.'' \107\ As a result of the JOBS Act, the rules and
related amendments to PCAOB standards that the Board adopts are
generally subject to a separate determination by the SEC regarding
their applicability to audits of EGCs.
---------------------------------------------------------------------------

    \107\ See Public Law 112-106 (Apr. 5, 2012). Section
103(a)(3)(C) of the Act, as added by Section 104 of the JOBS Act,
also provides that any rules of the Board requiring (1) mandatory
audit firm rotation or (2) a supplement to the auditor's report in
which the auditor would be required to provide additional
information about the audit and the financial statements of the
issuer (auditor discussion and analysis) shall not apply to an audit
of an EGC. The new standard does not fall within either of these two
categories.
---------------------------------------------------------------------------

    To inform consideration of the application of auditing standards to
audits of EGCs, PCAOB staff prepares a white paper annually that
provides general information about characteristics of EGCs.\108\ As of
the November 15, 2021, measurement date, PCAOB staff identified 3,092
companies that self-identified with the SEC as EGCs and filed audited
financial statements in the 18 months preceding the measurement date.
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    \108\ For the most recent EGC report, see White Paper on
Characteristics of Emerging Growth Companies and Their Audit Firms
at November 15, 2021 (Jan. 5, 2023) (``EGC White Paper''), available
at https://pcaobus.org/resources/other-research-projects.
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    Confirmation is a longstanding audit procedure used in nearly all
audits, including audits of EGCs. The discussion of benefits, costs,
and unintended consequences above is generally applicable to audits of
EGCs. The economic impacts of the new standard on an EGC audit depend
on factors such as the audit firm's current methodologies, the audit
firm's ability to distribute implementation costs across engagements,
and the auditor's assessed risk of material misstatement.
    EGCs are likely to be newer companies, which may increase the
importance to investors of the external audit to enhance the
credibility of management disclosures.\109\ Further,

compared to non-EGCs, EGCs are more likely to be audited by NAFs.\110\
As discussed above, NAFs are expected to make more changes to their
methodologies and practice to comply with the new standard. Therefore,
all else equal, the benefits of the higher audit quality resulting from
the new standard may be larger for EGCs than for non-EGCs, including
improved efficiency of market capital allocation, lower cost of
capital, and enhanced capital formation.\111\ In particular, because
investors who face uncertainty about the reliability of a company's
financial statements may require a larger risk premium that increases
the cost of capital to companies, the improved audit quality resulting
from applying the new standard to EGC audits could reduce the cost of
capital to those EGCs.\112\
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    \109\ Researchers have developed a number of proxies that are
thought to be correlated with information asymmetry, including small
issuer size, lower analyst coverage, larger insider holdings, and
higher research and development costs. To the extent that EGCs
exhibit one or more of these properties, there may be a greater
degree of information asymmetry for EGCs than for the broader
population of companies, which increases the importance to investors
of the external audit to enhance the credibility of management
disclosures. See, e.g., Mary E. Barth, Wayne R. Landsman, and Daniel
J. Taylor, The JOBS Act and Information Uncertainty in IPO Firms, 92
The Accounting Review 25, 25 (2017); Steven A. Dennis and Ian G.
Sharpe, Firm Size Dependence in the Determinants of Bank Term Loan
Maturity, 32 Journal of Business Finance and Accounting 31, 59
(2005); Michael J. Brennan and Avanidhar Subrahmanyam, Investment
Analysis and Price Formation in Securities Markets, 38 Journal of
Financial Economics 361, 363 (1995); David Aboody and Baruch Lev,
Information Asymmetry, R&D, and Insider Gains, 55 Journal of Finance
2747, 2755 (2000); Raymond Chiang and P. C. Venkatesh, Insider
Holdings and Perceptions of Information Asymmetry: A Note, 43
Journal of Finance 1041, 1047 (1988); Molly Mercer, How Do Investors
Assess the Credibility of Management Disclosures?, 18 Accounting
Horizons 185, 194 (2004). Furthermore, research has shown that
reduced disclosure requirements for EGCs are associated with lower
audit effort. The academic literature has also documented evidence
of lower audit quality for EGCs. To the extent that the new standard
will increase auditor effort, EGCs are expected to benefit from
higher audit quality. See, e.g., Tiffany J. Westfall and Thomas C.
Omer, The Emerging Growth Company Status on IPO: Auditor Effort,
Valuation, and Underpricing, 37 Journal of Accounting and Public
Policy 315, 316 (2018); Essam Elshafie, The Impact of Reducing
Reporting Requirements on Audit Quality, Auditor Effort and Auditor
Conservatism, 35 Accounting Research Journal 756, 756 (2022).
    \110\ EGC White Paper at 22.
    \111\ The enhanced quality of audits and financial information
available to financial markets may result in investors perceiving
less risk in capital markets. This, in turn, may lead to an increase
in the supply of capital which could increase capital formation.
See, e.g., Hanwen Chen, Jeff Zeyun Chen, Gerald J. Lobo, and Yanyan
Wang, Effects of audit quality on earnings management and cost of
equity capital: Evidence from China, 28 Contemporary Accounting
Research 892, 921 (2011); Richard Lambert, Christian Leuz, and
Robert E. Verrecchia, Accounting Information, Disclosure, and the
Cost of Capital, 45 Journal of Accounting Research 385, 410 (2007).
    \112\ For a discussion of how increasing reliable public
information about a company can reduce risk premium, see David
Easley and Maureen O'Hara, Information and the Cost of Capital, 59
The Journal of Finance 1553, 1578 (2004).
---------------------------------------------------------------------------

