[Federal Register Volume 86, Number 185 (Tuesday, September 28, 2021)]
[Notices]
[Pages 53699-53718]
[FR Doc No: 2021-21056]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-93112; File No. PCAOB-2021-01]

Public Company Accounting Oversight Board; Notice of Filing of
Proposed Rule on Board Determinations Under the Holding Foreign
Companies Accountable Act

September 23, 2021.
    Pursuant to Section 107(b) of the Sarbanes-Oxley Act of 2002 (the
``Act''), notice is hereby given that on September 23, 2021, the Public
Company Accounting Oversight Board (the ``Board'' or ``PCAOB'') filed
with the Securities and Exchange Commission (the ``Commission'' or
``SEC'') the proposed rule described in items I and II below, which
items have been prepared by the Board. The Commission is publishing
this notice to solicit comments on the proposed rule from interested
persons.

I. Board's Statement of the Terms of Substance of the Proposed Rule

    On September 22, 2021, the Board adopted PCAOB Rule 6100, Board
Determinations Under the Holding Foreign Companies Accountable Act (the
``proposed rule''). The text of the proposed rule appears in Exhibit A
to the SEC Filing Form 19b-4 and is available on the Board's website at
https://pcaobus.org/about/rules-rulemaking/rulemaking-dockets/docket-048-proposed-rule-governing-board-determinations-under-holding-foreign-companies-accountable-act and at the Commission's Public Reference
Room.

II. Board's Statement of the Purpose of, and Statutory Basis for, the
Proposed Rule

    In its filing with the Commission, the Board included statements
concerning the purpose of, and basis for, the proposed rule and
discussed comments it received on the proposed rule. The text of these
statements may be examined at the places specified in Item IV below.
The Board has prepared summaries, set forth in Sections A, B, C, and D
below, of the most significant aspects of such statements. In addition,
the Board is requesting that the Commission determine that Section
103(a)(3)(C) of the Act does not apply to the proposed rule. The
Board's conclusion in this regard is set forth in Section D.

A. Board's Statement of the Purpose of, and Statutory Basis for, the
Proposed Rule

(a) Purpose
    The Act mandates that the Board inspect registered public
accounting firms and investigate possible statutory, rule, and
professional standards violations committed by those firms and their
associated persons. That mandate applies with equal force to the
Board's oversight of registered firms in the United States and in
foreign jurisdictions.
    Over the course of more than a decade, the Board has worked
effectively with authorities in foreign jurisdictions to fulfill its
mandate to oversee registered firms located outside the United States.
With rare exceptions, foreign audit regulators have cooperated with the
Board and allowed it to exercise its oversight authority as it relates
to registered firms located within

their respective jurisdictions. The norms of international comity have
guided those efforts and allowed the Board to work cooperatively across
borders, to resolve conflicts of law, and to overcome other potential
obstacles. The Board benefits greatly from cross-border cooperation
with its international counterparts and has built constructive
relationships that facilitate meaningful oversight. Authorities in a
limited number of foreign jurisdictions, however, have taken positions
that deny the Board the access it needs to conduct its mandated
oversight activities.
    Recognizing the ongoing obstacles to Board inspections and
investigations in certain foreign jurisdictions, Congress enacted the
Holding Foreign Companies Accountable Act (``HFCAA'').\1\ The HFCAA
requires that the Board determine whether it is unable to inspect or
investigate completely registered public accounting firms located in a
foreign jurisdiction because of a position taken by one or more
authorities in that jurisdiction. The HFCAA, among other things, also
mandates that, after the Board makes such a determination, the
Commission shall require covered issuers \2\ who retain such firms to
make certain disclosures in their annual reports and, eventually, if
certain conditions persist, shall prohibit trading in those issuers'
securities.\3\
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    \1\ Public Law 116-222, 134 Stat. 1063 (Dec. 18, 2020).
    \2\ See HFCAA Sec.  2(i)(1)(A), 15 U.S.C. 7214(i)(1)(A)
(defining ``covered issuer''). An ``issuer,'' as that term is used
here, is distinct from a ``covered issuer,'' and is defined in
Section 2(a)(7) of the Act.
    \3\ See generally Holding Foreign Companies Accountable Act
Disclosure, SEC Exchange Act Release No. 91364 (Mar. 18, 2021).
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    Following public comment, the Board adopted the proposed rule, with
some modifications after consideration of comments, to establish a
framework for the Board to make its determinations under the HFCAA. The
proposed rule establishes the manner of the Board's determinations; the
factors the Board will evaluate and the documents and information it
will consider when assessing whether a determination is warranted; the
form, public availability, effective date, and duration of such
determinations; and the process by which the Board will reaffirm,
modify, or vacate any such determinations.
(b) Statutory Basis
    The statutory basis for the proposed rule is Title I of the Act.

B. Board's Statement on Burden on Competition

    Not applicable. The Board's consideration of the economic impacts
of the proposed rule is discussed in Section D below.