    While the associated costs may also be higher for EGC audits than
for non-EGC audits, because of the scalability of the risk-based
requirements, the costs of performing the procedures are unlikely to be
disproportionate to the benefits of the procedures. Moreover, if any of
the new amendments were determined not to apply to the audits of EGCs,
auditors would need to address differing audit requirements in their
methodologies, or policies and procedures, with respect to audits of
EGCs and non-EGCs, which would create the potential for confusion. The
new standard could impact competition in an EGC product market if the
indirect costs to audited companies disproportionately impact EGCs
relative to their competitors. However, as discussed above, the costs
associated with the new standard are expected to be relatively modest.
Therefore, the impact of the new standard on competition, if any, is
expected to be limited. Overall, the new standard is expected to
enhance audit quality and contribute to an increase in the credibility
of financial reporting by EGCs.
    Accordingly, and for the reasons explained above, the Board is
requesting that the Commission determine that it is necessary or
appropriate in the public interest, after considering the protection of
investors and whether the action will promote efficiency, competition,
and capital formation, to apply the new standard to audits of EGCs. One
commenter specifically supported the application of the 2022 Proposal
to EGCs.

III. Date of Effectiveness of the Proposed Rules and Timing for
Commission Action

    Within 45 days of the date of publication of this notice in the
Federal Register or within such longer period (i) as the Commission may
designate up to 90 days of such date if it finds such longer period to
be appropriate and publishes its reasons for so finding or (ii) as to
which the Board consents, the Commission will:
    (A) By order approve or disapprove such proposed rules; or
    (B) Institute proceedings to determine whether the proposed rules
should be disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views and
arguments concerning the foregoing, including whether the proposed
rules are consistent with the requirements of Title I of the Act.
Comments may be submitted by any of the following methods:

Electronic Comments

     Use the Commission's internet comment form (https://www.sec.gov/rules/pcaob); or
     Send an email to [email protected]. Please include
file number PCAOB-2023-02 on the subject line.

Paper Comments

     Send paper comments in triplicate to Vanessa A.
Countryman, Secretary, Securities and Exchange Commission, 100 F Street
NE, Washington, DC 20549-1090.

All submissions should refer to file number PCAOB-2023-02. This file
number should be included on the subject line if email is used. To help
the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's internet website (https://www.sec.gov/rules/pcaob).
Copies of the submission, all subsequent amendments, all written
statements with respect to the proposed rules that are filed with the
Commission, and all written communications relating to the proposed
rules between the Commission and any person, other than those that may
be withheld from the public in accordance with the provisions of 5
U.S.C. 552, will be available for website viewing and printing in the
Commission's Public Reference Room, 100 F Street NE, Washington, DC
20549, on official business days between the hours of 10 a.m. and 3
p.m. Copies of such filing will also be available for inspection and
copying at the principal office of the PCAOB. Do not include personal
identifiable information in

submissions; you should submit only information that you wish to make
available publicly. We may redact in part or withhold entirely from
publication submitted material that is obscene or subject to copyright
protection. All submissions should refer to File Number PCAOB-2023-02
and should be submitted on or before November 7, 2023.
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    \113\ 17 CFR 200.30-11(b)(1) and (3).

    For the Commission, by the Office of the Chief Accountant.\113\
Vanessa A. Countryman,
Secretary.
[FR Doc. 2023-22491 Filed 10-16-23; 8:45 am]
BILLING CODE 8011-01-P


[Federal Register Volume 78, Number 189 (Monday, September 30, 2013)]
[Notices]
[Pages 59995-59997]
[FR Doc No: 2013-23681]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-70482; File No. SR-FINRA-2013-039]

Self-Regulatory Organizations; Financial Industry Regulatory
Authority, Inc.; Notice of Filing of Proposed Rule Change To Clarify
the Classification and Reporting of Certain Securities to FINRA

September 24, 2013.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(the ``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given
that on September 16, 2013, the Financial Industry Regulatory
Authority, Inc. (``FINRA'') filed with the Securities and Exchange
Commission (``Commission'') the proposed rule change as described in
Items I, II, and III below, which Items have been prepared by FINRA.
The Commission is publishing this notice to solicit comments on the
proposed rule change from interested persons.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change

    FINRA is filing a proposed rule change to adopt an interpretation
to clarify the classification and the reporting of certain securities
to FINRA.
    The proposed rule change does not make any changes to the text of
FINRA rules.

II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, FINRA included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. FINRA has prepared summaries, set forth in sections A,
B, and C below, of the most significant aspects of such statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change

1. Purpose
    FINRA trade reporting rules generally require that members report
over-the-counter (``OTC'') transactions in debt securities that are
TRACE-Eligible Securities and equity securities to

FINRA.\3\ FINRA Rule 6622 requires that members report OTC transactions
in ``OTC Equity Securities'' \4\ to the ORF and the FINRA Rule 6700
Series requires members to report transactions in ``TRACE-Eligible
Securities'' to TRACE.\5\
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    \3\ See FINRA Rules 6282 (relating to the Alternative Display
Facility (``ADF'')), 6380A (relating to the FINRA/Nasdaq Trade
Reporting Facility), 6380B (relating to the FINRA/NYSE Trade
Reporting Facility), 6622 (relating to the OTC Reporting Facility
(``ORF'')) and 6730 (relating to the Trade Reporting and Compliance
Engine (``TRACE'')).
    \4\ FINRA Rule 6420(f) defines ``OTC Equity Security'' to
include ``any equity security that is not an `NMS stock' as that
term is defined in Rule 600(b)(47) of SEC Regulation NMS; provided,
however, that the term `OTC Equity Security' shall not include any
Restricted Equity Security.'' FINRA Rule 6420(k) defines
``Restricted Equity Security'' to mean ``any equity security that
meets the definition of `restricted security' as contained in
Securities Act Rule 144(a)(3).''
    \5\ FINRA Rule 6710(a) defines ``TRACE-Eligible Security'' to
include ``a debt security that is United States (`U.S.') dollar-
denominated and issued by a U.S. or foreign private issuer, and, if
a `restricted security' as defined in Securities Act Rule 144(a)(3),
sold pursuant to Securities Act Rule 144A.''
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    FINRA recently has received inquiries regarding the appropriate
classification of certain ``hybrid'' securities for trade reporting
purposes. FINRA is aware that as new securities are created and issued,
in some cases, the newer hybrid iteration, although derived from a
traditional security, may be increasingly complex, and may have both
debt- and equity-like features. These hybrid securities are frequently
designed to straddle both classifications for a variety of purposes,
including the tax treatment applicable to issuers and recipients when
distributions are made (or not made) to holders of the security, and
the treatment of the principal as capital for issuers subject to
capital requirements. As such, determining whether these hybrid
securities should be classified as ``debt'' or ``equity'' for purposes
of trade reporting to the appropriate FINRA facility has become less
clear.
    Given the complexity of these hybrid securities, FINRA proposes an
interpretation regarding the classification and reporting of two
categories of hybrid securities (depositary shares and capital trust
securities (also referred to as trust preferred securities)) to clarify
the appropriate trade reporting facility to which such securities
should be reported.\6\ In addition, FINRA proposes a policy to address
the treatment of securities that are currently being reported to a
facility that is not the designated facility under this interpretation.
---------------------------------------------------------------------------

    \6\ The proposed interpretation applies solely to a hybrid
security that is not listed on an equity facility of a national
securities exchange. See, e.g., FINRA Trade Reporting Notice,
February 22, 2008 (FINRA applied TRACE reporting requirements,
distinguishing between listed and unlisted securities, and required
members to report transactions in unlisted convertible debt and
unlisted equity-linked notes to TRACE, and OTC transactions in
convertible debt and equity-linked notes listed on an equity
facility of a national securities exchange to an appropriate FINRA
equity trade reporting facility for NMS Stocks (the ADF or a trade
reporting facility (``TRF'')). For purposes of this proposed rule
change, the term ``listed on an equity facility of a national
securities exchange'' means a security that qualifies as an NMS
stock (as defined in Rule 600(b)(47) of Regulation NMS under the
Act) as distinguished from a security that is listed on a bond
facility of a national securities exchange. See 17 CFR
242.600(b)(47).
---------------------------------------------------------------------------

Depositary Shares
    FINRA proposes to interpret the term OTC Equity Security to include
a depositary share that is not listed on an equity facility of a
national securities exchange. Depositary shares generally are
securities that represent a fractional interest in a share of preferred
stock, which is considered an equity security. Depositary shares
generally entitle the holder, through the depositary, to a proportional
fractional interest in the rights, powers and preferences of the
preferred stock represented by the depositary share. Under this
interpretation, members must request a symbol, if one has not already
been assigned, for such depositary shares for ORF reporting in
compliance with the applicable reporting requirements. Members must
also report in accordance with ORF requirements; for example, price
should be reported as the dollar price per share and volume should be
reported as the number of depositary shares traded.\7\
---------------------------------------------------------------------------

    \7\ See FINRA Rule 6622; see also Trade Reporting FAQ 101.6,
available at www.finra.org/Industry/Regulation/Guidance/p038942#101.
---------------------------------------------------------------------------

Capital Trust Securities
    FINRA proposes to interpret the term TRACE-Eligible Security to
include capital trust securities and trust preferred securities.
Historically, many of these securities, particularly those issued with
$1,000 par value and not listed on an equity facility of a national
securities exchange, were reported to Fixed Income Pricing System
(``FIPS'') prior to the implementation of TRACE.\8\ When TRACE was
proposed, FIPS securities were to be transferred to TRACE.\9\ In
addition, as part of the proposal, FINRA (then NASD) specifically
identified capital trust securities in a list of instruments that NASD
considered TRACE-Eligible Securities, which would be reported to TRACE
and otherwise subject to the FINRA Rule 6700 Series requirements.\10\
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    \8\ FINRA (formerly, the National Association of Securities
Dealers, Inc. (``NASD'')) operated FIPS through its then subsidiary,
NASDAQ. FIPS began in April 1994 and collected transaction and
quotation information on domestic, registered, non-convertible high-
yield corporate bonds. OTC capital trust securities and trust
preferred securities were treated as FIPS securities and often
included in the regularly published lists of the most actively-
traded FIPS securities, referred to as the ``FIPS 50.'' See
Securities Exchange Act Release No. 43873 (January 23, 2001), 66 FR
8131 (January 29, 2001) (Order Approving Proposed Rule Change and
Notice of Filing and Order Granting Accelerated Approval to
Amendment No. 4, Relating to the Creation of a Corporate Bond Trade
Reporting and Transaction Dissemination Facility and the Elimination
of Nasdaq's Fixed Income Pricing System) (File No. SR-NASD-99-65)
(``SEC TRACE Approval Order'').
    \9\ See, e.g., SEC TRACE Approval Order, 66 FR 8131, at 8132-
8133, note 13 and note 16.
    \10\ In SR-NASD-99-65, FINRA (then NASD) indicated that capital
trust securities would be TRACE-Eligible Securities. See Securities
Exchange Act Release No. 42201 (December 3, 1999), 64 FR 69305, at
69309 (December 10, 1999) (Notice of Filing of Proposed Rule Change
Relating to the Creation of a Corporate Bond Trade Reporting and
Transaction Dissemination Facility and the Elimination of Nasdaq's
Fixed Income Pricing System (``FIPS'')) (File No. SR-NASD-99-65);
see also SEC TRACE Approval Order.
---------------------------------------------------------------------------