C. Board's Statement on Comments on the Proposed Rule Received From
Members, Participants or Others

Rulemaking History
    On May 13, 2021, the Board proposed a new rule that would establish
a framework for the Board's determinations under the HFCAA.\4\ The
Board received eight comments on the proposal from commenters across a
range of affiliations.\5\ Commenters generally noted that the Board's
statutorily mandated oversight activities--including the Board
inspections and investigations referenced in the HFCAA--promote audit
quality and enhance the quality of financial reporting, which serve to
protect investors and further the public interest. The proposed rule is
informed by the comments received. The proposed rule also takes into
account observations based on PCAOB oversight activities.
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    \4\ See PCAOB Rel. No. 2021-001, Proposed Rule Governing Board
Determinations Under the Holding Foreign Companies Accountable Act
(May 13, 2021).
    \5\ The comment letters on the proposal are available on the
Board's website in Rulemaking Docket No. 048, available at https://pcaobus.org/about/rules-rulemaking/rulemaking-dockets/docket-048-proposed-rule-governing-board-determinations-under-holding-foreign-companies-accountable-act. During the comment period, Board members
and staff discussed the proposal during a webinar for investors on
international issues, a transcript of which also is available in
Rulemaking Docket No. 048.
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Background
The Board's Oversight of Non-U.S. Registered Public Accounting Firms
Through Board Inspections and Investigations
    Section 102 of the Act prohibits public accounting firms that are
not registered with the Board from preparing or issuing, or from
participating in the preparation or issuance of, audit reports with
respect to issuers, brokers, or dealers.\6\ Implementing this
prohibition, PCAOB Rule 2100, Registration Requirements for Public
Accounting Firms, provides that each public accounting firm that
prepares or issues an audit report with respect to an issuer, broker,
or dealer, or plays a substantial role in the preparation or furnishing
of such a report, must be registered with the Board.\7\
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    \6\ See Section 102(a) of the Act; see also Section 2(a)(7) of
the Act & PCAOB Rule 1001(i)(iii) (defining ``issuer''); Section
110(3) of the Act & PCAOB Rule 1001(b)(iii) (defining ``broker'');
Section 110(4) of the Act & PCAOB Rule 1001(d)(iii) (defining
``dealer'').
    \7\ See PCAOB Rule 2100; see also PCAOB Rule 1001(p)(ii)
(defining ``play a substantial role in the preparation or furnishing
of an audit report'').
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    These provisions apply equally to U.S. and non-U.S. public
accounting firms. Section 106 of the Act provides that any non-U.S.
public accounting firm that prepares or furnishes an audit report with
respect to an issuer, broker, or dealer is subject to the Act and to
the Board's rules ``in the same manner and to the same extent'' as a
U.S. public accounting firm.\8\ Therefore, non-U.S. firms issuing such
reports must register with the Board. Section 106 of the Act further
authorizes the Board to require non-U.S. firms that do not issue such
reports but that play a substantial role in the preparation or
furnishing of such reports to register with the Board,\9\ and the Board
exercised that authority when it adopted Rule 2100.\10\
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    \8\ Section 106(a)(1) of the Act.
    \9\ See Section 106(a)(2) of the Act.
    \10\ See PCAOB Rule 2100. Section 106(c) of the Act allows the
Board, subject to Commission approval, to exempt a non-U.S. firm or
any class of such firms from any provision of the Act or the Board's
rules, upon a determination that doing so is necessary or
appropriate in the public interest or for the protection of
investors. In connection with the launch of its oversight system in
2003, the Board received numerous requests that non-U.S. firms be
exempted from the Board's oversight requirements, but the Board
declined to adopt any such exemptions, finding such exemptions to be
inconsistent with its mandate to protect investors. See, e.g.,
Registration System for Public Accounting Firms, PCAOB Rel. No.
2003-007, at 13, 17-20 (May 6, 2003); see also, e.g., Final Rule
Concerning the Timing of Certain Inspections of Non-U.S. Firms, and
Other Issues Relating to Inspections of Non-U.S. Firms, PCAOB Rel.
No. 2009-003, at 9 n.23 (June 25, 2009).
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    Thus, by virtue of Section 106 of the Act and Rule 2100, non-U.S.
firms are subject to the same registration requirements as U.S. firms,
and, once registered, they are subject to the same oversight as U.S.
firms. This oversight includes Board inspections at mandated regular
intervals and Board investigations.
The Board's Inspection Mandate
    The Act mandates that the Board administer a continuing program of
inspections that assesses registered firms' and their associated
persons' compliance with the Act, the rules of the Board, the rules of
the Commission, and professional standards in connection with the
performance of audits, the issuance of audit reports, and related
matters involving issuers.\11\