    FINRA is clarifying that capital trust securities and trust
preferred securities (other than a capital trust security or a trust
preferred security that is listed on an equity facility of a national
securities exchange) must be reported to TRACE (and not to ORF) and
transactions in such securities must be reported in compliance with the
applicable reporting requirements.\11\ For example, price should be
reported as a percentage of par value and volume should be reported as
the total par value of the transaction (not the number of bonds
traded).\12\
---------------------------------------------------------------------------

    \11\ This interpretation would apply even if the capital trust
security (or a trust preferred security) was previously listed on an
equity facility of a national securities exchange and reported to a
FINRA equity facility, but has since been delisted. Once delisted,
the security must be reported to TRACE.
    \12\ See FINRA Rule 6730.
---------------------------------------------------------------------------

Hybrid Securities Currently Being Reported to ORF and TRACE
    FINRA believes that, given the complexity of many of the securities
that are the subject of this proposed rule change, it is reasonable
that firms, despite their best efforts, may have reached different
conclusions on where transactions in these hybrid securities should be
reported. FINRA proposes that, as of the effective date of this
proposed rule change, securities that are affected by this
interpretation will be transferred, if necessary, for reporting to the
appropriate trade reporting facility, and after this transfer members
must report all transactions in such securities to the appropriate
trade reporting facility. Members will not be required to retroactively
cancel and correct any

transactions in such securities previously reported to a facility that
is not the designated facility under this interpretation. Thus, members
will not be required to cancel and correct transactions in capital
trust securities reported to the ORF or transactions in depositary
shares reported to TRACE prior to the effective date of this proposed
rule change.\13\ However, if a firm reported a transaction to the
facility designated in this proposed interpretation, but did not report
in accordance with applicable trade reporting requirements of that
facility (e.g., a firm reported a transaction to ORF, but inaccurately
reported the price or size as if reporting to TRACE), the firm will be
required to cancel and re-report such transactions accurately.
---------------------------------------------------------------------------

    \13\ Pursuant to Section 31 of the Act, FINRA and the national
securities exchanges are required to pay transaction fees and
assessments to the SEC that are designed to recover the costs
related to the government's supervision and regulation of the
securities markets and securities professionals. See 15 U.S.C. 78ee.
FINRA obtains its Section 31 fees and assessments from its
membership, in accordance with Section 3 of Schedule A to the FINRA
By-Laws. The transactions that are assessable under Section 3 of
Schedule A to the FINRA By-Laws are reported to FINRA through one of
FINRA's equity trade reporting facilities: The ORF, the ADF, or a
TRF. As expressly stated in the Act, sales of bonds, debentures, or
other evidence of indebtedness (debt securities) are excluded from
Section 31 of the Act. See 15 U.S.C. 78ee(b). Because of this
exclusion under Section 31 of the Act, transactions reported to
TRACE are not subject to the regulatory transaction fee under
Section 3 of Schedule A to the FINRA By-Laws. To determine whether a
non-exchange listed security is an equity security or a debt
security for purposes of assessing the regulatory transaction fee,
FINRA relies on the facility to which the transaction is reported.
If the transaction is reported to the ORF, the transaction is
treated as one involving an equity security and is subject to the
regulatory transaction fee. If the transaction is reported to TRACE,
the transaction is treated as one involving a debt security and thus
is not subject to the regulatory transaction fee. See Regulatory
Notice 08-72 (November 2008).
---------------------------------------------------------------------------

    FINRA will announce the effective date of the proposed rule change
in a Regulatory Notice to be published no later than 60 days following
Commission approval. The effective date will be no later than 90 days
following publication of the Regulatory Notice announcing Commission
approval.
2. Statutory Basis
    FINRA believes that the proposed rule change is consistent with the
provisions of Section 15A(b)(6) of the Act,\14\ which requires, among
other things, that FINRA rules must be designed to prevent fraudulent
and manipulative acts and practices, to promote just and equitable
principles of trade, and, in general, to protect investors and the
public interest. FINRA believes that by clarifying the classification
of certain hybrid securities for reporting purposes the proposed rule
change will reduce market and investor confusion. In addition, FINRA
believes that the proposed rule change will improve transparency
significantly because members will report transactions in the same
security using a uniform set of conventions and to the same facility
(i.e., the ORF or TRACE). This will allow investors and other market
participants to better compare transaction pricing and the quality of
their executions, which promotes just and equitable principles of
trade, deters fraudulent and manipulative acts and practices in the
market for such securities, and furthers the protection of investors
and the public interest.
---------------------------------------------------------------------------

    \14\ 15 U.S.C. 78o-3(b)(6).
---------------------------------------------------------------------------

B. Self-Regulatory Organization's Statement on Burden on Competition

    FINRA does not believe that the proposed rule change will result in
any burden on competition that is not necessary or appropriate in
furtherance of the purposes of the Act. Members that are required
currently to report transactions in hybrid securities will continue to
be subject to transaction reporting requirements and will be provided
clarity as to which facility such hybrid securities should be reported,
which will promote uniformity and consistency in trade reporting within
these categories of products.