Board inspections are the Board's ``primary tool of oversight.'' \12\
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    \11\ See Section 104(a)(1) of the Act; see also Section
101(c)(3) of the Act; PCAOB Rule 4000(a), General. The Act also
permits the Board to establish, by rule, a program of inspection
with respect to registered firms that provide one or more audit
reports for a broker or dealer. See Section 104(a)(2) of the Act.
The Board's rules provide for an interim inspection program related
to audits of brokers and dealers. See PCAOB Rule 4020T, Interim
Inspection Program Related to Audits of Brokers and Dealers.
    \12\ PCAOB Rel. No. 2009-003, at 8-9; see also Order Approving
Proposed Amendment to Board Rules Relating to Inspections, SEC
Exchange Act Release No. 61649, at 5 (Mar. 4, 2010) (observing that
inspections are ``the cornerstone of the Board's regulatory
oversight of audit firms'').
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    In accordance with the Act, and as set forth in the Board's rules,
the Board periodically inspects the audits of registered public
accounting firms.\13\ Board inspections must be performed annually with
respect to each registered firm that regularly provides audit reports
for more than 100 issuers, and at least triennially with respect to
each registered firm that regularly provides audit reports for 100 or
fewer issuers.\14\ The Board also may conduct special inspections on
its own initiative or at the Commission's request.\15\
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    \13\ See Section 104(a)(1) of the Act. Generally, a registered
firm's issuance of an audit report triggers a PCAOB inspection,
subject to certain limited exceptions. See Section 104(b)(1) of the
Act; PCAOB Rules 4003(a)-(b), Frequency of Inspections; see also
PCAOB Rules 4003(c) & (e) (identifying certain circumstances in
which the Board has discretion to forgo an inspection of a firm).
Additionally, the Board conducts inspections of firms that have not
issued an audit report with respect to an issuer but have played a
substantial role in the preparation or furnishing of such a report.
See PCAOB Rule 4003(h).
    \14\ See Section 104(b)(1) of the Act; see also PCAOB Rules
4003(a)-(b). The Act provides that the Board, by rule, may adjust
the annual and triennial inspection schedules if the Board finds
that different schedules are consistent with the purposes of the
Act, the public interest, and the protection of investors. See
Section 104(b)(2) of the Act; see also PCAOB Rules 4003(d)-(g)
(adjusting the inspection schedule in certain circumstances).
    \15\ See Section 104(b)(2) of the Act.
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    During an inspection, the Board reviews audit engagements
``selected by the Board.'' \16\ The Board also evaluates the
sufficiency of the firm's quality control system (and the documentation
and communication of that system), and may perform other testing of the
firm's audit, supervisory, and quality control procedures as deemed
necessary or appropriate in light of the purpose of the inspection and
the responsibilities of the Board.\17\
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    \16\ Section 104(d)(1) of the Act.
    \17\ See Sections 104(d)(2) and 104(d)(3) of the Act.
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    To conduct an inspection, the Board must obtain documents and
information from the firm and its associated persons, and when the
Board requests such documents or information, registered firms and
their associated persons must comply. In this regard, the Act provides
that a firm's cooperation in and compliance with document requests made
in furtherance of the Board's authority and responsibilities under the
Act are a condition to the continuing effectiveness of the firm's
registration with the Board.\18\ Furthermore, PCAOB Rule 4006, Duty to
Cooperate With Inspectors, imposes on registered firms and their
associated persons a duty to cooperate with PCAOB inspectors, which
includes complying with requests for access to, and the ability to
copy, any record in their possession, custody, or control, and with
requests for information by oral interviews, written responses, or
otherwise.\19\
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    \18\ See Section 102(b)(3) of the Act. Section 102(b)(3)(A) of
the Act specifies that each registration application shall contain
``a consent executed by the . . . firm to cooperation in and
compliance with any request for . . . documents made by the Board in
the furtherance of its authority and responsibilities'' under the
Act. Section 102(b)(3)(B) of the Act, in turn, provides that each
registration application shall contain a statement that the firm
``understands and agrees that [such] cooperation and compliance . .
. shall be a condition to the continuing effectiveness of the
registration of the firm with the Board.''
    \19\ See PCAOB Rule 4006; see also Gately & Assocs., LLC, SEC
Exchange Act Release No. 62656, at 9 (Aug. 5, 2010) (``The
obligations under Rule 4006 are unequivocal, and apply to `any
request[ ] made in furtherance of the Board's authority and
responsibilities. ' '' (quoting Rule 4006)). Documents and
information prepared or received by or specifically for the Board in
connection with an inspection are confidential and privileged as an
evidentiary matter, but the Board may share them with the Commission
and, under certain circumstances, with the Attorney General of the
United States, certain federal regulators, state attorneys general,
certain state regulators, and certain self-regulatory organizations.
See Section 105(b)(5)(B) of the Act.
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The Board's Investigation Mandate
    The Act also authorizes the Board to conduct investigations (and,
relatedly, disciplinary proceedings) with respect to registered firms
and their associated persons.\20\ The Board may investigate any act,
practice, or omission to act by a registered firm or associated person
that may violate the Act, the rules of the Board, the provisions of the
securities laws relating to the preparation and issuance of audit
reports and the obligations and liabilities of accountants with respect
thereto, including the rules of the Commission issued under the Act, or
professional standards, regardless of how the act, practice, or
omission came to the Board's attention.\21\
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    \20\ See Section 101(c)(4) of the Act; see also Section 105(a)
of the Act.
    \21\ See Section 105(b)(1) of the Act.
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    As with inspections, the Board's ability to conduct investigations
depends on the Board's ability to obtain documents and information from
registered firms and their associated persons. Pursuant to the Act,\22\
the Board has adopted rules under which the Board may (1) require
testimony of a registered firm or an associated person thereof with
respect to any matter that the Board considers relevant or material to
an investigation; \23\ (2) require production of audit work papers and
any other document or information possessed by a registered firm or
associated person, wherever domiciled, that the Board considers
relevant or material to an investigation; \24\ (3) inspect the books or
records of a registered firm or associated person to verify the
accuracy of any documents or information supplied; \25\ (4) request the
testimony of, or any document in the possession of, any other person
that the Board considers relevant or material to an investigation,
subject to certain limitations; \26\ and (5) seek issuance by the
Commission, in a manner established by the Commission, of a subpoena
requiring the testimony of, or the production of any document in the
possession of, any person that the Board considers relevant or material
to an investigation.\27\
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    \22\ See Section 105(b)(2) of the Act.
    \23\ See PCAOB Rule 5102, Testimony of Registered Public
Accounting Firms and Associated Persons in Investigations.
    \24\ See PCAOB Rule 5103, Demands for Production of Audit
Workpapers and Other Documents from Registered Public Accounting
Firms and Associated Persons.
    \25\ See PCAOB Rule 5104, Examination of Books and Records in
Aid of Investigations.
    \26\ See PCAOB Rule 5105, Requests for Testimony or Production
of Documents from Persons Not Associated with Registered Public
Accounting Firms.
    \27\ See PCAOB Rule 5111, Requests for Issuance of Commission
Subpoenas in Aid of an Investigation.
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    Pursuant to the Act, a firm's cooperation in and compliance with
requests for testimony and for the production of documents made in
furtherance of the Board's authority and responsibilities are a
condition to the continuing effectiveness of the firm's registration
with the Board.\28\ Moreover, if a registered firm or associated person
refuses to testify, produce documents, or otherwise cooperate with a
Board investigation, the Board can impose sanctions, which may include
suspending or revoking a firm's registration and suspending or barring
an individual from associating with a registered firm.\29\ As the
Commission has observed, failing to cooperate in a

Board investigation is ``very serious misconduct.'' \30\
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    \28\ See Section 102(b)(3) of the Act.
    \29\ See Section 105(b)(3) of the Act; PCAOB Rule 5110,
Noncooperation with an Investigation.
    \30\ R.E. Bassie & Co., SEC Accounting and Auditing Enforcement
Release No. 3354, at 11 (Jan. 10, 2012).
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    The Act requires the Board to coordinate its investigations with
the Commission. The Board must notify the Commission of any pending
Board investigation that involves a potential violation of the
securities laws, and must thereafter coordinate its work with the
Commission's Division of Enforcement as necessary to protect any
ongoing Commission investigation.\31\ The Act also authorizes the Board
to refer an investigation to the Commission, a self-regulatory
organization, certain other federal regulators, and, at the
Commission's direction, certain attorneys general and state
regulators.\32\
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    \31\ See Section 105(b)(4)(A) of the Act; see also PCAOB Rule
5112(a), Commission Notification of Order of Formal Investigation.
Documents and information prepared or received by or specifically
for the Board in connection with an investigation are confidential
and privileged as an evidentiary matter, but the Board may share
them with the Commission and, under certain circumstances, with the
Attorney General of the United States, certain federal regulators,
state attorneys general, certain state regulators, and certain self-
regulatory organizations. See Section 105(b)(5)(B) of the Act.
    \32\ See Section 105(b)(4)(B) of the Act; see also PCAOB Rule
5112(b), Board Referrals of Investigations; PCAOB Rule 5112(c),
Commission-directed Referrals of Investigations.
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The Board's Cooperative Framework for International Oversight
    The Board has long observed that certain aspects of its inspection
and investigation mandates raise special concerns for non-U.S. firms,
including potential conflicts with non-U.S. law.\33\ Acknowledging
these challenges early on, the Board affirmed its commitment ``to
finding ways to accomplish the goals of the Act without subjecting non-
U.S. firms to conflicting requirements.'' \34\ The Board then worked
with its international counterparts where necessary or appropriate,
based on norms of international comity, to develop arrangements and
working practices to enable the Board and other audit regulators to
achieve their respective mandates in a manner responsive to the
potential conflicts of law that non-U.S. firms might confront.\35\ The
Board's cooperative approach to oversight of registered firms located
outside the United States did not, however, entail any abandonment of
the Board's inspection or investigation mandates or any relinquishment
of the Board's statutory authority to obtain the documents and
information it needs from non-U.S. firms in order to execute those
mandates.\36\
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    \33\ See, e.g., Proposed Rules Relating to the Oversight of Non-
U.S. Public Accounting Firms, PCAOB Rel. No. 2003-024, at 3 (Dec.
10, 2003).
    \34\ Inspection of Registered Public Accounting Firms, PCAOB
Rel. No. 2003-019, at 5, A2-15-A2-16 (Oct. 7, 2003).
    \35\ See, e.g., Briefing Paper, Oversight of Non-U.S. Public
Accounting Firms, PCAOB Rel. No. 2003-020, at 1-2 (Oct. 28, 2003)
(``[T]he PCAOB seeks to become partners with its international
counterparts in the oversight of the audit firms that operate in the
global capital markets. . . . [A]n arrangement based on mutual
cooperation with other high quality regulatory systems respects the
cultural and legal differences of the regulatory regimes that exist
around the world.''); PCAOB Rel. No. 2003-024, at 8 (``The Board
also believes its [cooperative] arrangements may reduce potential
conflicts of law . . . .'').
    \36\ PCAOB Rel. No. 2003-020, at 5 (``The Board believes that it
is appropriate that a cooperative approach respect the laws of other
jurisdictions, to the extent possible. At the same time, every
jurisdiction must be able to protect the participants in, and the
integrity of, its capital markets as it deems necessary and
appropriate.''); accord Final Rules Relating to Oversight of Non-
U.S. Firms, PCAOB Rel. No. 2004-005, at 3, A2-17 (June 9, 2004).
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    When the Board adopted its cooperative framework for overseeing
non-U.S. registered firms,\37\ it rejected calls to afford non-U.S.
firms that elected to register with the Board a legal-conflict
accommodation during inspections and investigations.\38\ In so doing,
the Board reiterated that ``[p]reserving the Board's ability to access
audit work papers and other documents or information maintained by
registered public accounting firms, including non-U.S. registered
public accounting firms, is critical to the Board carrying out its
obligations under the Act.'' \39\ For that reason, the Board did not
believe that it would be ``in the interests of U.S. investors or the
public for the Board to adopt a rule of general application that would
limit its ability to access such documents or information regardless of
the circumstances or need for those documents or information.'' \40\
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    \37\ See generally PCAOB Rel. No. 2004-005.
    \38\ See id. at A2-15-A2-16.
    \39\ Id. at A2-16.
    \40\ Id. at A2-16-A2-17.
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    The Commission approved the Board's rules regarding oversight of
non-U.S. firms, which embody the cooperative approach described
above.\41\ The Commission observed that the PCAOB was discussing
potential conflicts of law with foreign audit oversight bodies and
encouraged the PCAOB to continue those discussions and to consider ways
to work cooperatively with its international counterparts.\42\
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    \41\ See Order Approving Proposed Rules Relating to Oversight of
Non-U.S. Registered Public Accounting Firms, SEC Exchange Act
Release No. 34-50291, at 3 (Aug. 30, 2004).
    \42\ See id. at 3.
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    Those discussions have continued, and nearly all have been
fruitful. The Board's oversight programs take into account the
possibility that a non-U.S. firm's obligations under the Act or the
Board's rules might conflict with non-U.S. law. The Board has
established procedures that enable non-U.S. firms to assert legal
conflicts during the registration and periodic reporting processes so
that such firms are not prevented from completing a registration
application or complying with periodic reporting requirements.\43\ The
Board also seeks to coordinate and cooperate with its international
counterparts when conducting inspections or investigations in other
countries.\44\ Nevertheless, in all respects, the Board has made clear
that its statutory authority to obtain the documents and information it
needs to conduct inspections and investigations has not been
relinquished, surrendered, forfeited, or otherwise vitiated.\45\
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    \43\ PCAOB Rule 2105, Conflicting Non-U.S. Laws, permits a non-
U.S. firm to withhold required information from its registration
application based on an asserted conflict with non-U.S. law. That
rule allows the Board to treat a registration application as
complete if the firm, among other things, submits a copy of the
purportedly conflicting non-U.S. law and an accompanying legal
opinion. But Rule 2105 does not provide a vehicle for resolving
conflicts of law during registration, nor does it apply ``to
potential conflicts of law that may arise subsequent to
registration.'' PCAOB Rel. No. 2004-005, at A2-16-A2-18; see also
PCAOB Rule 2207, Assertions of Conflicts with Non-U.S. Laws
(establishing a similar process for registered firms' annual and
special reports to the Board).
    \44\ See, e.g., Rules on Periodic Reporting by Registered Public
Accounting Firms, PCAOB Rel. No. 2008-004, at 32 (June 10, 2008).
    \45\ See, e.g., id. at 41 (``The Board has consistently
maintained that, although it will seek to work cooperatively with
and through non-U.S. regulators, and although it is willing to
accommodate a non-U.S. firm's reluctance (rooted in an asserted
conflict of law) to provide the required written consent to
cooperate, each firm ultimately has an obligation to cooperate with
the Board to the extent that the Board requires cooperation. The
Board does not view this statutory obligation as limited or
qualified by non-U.S. legal restrictions.'').
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Resolution of Obstacles to Inspections and Investigations in Non-U.S.
Jurisdictions
    The practices and approaches the Board has successfully developed
with foreign regulators to resolve conflicts and to complete
inspections and investigations under the Act can differ from
jurisdiction to jurisdiction, but they all implement three core
principles:

    (1) The Board must be able to conduct inspections and
investigations consistent with its mandate; \46\
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    \46\ See, e.g., Section 104(a)(1) of the Act (requiring a
``continuing program of inspections''); Section 104(b)(1) of the Act
(establishing inspection frequency requirements); Section 104(c) of
the Act (requiring identification of non-compliant acts, practices,
or omissions to act, and providing for reporting of such conduct to
the Commission and appropriate state regulatory authorities, when
appropriate); Section 105(b)(1) of the Act (authorizing Board
investigations); Section 105(b)(3) of the Act (authorizing the
imposition of sanctions for noncooperation with an investigation);
Section 105(b)(4) of the Act (requiring coordination with the
Commission's Division of Enforcement and authorizing referrals of
investigations in certain circumstances); Section 105(b)(5)(B)(i) of
the Act (authorizing the Board to share with the Commission
documents received in connection with an inspection or
investigation).
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    (2) The Board must be able to select the audit work and potential
violations to be examined; \47\ and
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    \47\ See, e.g., Section 104(d)(1) of the Act (directing the
Board to inspect and review audit and review engagements ``as
selected by the Board''); Section 104(d)(3) of the Act (authorizing
the Board to perform other testing of audit, supervisory, and
quality control procedures as are necessary or appropriate in light
of the purpose of the inspection and the responsibilities of the
Board); Section 105(b)(1) of the Act (authorizing the Board to
conduct an investigation of ``any'' act, practice, or omission to
act by a registered firm or an associated person thereof that may
violate ``any'' provision of the Act, the rules of the Board, the
provisions of the securities laws relating to the preparation and
issuance of audit reports and the obligations and liabilities of
accountants with respect thereto, including the rules of the
Commission under the Act, or professional standards).
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    (3) The Board must have access to firm personnel, audit work
papers, and other information and documents deemed relevant by Board
staff.\48\
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    \48\ See, e.g., Section 104(d)(1) of the Act (directing the
Board to inspect and review audit and review engagements); Section
104(d)(2) of the Act (directing the Board to evaluate the
sufficiency of a registered firm's quality control system, including
the manner of the documentation and communication of that system);
Section 105(b)(2)(A)-(B) of the Act (authorizing the Board to
require the testimony of, and the production of audit work papers
and any other documents or information from, registered firms and
their associated persons, wherever domiciled, and to inspect the
books and records of such firm or associated person to verify the
accuracy of any documents or information supplied).
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    The Board has been able to accommodate the legal requirements of
most non-U.S. jurisdictions without compromising on these three core
principles, which the Board considers to be fundamental to its ability
to inspect and investigate non-U.S. firms completely.
    Building collaborative working relationships with international
counterparts based on these principles has taken considerable time and
substantial effort, but the Board believes that ``it is in the
interests of the public and investors for the Board to develop
efficient and effective cooperative arrangements with its non-U.S.
counterparts.'' \49\ The Board now has extensive experience with
cooperative arrangements that successfully resolve conflicts and allow
the PCAOB and its international counterparts to satisfy their
respective oversight mandates.
---------------------------------------------------------------------------

    \49\ PCAOB Rel. No. 2009-003, at 4-5.
---------------------------------------------------------------------------

Board Inspections of Non-U.S. Firms
    Inspections of non-U.S. firms began in 2005,\50\ and the Board
quickly identified obstacles that required negotiation with its
international counterparts. When a registered firm issuing audit
reports for an issuer is located in a non-U.S. jurisdiction that has an
auditor oversight authority of its own, the Board seeks to engage with
that local regulator. The PCAOB conducts many inspections of non-U.S.
firms jointly with local authorities, using approaches that take into
consideration the laws and practices of the local jurisdiction. The
Board also developed a specific regulatory framework for assessing the
degree, if any, to which the Board may rely on the inspection work of
the local regulator in an effort to reduce redundancy.\51\ Even where
the Board conducts its own inspection rather than a joint inspection
with a local auditor oversight authority, the Board may communicate
with its international counterpart regarding the Board's inspections in
the jurisdiction.\52\
---------------------------------------------------------------------------

    \50\ See Rule Amendments Concerning the Timing of Certain
Inspections of Non-U.S. Firms, and Other Issues Relating to
Inspections of Non-U.S. Firms, PCAOB Rel. No. 2008-007, at 4 (Dec.
4, 2008).
    \51\ See PCAOB Rel. No. 2009-003, at 5-6. Non-U.S. firms may
formally request that the Board rely on a non-U.S. inspection to the
extent deemed appropriate by the Board, and the Board will examine
certain factors to determine the degree, if any, to which the Board
may rely on the non-U.S. inspection. See PCAOB Rule 4011, Statement
by Foreign Registered Public Accounting Firms; PCAOB Rule 4012,
Inspections of Foreign Registered Public Accounting Firms; PCAOB
Rel. No. 2009-003, at 5. In contrast to an exemption, reliance on a
non-U.S. inspection pursuant to Rule 4012 is a cooperative approach
that can be used when efficient and appropriate.
    \52\ See PCAOB Rel. No. 2009-003, at 5.
---------------------------------------------------------------------------