C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received from Members, Participants, or Others

    Written comments were neither solicited nor received.

III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action

    Within 45 days of the date of publication of this notice in the
Federal Register or within such longer period (i) as the Commission may
designate up to 90 days of such date if it finds such longer period to
be appropriate and publishes its reasons for so finding or (ii) as to
which the self-regulatory organization consents, the Commission will:
    (A) By order approve or disapprove such proposed rule change, or
    (B) institute proceedings to determine whether the proposed rule
change should be disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to<EMAIL_ADDRESS>Please include
File Number SR-FINRA-2013-039 on the subject line.

Paper Comments

     Send paper comments in triplicate to Elizabeth M. Murphy,
Secretary, Securities and Exchange Commission, 100 F Street NE.,
Washington, DC 20549-1090.
    All submissions should refer to File Number SR- FINRA-2013-039.
This file number should be included on the subject line if email is
used. To help the Commission process and review your comments more
efficiently, please use only one method. The Commission will post all
comments on the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments,
all written statements with respect to the proposed rule change that
are filed with the Commission, and all written communications relating
to the proposed rule change between the Commission and any person,
other than those that may be withheld from the public in accordance
with the provisions of 5 U.S.C. 552, will be available for Web site
viewing and printing in the Commission's Public Reference Room, 100 F
Street NE., Washington, DC 20549, on official business days between the
hours of 10:00 a.m. and 3:00 p.m. Copies of the filing will also be
available for inspection and copying at principal office of FINRA. All
comments received will be posted without change; the Commission does
not edit personal identifying information from submissions. You should
submit only information that you wish to make publicly available. All
submissions should refer to File Number SR-FINRA-2013-039 and should be
submitted on or before October 21, 2013.

    For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\15\
---------------------------------------------------------------------------

    \15\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-23681 Filed 9-27-13; 8:45 am]
BILLING CODE 8011-01-P


[Federal Register Volume 84, Number 63 (Tuesday, April 2, 2019)]
[Notices]
[Pages 12630-12631]
[FR Doc No: 2019-06324]

=======================================================================
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DEPARTMENT OF HOMELAND SECURITY

Coast Guard

[Docket No. USCG-2019-0042]

Information Collection Request to Office of Management and
Budget; OMB Control Number: 1625-0033

AGENCY: Coast Guard, DHS.

ACTION: Sixty-day notice requesting comments.

-----------------------------------------------------------------------

SUMMARY: In compliance with the Paperwork Reduction Act of 1995, the
U.S. Coast Guard intends to submit Information Collection Request (ICR)
to the Office of Management and Budget (OMB), Office of Information and
Regulatory Affairs (OIRA), requesting an extension of its approval for
the following collection of information: 1625-0033, Display of Fire
Control Plans for Vessels; without change. Our ICR describes the
information we seek to collect from the public. Before submitting this
ICR to OIRA, the Coast Guard is inviting comments as described below.

DATES: Comments must reach the Coast Guard on or before June 3, 2019.

ADDRESSES: You may submit comments identified by Coast Guard docket
number [USCG-2019-0042] to the Coast Guard using the Federal
eRulemaking Portal at http://www.regulations.gov. See the ``Public
participation and request for comments'' portion of the SUPPLEMENTARY
INFORMATION section for further instructions on submitting comments.
    A copy of the ICR is available through the docket on the internet
at http://www.regulations.gov. Additionally, copies are available from:
COMMANDANT (CG-612), ATTN: PAPERWORK REDUCTION ACT MANAGER, U.S. COAST
GUARD, 2703 MARTIN LUTHER KING JR AVE. SE, STOP 7710, WASHINGTON, DC
20593-7710.

FOR FURTHER INFORMATION CONTACT: Mr. Anthony Smith, Office of
Information Management, telephone<PHONE_NUMBER>, or fax<PHONE_NUMBER>,
for questions on these documents.

SUPPLEMENTARY INFORMATION:

Public Participation and Request for Comments

    This Notice relies on the authority of the Paperwork Reduction Act
of 1995; 44 U.S.C. Chapter 35, as amended. An ICR is an application to
OIRA seeking the approval, extension, or renewal of a Coast Guard
collection of information (Collection). The ICR contains information
describing the Collection's purpose, the Collection's likely burden on
the affected public, an explanation of the necessity of the Collection,
and other important information describing the Collection. There is one
ICR for each Collection.
    The Coast Guard invites comments on whether this ICR should be
granted based on the Collection being necessary for the proper
performance of Departmental functions. In particular, the Coast Guard
would appreciate comments addressing: (1) The practical utility of the
Collection; (2) the accuracy of the estimated burden of the Collection;
(3) ways to enhance the quality, utility, and clarity of information
subject to the Collection; and (4) ways to minimize the burden of the
Collection on respondents, including the use of automated collection
techniques or other forms of information technology. Consistent with
the requirements of Executive Order 13771, Reducing Regulation and
Controlling Regulatory Costs, and Executive Order 13777, Enforcing the
Regulatory Reform Agenda, the Coast Guard is also requesting comments
on the extent to which this request for information could be modified
to reduce the burden on respondents. In response to your comments, we
may revise this ICR or decide not to seek an extension of approval for
the Collection. We will consider all comments and material received
during the comment period.
    We encourage you to respond to this request by submitting comments
and related materials. Comments must contain the OMB Control Number of
the ICR and the docket number of this request, [USCG-2019-0042], and
must be received by June 3, 2019.

Submitting Comments

    We encourage you to submit comments through the Federal eRulemaking
Portal at http://www.regulations.gov. If your material cannot be
submitted using http://www.regulations.gov, contact the person in the
FOR FURTHER INFORMATION CONTACT section of this document for alternate
instructions. Documents mentioned in this notice, and all public
comments, are in our online docket at http://www.regulations.gov and
can be viewed by following that website's instructions. Additionally,
if you go to the online docket and sign up for email alerts, you will
be notified when comments are posted.
    We accept anonymous comments. All comments received will be posted
without change to http://www.regulations.gov and will include any
personal information you have

provided. For more about privacy and the docket, you may review a
Privacy Act notice regarding the Federal Docket Management System in
the March 24, 2005, issue of the Federal Register (70 FR 15086).

Information Collection Request

    Title: Display of Fire Control Plans for Vessels.
    OMB Control Number: 1625-0033.
    Summary: This information collection is for the posting or display
of specific plans on certain categories of commercial vessels. The
availability of these plans aid firefighters and damage control efforts
in response to emergencies.
    Need: Under 46 U.S.C. 3305 and 3306, the Coast Guard is responsible
for ensuring the safety of inspected vessels and has promulgated
regulations in 46 CFR parts 35, 78, 97, 109, 131, 169, and 196 to
ensure that safety standards are met.
    Forms: None.
    Respondents: Owners and operators of vessels.
    Frequency: On occasion.
    Hour Burden Estimate: The estimated burden has decreased from 576
hours to 472 hours a year due to a decrease in the estimated number of
respondents.

    Authority: The Paperwork Reduction Act of 1995; 44 U.S.C.
Chapter 35, as amended.

    Dated: March 21, 2019.
James D. Roppel,
Chief, U.S. Coast Guard, Office of Information Management.
[FR Doc. 2019-06324 Filed 4-1-19; 8:45 am]
 BILLING CODE 9110-04-P


[Federal Register Volume 83, Number 84 (Tuesday, May 1, 2018)]
[Proposed Rules]
[Pages 19025-19026]
[FR Doc No: 2018-09188]

=======================================================================
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DEPARTMENT OF HOMELAND SECURITY

Coast Guard

33 CFR Part 165

[Docket Number USCG-2018-0194]
RIN 1625-AA11

Safety Zone; Philippine Sea, Tinian

AGENCY: Coast Guard, DHS.

ACTION: Notice of proposed rulemaking.

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SUMMARY: The Coast Guard proposes to establish a temporary safety zone
for certain waters off of Chulu and Babui beaches in Tinian. The Coast
Guard believes this safety zone is necessary to protect all divers
participating in this underwater military exercise from potential
safety hazards associated with vessel traffic in the area. This
proposed rulemaking would prohibit persons and vessels not involved in
the exercise from being in the safety zone unless authorized by the
Captain of the Port Guam (COTP) or a designated representative. We
invite your comments on this proposed rulemaking.

DATES: Comments and related material must be received by the Coast
Guard on or before May 31, 2018.

ADDRESSES: You may submit comments identified by docket number USCG-
2018-0194 using the Federal eRulemaking Portal at http://www.regulations.gov. See the ``Public Participation and Request for
Comments'' portion of the SUPPLEMENTARY INFORMATION section for further
instructions on submitting comments.

FOR FURTHER INFORMATION CONTACT: If you have questions about this
proposed rulemaking, call or email Chief Todd Wheeler, Sector Guam
Waterways Management Division, U.S. Coast Guard; telephone 671-355-
4866, email [email protected].

SUPPLEMENTARY INFORMATION:

I. Table of Abbreviations

CFR Code of Federal Regulations
DHS Department of Homeland Security
FR Federal Register
NPRM Notice of proposed rulemaking
Sec.  Section
U.S.C. United States Code

II. Background, Purpose, and Legal Basis

    The purpose of this rulemaking is to ensure the safety of divers in
the water during an underwater military exercise in support of the
biennial Exercise Valiant Shield from 6 p.m. on September 10, 2018 to 6
a.m. on September 11, 2018. The Coast Guard proposes this rulemaking
under authority in 33 U.S.C. 1231.

III. Discussion of Proposed Rule

    The COTP proposes to establish a safety zone from 6 p.m. on
September 10, 2018 to 6 a.m. on September 11, 2018. The safety zone
would cover all navigable waters two miles off Chulu and Babui beaches
in Tinian. This safety zone is necessary to protect all divers
participating in this underwater military exercise from potential
safety hazards associated with vessel traffic in the area. This
proposed rulemaking would prohibit persons and vessels not involved in
the exercise from being in the safety zone unless authorized by the
COTP or a designated representative. The regulatory text we are
proposing appears at the end of this document.

IV. Regulatory Analyses

    We developed this proposed rule after considering numerous statutes
and Executive orders related to rulemaking. Below we summarize our
analyses based on a number of these statutes and Executive orders and
we discuss First Amendment rights of protestors.

A. Regulatory Planning and Review

    Executive Orders 12866 and 13563 direct agencies to assess the
costs and benefits of available regulatory alternatives and, if
regulation is necessary, to select regulatory approaches that maximize
net benefits. Executive Order 13771 directs agencies to control
regulatory costs through a budgeting process. This NPRM has not been
designated a ``significant regulatory action,'' under Executive Order
12866. Accordingly, the NPRM has not been reviewed by the Office of
Management and Budget (OMB), and pursuant to OMB guidance it is exempt
from the requirements of Executive Order 13771.
    This regulatory action determination is based on the size,
location, duration, and time-of-day of the safety zone. Vessel traffic
would be able to safely transit around this safety zone. Moreover, the
Coast Guard would issue a Broadcast Notice to Mariners via VHF-FM
marine channel 16 about the zone, and the rule would allow vessels to
seek permission to enter the zone.