    By December 2008, the Board had inspected non-U.S. firms in 24
jurisdictions.\53\ But the Board also observed that home-country legal
obstacles and sovereignty concerns were impeding the Board's ability to
conduct inspections of some non-U.S. firms.\54\ Given these obstacles,
the Board, in 2009, adjusted the schedule for its first inspections of
non-U.S. firms in certain jurisdictions so that the Board could
continue its efforts to reach cooperative arrangements with those
firms' home-country regulators.\55\
---------------------------------------------------------------------------

    \53\ See PCAOB Rel. No. 2008-007, at 4 & n.9 (inspections had
been conducted in Argentina, Australia, Bermuda, Brazil, Canada,
Chile, Colombia, Greece, Hong Kong, India, Indonesia, Ireland,
Israel, Japan, Kazakhstan, Mexico, New Zealand, Panama, Peru,
Singapore, South Africa, South Korea, Taiwan, and the United
Kingdom).
    \54\ PCAOB Rel. No. 2009-003, at 5.
    \55\ See id. at 9.
---------------------------------------------------------------------------

    In so doing, however, the Board expressly rejected the suggestion
that it should exempt from inspection non-U.S. firms ``that cannot
cooperate with PCAOB inspections due to legal conflicts or sovereignty-
based opposition from their local governments,'' finding that exempting
such firms from inspections is not in the interests of investors or the
public.\56\ Instead, the Board reaffirmed the ultimate obligation of
all registered firms, including non-U.S. firms, to be subject to
inspection and to comply with the Board's inspection-related
requests.\57\
---------------------------------------------------------------------------

    \56\ See id. at 8-9.
    \57\ See id. at 13-14 (``[F]irms must register with the Board in
order to engage in certain professional activity directly related
to, and affecting, U.S. financial markets, and all registered firms
are subject to the Act and the rules of the Board irrespective of
their location. A registered firm is subject to various requirements
and conditions, including PCAOB Rule 4006's requirement to cooperate
in an inspection. In addition, as reflected in Section 102(b)(3) of
the Act, a firm's compliance with Board requests for information is
a condition of the continuing effectiveness of the firm's
registration with the Board.''). The Board also reiterated that it
``does not view non-U.S. legal restrictions or the sovereignty
concerns of local authorities as a sufficient defense in a Board
disciplinary proceeding . . . for failing or refusing to provide
information requested in an inspection.'' Id. at 14; accord PCAOB
Rel. No. 2008-007, at 16 n.35.
---------------------------------------------------------------------------

    The Commission, in approving the Board's extension of the deadline
for the first inspections of certain non-U.S. firms, recognized that
``the adjustment would provide additional time [for the Board] to
continue discussions on outstanding matters and work towards
cooperation and coordination with authorities in all relevant
jurisdictions.'' \58\ And in connection with its approval of other
adjustments to the inspection schedule of non-U.S. firms, the
Commission stated that ``the PCAOB should continue to work toward
cooperative arrangements with the appropriate local auditor oversight
authorities where it is reasonably likely that appropriate cooperative
arrangements can be obtained.'' \59\
---------------------------------------------------------------------------

    \58\ Order Approving Proposed Amendment to Board Rules Relating
to Inspections, SEC Exchange Act Release No. 34-59991, at 3 (May 28,
2009).
    \59\ Id. at 5.
---------------------------------------------------------------------------

    By the end of 2009, the Board had conducted inspections of non-U.S.
firms in an additional nine jurisdictions, bringing the cumulative
total to 33 jurisdictions.\60\ The Board, however,

was still prevented from inspecting registered firms in mainland China,
Hong Kong (to the extent an audit encompassed a company's operations in
mainland China), Switzerland, and the European countries required to
follow the European Union's Directive on Statutory Auditors.\61\
---------------------------------------------------------------------------

    \60\ See Jurisdictions in Which the PCAOB Has Conducted
Inspections (as of Dec. 31, 2009) (Feb. 3, 2010), available at
https://pcaob-assets.azureedge.net/pcaob-dev/docs/default-source/inspections/documents/12-31_jurisdictions.pdf?sfvrsn=2c09bd73_0
(adding Belize, Bolivia, Cayman Islands, Norway, Papua New Guinea,
Philippines, Russia, Ukraine, and United Arab Emirates).
    \61\ See PCAOB Publishes Updated Staff Guidance Related to
Registration Process for Applicants from Certain Non-U.S.
Jurisdictions (June 1, 2010), available at https://org/events/news-
releases/news-release-detail/pcaob-publishes-updated-staff-guidance-
related-to-registration-process-for-applicants-from-certain-non-u-s-
jurisdictions_289.
---------------------------------------------------------------------------

    The Board responded to these obstacles in several ways \62\ and,
since 2010, the Board has inspected non-U.S. firms in an additional 20
jurisdictions, bringing the total number of non-U.S. jurisdictions in
which the PCAOB has conducted inspections to 53.\63\ Where needed, the
Board enters into formal bilateral cooperative agreements with non-U.S.
regulators, and has done so with authorities in 25 jurisdictions.\64\
The Board continues to publish its Denied Access List, which identifies
the jurisdictions where the PCAOB cannot conduct inspections because
foreign authorities have denied access, the auditors from those
jurisdictions that issued audit reports filed with the Commission, and
those auditors' non-U.S. public company clients.\65\ The Board also
still adheres to the registration approach it adopted in 2010 and
maintains a public list of the jurisdictions whose applicants are
subject to that approach.\66\
---------------------------------------------------------------------------

    \62\ In 2009, the Board began publishing a list of registered
firms whose first inspections were overdue, which identified the
jurisdiction in which each firm was located. See PCAOB Rel. No.
2009-003, at 10-11. In 2010, the Board expanded the publication to
include a list of non-U.S. public companies with securities traded
in U.S. markets that had retained a registered firm the Board could
not inspect because of asserted restrictions based on non-U.S. law
or objections on grounds of national sovereignty (the ``Denied
Access List''). See PCAOB Publishes List of Issuer Audit Clients of
Non-U.S. Registered Firms in Jurisdictions where the PCAOB is Denied
Access To Conduct Inspections (May 18, 2010), available at https://pcaobus.org/news-events/news-releases/news-release-detail/pcaob-publishes-list-of-issuer-audit-clients-of-non-u-s-registered-firms-in-jurisdictions-where-the-pcaob-is-denied-access-to-conduct-inspections_284 (``The auditors of the issuers appearing on this
list are located in [mainland] China, Hong Kong, Switzerland, and 18
European Union countries. The PCAOB continues to work to eliminate
obstacles to inspections in these jurisdictions.'').
    Also, in October 2010, the Board modified its approach to
registration applications from firms in jurisdictions where there
were unresolved obstacles to inspections, stating that ``its
consideration of new applications from firms in those jurisdictions
will no longer be premised on an expectation that those obstacles
will be resolved without undue delay to any necessary PCAOB
inspection of the firm.'' Consideration of Registration Applications
From Public Accounting Firms in Non-U.S. Jurisdictions Where There
Are Unresolved Obstacles to PCAOB Inspections, PCAOB Rel. No. 2010-
007, at 2-3 (Oct. 7, 2010). A list of those jurisdictions is
maintained on the PCAOB's website. See Frequently Asked Questions
Regarding Issues Relating to Non-U.S. Accounting Firms (Apr. 20,
2021), available at https://pcaobus.org/oversight/registration/non_us_registration_faq (FAQ 6).
    \63\ See Non-U.S. Jurisdictions Where the PCAOB has Conducted
Oversight, available at https://pcaobus.org/oversight/international/international/pcaob-inspections-of-registered-non-u-s--firms (adding
Austria, Bahamas, Denmark, Finland, France, Germany, Hungary, Italy,
Jamaica, Luxembourg, Malaysia, Netherlands, Nicaragua, Nigeria,
Pakistan, Spain, Sweden, Switzerland, Thailand, and Turkey).
    \64\ See PCAOB Cooperative Arrangements with Non-U.S.
Regulators, available at https://pcaobus.org//international/regulatorycooperation. Although a formal bilateral agreement is not
necessarily a prerequisite to a PCAOB inspection in a non-U.S.
jurisdiction, the PCAOB often enters into such agreements with
foreign audit regulators to minimize administrative burdens and
potential legal or other conflicts that non-U.S. firms might face in
their home countries.
    \65\ See Audit Reports Issued by PCAOB-Registered Firms in
Jurisdictions where Authorities Deny Access to Conduct Inspections,
available at https://pcaobus.org/oversight/international/denied-access-to-inspections (identifying jurisdictions where the Board has
been denied access to conduct inspections).
    \66\ See Frequently Asked Questions Regarding Issues Relating to
Non-U.S. Accounting Firms (Apr. 20, 2021), available at https://pcaobus.org/oversight/registration/non_us_registration_faq (FAQ 6,
identifying jurisdictions where obstacles to inspection exist). This
list of jurisdictions is broader than the Denied Access List,
because this list includes certain European jurisdictions where the
Board presently does not need to conduct inspections because no
registered firms in the jurisdiction are issuing audit reports, but
where an agreement regarding inspections would need to be reached
before any future inspections could take place.
---------------------------------------------------------------------------

    All told, more than 840 non-U.S. firms from more than 80
jurisdictions are registered with the Board. Over 200 of those firms,
from more than 40 jurisdictions, are presently subject to PCAOB
inspection on a triennial basis because they have chosen to audit
issuers.\67\ As of the date of this release, as reflected on the
Board's website,\68\ the Board can conduct inspections everywhere it
needs to do so except in mainland China and Hong Kong.
---------------------------------------------------------------------------

    \67\ Currently, there are no non-U.S. firms that the PCAOB is
required by the Act to inspect on an annual basis.
    \68\ See International, available at https://pcaobus.org/oversight/international (providing a map showing where the Board
currently is able to conduct oversight of registered firms and where
the Board currently is denied the necessary access to conduct
oversight activities).
---------------------------------------------------------------------------

Board Investigations of Non-U.S. Firms
    The Board has conducted numerous investigations in which it
appeared that an act, practice, or omission to act by a non-U.S. firm
or its associated persons might have violated an applicable law, rule,
or standard. In the course of those investigations, the Board has used
a variety of tools, provided for in the Act and the Board's rules, to
access relevant documents and information. Using those tools, the Board
has requested and obtained audit work papers and other documents and
information from non-U.S. firms and associated persons, and has
conducted interviews and testimony of non-U.S. firm personnel.
    In many of those instances, the Board coordinated its investigation
with a non-U.S. regulator with which it had entered a bilateral
cooperative arrangement. Those cooperative arrangements have allowed
the Board and its international counterpart to communicate and share
information, facilitating the Board's access to the documents and
information it needed to conduct the investigation. In some but not all
circumstances, in parallel with the Board's investigation, a non-U.S.
regulator may conduct its own investigation of the same firm or
associated persons for possible violations under the regulator's laws
and standards.
    Many of the Board's investigations of non-U.S. firms or their
associated persons remain confidential, because Board investigations
are non-public and cannot be disclosed unless they have resulted in the
imposition of disciplinary sanctions.\69\ The Board does, however,
disclose its settled and adjudicated disciplinary orders imposing
sanctions.\70\ To date, the Board has sanctioned more than 50 non-U.S.
registered firms and more than 60 associated persons of such firms,
from 24 non-U.S. jurisdictions.\71\ In addition to the investigations
that resulted in the imposition of sanctions, the Board also has
conducted investigations that did not result in sanctions in numerous
other non-U.S. jurisdictions. Yet despite these results, the Board has
been unable to complete some investigations of non-U.S. firms or their
personnel because they refused to cooperate with an investigation based
on a position taken

by non-U.S. authorities in their jurisdiction.\72\
---------------------------------------------------------------------------