B. Impact on Small Entities

    The Regulatory Flexibility Act of 1980, 5 U.S.C. 601-612, as
amended, requires Federal agencies to consider the potential impact of
regulations on small entities during rulemaking. The term ``small
entities'' comprises small businesses, not-for-profit organizations
that are independently owned and operated and are not dominant in their
fields, and governmental jurisdictions with populations of less than
50,000. The Coast Guard certifies under 5 U.S.C. 605(b) that this
proposed rule would not have a significant economic impact on a
substantial number of small entities.
    While some owners or operators of vessels intending to transit the
safety zone may be small entities, for the reasons stated in section
IV.A above, this proposed rule would not have a significant economic
impact on any vessel owner or operator.
    If you think that your business, organization, or governmental
jurisdiction qualifies as a small entity and that this rule would have
a significant economic impact on it, please submit a comment (see
ADDRESSES) explaining why you think it qualifies and how and to what
degree this rule would economically affect it.
    Under section 213(a) of the Small Business Regulatory Enforcement
Fairness Act of 1996 (Pub. L. 104-121), we want to assist small
entities in understanding this proposed rule. If the rule would affect
your small business, organization, or governmental jurisdiction and you
have questions concerning its provisions or options for compliance,
please contact the person listed in the FOR FURTHER INFORMATION CONTACT
section. The Coast Guard will not retaliate against small entities that
question or complain about this proposed rule or any policy or action
of the Coast Guard.

C. Collection of Information

    This proposed rule would not call for a new collection of
information under the Paperwork Reduction Act of 1995 (44 U.S.C. 3501-
3520).

D. Federalism and Indian Tribal Governments

    A rule has implications for federalism under Executive Order 13132,
Federalism, if it has a substantial direct effect on the States, on the
relationship between the national government and the States, or on the
distribution of power and responsibilities among the various levels of
government. We have analyzed this proposed rule under that Order and
have determined that it is consistent with the fundamental federalism
principles and preemption requirements described in Executive Order
13132.
    Also, this proposed rule does not have tribal implications under
Executive Order 13175, Consultation and Coordination with Indian Tribal
Governments, because it would not have a substantial direct effect on
one or

more Indian tribes, on the relationship between the Federal Government
and Indian tribes, or on the distribution of power and responsibilities
between the Federal Government and Indian tribes. If you believe this
proposed rule has implications for federalism or Indian tribes, please
contact the person listed in the FOR FURTHER INFORMATION CONTACT
section.

E. Unfunded Mandates Reform Act

    The Unfunded Mandates Reform Act of 1995 (2 U.S.C. 1531-1538)
requires Federal agencies to assess the effects of their discretionary
regulatory actions. In particular, the Act addresses actions that may
result in the expenditure by a State, local, or tribal government, in
the aggregate, or by the private sector of $100,000,000 (adjusted for
inflation) or more in any one year. Though this proposed rule would not
result in such an expenditure, we do discuss the effects of this rule
elsewhere in this preamble.

F. Environment

    We have analyzed this proposed rule under Department of Homeland
Security Directive 023-01, which guides the Coast Guard in complying
with the National Environmental Policy Act of 1969 (42 U.S.C. 4321-
4370f), and have made a preliminary determination that this action is
one of a category of actions that do not individually or cumulatively
have a significant effect on the human environment. This proposed rule
involves a safety zone vessel traffic would be able to safely transit
around. Normally such actions are categorically excluded from further
review under paragraph L[37] of Appendix A, Table 1 of DHS Instruction
Manual 023-01-001-01, Rev. 01. A preliminary Record of Environmental
Consideration supporting this determination is available in the docket
where indicated under ADDRESSES. We seek any comments or information
that may lead to the discovery of a significant environmental impact
from this proposed rule.

G. Protest Activities

    The Coast Guard respects the First Amendment rights of protesters.
Protesters are asked to contact the person listed in the FOR FURTHER
INFORMATION CONTACT section to coordinate protest activities so that
your message can be received without jeopardizing the safety or
security of people, places, or vessels.

V. Public Participation and Request for Comments

    We view public participation as essential to effective rulemaking,
and will consider all comments and material received during the comment
period. Your comment can help shape the outcome of this rulemaking. If
you submit a comment, please include the docket number for this
rulemaking, indicate the specific section of this document to which
each comment applies, and provide a reason for each suggestion or
recommendation.
    We encourage you to submit comments through the Federal eRulemaking
Portal at http://www.regulations.gov. If your material cannot be
submitted using http://www.regulations.gov, contact the person in the
FOR FURTHER INFORMATION CONTACT section of this document for alternate
instructions.
    We accept anonymous comments. All comments received will be posted
without change to http://www.regulations.gov and will include any
personal information you have provided. For more about privacy and the
docket, visit http://www.regulations.gov/privacyNotice.
    Documents mentioned in this NPRM as being available in the docket,
and all public comments, will be in our online docket at http://www.regulations.gov and can be viewed by following that website's
instructions. Additionally, if you go to the online docket and sign up
for email alerts, you will be notified when comments are posted or a
final rule is published.

List of Subjects in 33 CFR Part 165

    Harbors, Marine safety, Navigation (water), Reporting and Reporting
and recordkeeping requirements, Security measures, Waterways.

    For the reasons discussed in the preamble, the Coast Guard proposes
to amend 33 CFR part 165 as follows:

PART 165--REGULATED NAVIGATION AREAS AND LIMITED ACCESS AREAS

0
1. The authority citation for part 165 continues to read as follows:

    Authority: 33 U.S.C. 1231; 50 U.S.C. 191; 33 CFR 1.05-1, 6.04-1,
6.04-6, and 160.5; Department of Homeland Security Delegation No.
0170.1.

0
2. Add Sec.  165.T14-0194 to read as follows:

Sec.  165.T14-0194  Safety Zone; Philippine Sea, Tinian.

    (a) Location. The following area is a safety zone: All waters off
of Chulu and Babui Beach, Tinian, from surface to bottom, encompassed
by a line connecting the following points beginning at 15[deg]04'09''
N, 145[deg]36'44'' E, thence to 15[deg]04'48'' N, 145[deg]35'42'' E,
thence to 15[deg]05'09'' N, 145[deg]36'08'' E, thence to 15[deg]04'48''
N, 145[deg]37'23'' E, and along the shore line back to the beginning
point. These coordinates are based on NAD 1983.
    (b) Regulations. (1) The general regulations governing safety zones
contained in 33 CFR 165.23 apply. This proposed rulemaking would
prohibit persons and vessels not involved in the exercise from being in
the safety zone unless authorized by the Captain of the Port (COTP)
Guam or a designated representative.
    (2) To seek permission to enter, contact the COTP Guam or the
COTP's representative by VHF channel 16 or by telephone at 671-355-
4821. Those in the safety zone must comply with all lawful orders or
directions given to them by the COTP or the COTP's designated
representative.
    (c) Enforcement period. This section will be enforced from 6 p.m.
on September 10, 2018 to 6 a.m. on September 11, 2018.

    Dated: April 6, 2018.
Christopher M. Chase,
Captain, U.S. Coast Guard, Captain of the Port Guam.
[FR Doc. 2018-09188 Filed 4-30-18; 8:45 am]
BILLING CODE 9110-04-P


[Federal Register Volume 82, Number 162 (Wednesday, August 23, 2017)]
[Notices]
[Page 40006]
[FR Doc No: 2017-17836]

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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Food and Drug Administration

[Docket No. FDA-2017-N-1095]

Agency Information Collection Activities; Submission for Office
of Management and Budget Review; Comment Request; Electronic Submission
Process for Voluntary Allegations to the Center for Devices and
Radiological Health

AGENCY: Food and Drug Administration, HHS.

ACTION: Notice.

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SUMMARY: The Food and Drug Administration (FDA) is announcing that a
proposed collection of information has been submitted to the Office of
Management and Budget (OMB) for review and clearance under the
Paperwork Reduction Act of 1995.

DATES: Fax written comments on the collection of information by
September 22, 2017.

ADDRESSES: To ensure that comments on the information collection are
received, OMB recommends that written comments be faxed to the Office
of Information and Regulatory Affairs, OMB, Attn: FDA Desk Officer,
Fax:<PHONE_NUMBER>, or emailed to<EMAIL_ADDRESS>All
comments should be identified with the OMB control number 0910-0769.
Also include the FDA docket number found in brackets in the heading of
this document.

FOR FURTHER INFORMATION CONTACT: Amber Sanford, Office of Operations,
Food and Drug Administration, Three White Flint North, 10A63, 11601
Landsdown St., North Bethesda, MD 20852,<PHONE_NUMBER>,
<EMAIL_ADDRESS>
SUPPLEMENTARY INFORMATION: In compliance with 44 U.S.C. 3507, FDA has
submitted the following proposed collection of information to OMB for
review and clearance.

Electronic Submission Process for Voluntary Allegations to the Center
for Devices and Radiological Health--OMB Control Number 0910-0769--
Extension

    This information collection request collects information
voluntarily submitted to Center for Devices and Radiological Health
(CDRH) on actual or potential health risk concerns about a medical
device or radiological product or its use. Because, prior to the
establishment of the electronic submission process for voluntary
allegations to CDRH, there had been no established guidelines or
instructions on how to submit an allegation to CDRH, allegations often
contained minimal information and were received via phone calls,
emails, or conversationally. CDRH has established a consistent format
and process for the submission of device allegations that enhances our
timeliness in receiving, assessing, and evaluating voluntary
allegations. The information provided in the allegations received by
CDRH may be used to clarify the recurrence or emergence of significant
device-related risks to the general public and the need to initiate
educational outreach or regulatory action to minimize or mitigate
identified risks.
    In the Federal Register of May 30, 2017 (82 FR 24716) FDA published
a 60-day notice requesting public comment on the proposed collection of
information. No comments were received.
    FDA estimates the burden of this collection of information as
follows:

                                                     Table 1--Estimated Annual Reporting Burden \1\
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                                                               Number of
                 Activity                     Number of      responses per     Total annual          Average burden per  response          Total hours
                                             respondents       respondent       responses
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Electronic submission of voluntary                    700                1              700   .25 (15 minutes).........................             175
 allegations to CDRH.
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\1\ There are no capital costs or operating and maintenance costs associated with this collection of information.

    Dated: August 17, 2017.
Leslie Kux,
Associate Commissioner for Policy.
[FR Doc. 2017-17836 Filed 8-22-17; 8:45 am]
BILLING CODE 4164-01-P