    \69\ See Section 105(b)(5)(A) of the Act.
    \70\ When the Board imposes sanctions, the Board's disciplinary
action is stayed if the respondent applies for Commission review of
the Board's order or if the Commission initiates such review on its
own. In either situation, the Board's sanctions remain stayed (and
non-public) unless and until the Commission lifts the stay. See
Section 105(e)(1) of the Act. After the stay is lifted, the Board's
order may be made public. See Section 105(d)(1)(C) of the Act.
    \71\ See Enforcement Actions, available at https://pcaobus.org/oversight/enforcement/enforcement-actions.
    \72\ See, e.g., Crowe Horwath (HK) CPA Limited, PCAOB Rel. No.
105-2017-031 (July 25, 2017) (noncooperation with a Board
investigation based on positions taken by Chinese authorities); Kim
Wilfred Ti, PCAOB Rel. No. 105-2016-004 (Jan. 12, 2016) (same);
Derek Wan Tak Shing, PCAOB Rel. No. 105-2016-003 (Jan. 12, 2016)
(same); Edith Lam Kar Bo, PCAOB Rel. No. 105-2016-002 (Jan. 12,
2016) (same); PKF [Hong Kong], PCAOB Rel. No. 105-2016-001 (Jan. 12,
2016) (same).
---------------------------------------------------------------------------

The Holding Foreign Companies Accountable Act
    Against this backdrop, Congress enacted the HFCAA. The HFCAA, which
amends Section 104 of the Act, calls for the Board to determine whether
it is unable to inspect or investigate completely registered firms
located in a foreign jurisdiction because of a position taken by an
authority in that jurisdiction.\73\ The HFCAA, among other things, also
mandates that after the Board makes such a determination, the
Commission shall require covered issuers that retain firms subject to
the Board's determination to make certain disclosures in their annual
reports and, eventually, if certain conditions persist, shall prohibit
trading in those issuers' securities.\74\
---------------------------------------------------------------------------

    \73\ See HFCAA Sec.  2(i)(2)(A), 15 U.S.C. 7214(i)(2)(A)
(requiring that the Commission identify certain issuers that
``retain[ ] a registered public accounting firm that has a branch or
office that . . . is located in a foreign jurisdiction . . . and . .
. the Board is unable to inspect or investigate completely because
of a position taken by an authority in [that] foreign jurisdiction .
. . , as determined by the Board'').
    \74\ See HFCAA Sec. Sec.  2(i)(2)(B), 2(i)(3), 3(b), 15 U.S.C.
7214(i)(2)(B), 7214(i)(3), 7214a(b).
---------------------------------------------------------------------------

    The Board's determinations under the HFCAA supplement, rather than
supplant, the Board's other authorities under the Act. A registered
firm's cooperation in and compliance with Board requests during
inspections and investigations continues to be a condition to the
continuing effectiveness of its registration with the Board. Failure to
cooperate with a Board inspection or investigation still can result in
the imposition of disciplinary sanctions, including civil money
penalties and revocation of the firm's registration. Therefore, firms
must consider their obligations to comply with PCAOB inspection and
investigation demands when they choose to become and remain registered
with the Board and when they accept or continue client engagements.
Discussion of the Proposed Rule
    The HFCAA does not specify the procedure the Board should follow
when making determinations. Nor does the HFCAA specify the content of
the Board's determinations; the manner in which any such determination
should be shared with the Commission; how, and in what format, any such
determination should be made publicly available; the effective date or
duration of any such determination; or the manner in which any such
determination can be reaffirmed, modified, or vacated. The proposed
rule establishes those facets of the Board's determination process.
    Although the HFCAA does not expressly require the Board to adopt a
rule governing the determinations it makes under the statute, the Board
believes that a rule will inform investors, registered firms, issuers,
audit committees, foreign authorities, and the public at large as to
how the Board will perform its functions under the statute.
Furthermore, a Board rule will promote consistency in the Board's
processes regarding determinations under the HFCAA.\75\ Commenters
generally agreed that a rule governing the Board's determination
process would promote transparency and consistency and reduce
regulatory uncertainty.
---------------------------------------------------------------------------

    \75\ The Act states that ``[t]he rules of the Board shall,
subject to the approval of the Commission[,] . . . provide for the
operation and administration of the Board, the exercise of its
authority, and the performance of its responsibilities under this
Act.'' Section 101(g)(1) of the Act.
---------------------------------------------------------------------------

Two Types of Board Determinations Under the HFCAA
    The HFCAA requires that the Board determine whether it is unable to
inspect or investigate completely registered public accounting firms
that have a branch or office that is located in a foreign jurisdiction
because of a position taken by one or more authorities in that
jurisdiction. The proposed rule provides that the Board may make two
types of determinations: Determinations as to a particular foreign
jurisdiction and determinations as to a particular registered firm.
Those two types of determinations are addressed in subparagraphs (a)(1)
and (a)(2) of proposed Rule 6100.
Determinations as to Registered Firms Headquartered in a Particular
Foreign Jurisdiction
    The Board believes that firms headquartered in a foreign
jurisdiction necessarily have a branch or office that is located in
that jurisdiction. Taking that into account, subparagraph (a)(1) of the
proposed rule provides that the Board may determine that it is unable
to inspect or investigate completely registered firms \76\
headquartered in a foreign jurisdiction because of a position taken by
one or more authorities in that jurisdiction. In other words, a
jurisdiction-wide determination under subparagraph (a)(1) would apply
to all firms headquartered in that jurisdiction.
---------------------------------------------------------------------------

    \76\ The HFCAA refers to a firm's ``branch or office'' that the
Board is unable to inspect or investigate completely. HFCAA Sec.
2(i)(2)(A)(i), 15 U.S.C. 7214(i)(2)(A)(i). The Board does not
inspect or investigate branches or offices. Rather, the Board
inspects registered firms and investigates potential violations by
registered firms or their associated persons. Accordingly, the
proposed rule refers to the Board's inability to inspect or
investigate registered firms.
---------------------------------------------------------------------------

    The Board adopted subparagraph (a)(1) as proposed. Commenters
generally supported the Board's proposed approach to jurisdiction-wide
determinations. Several commenters noted that jurisdiction-wide
determinations would be consistent with the HFCAA or otherwise
appropriate, and several other commenters stated that having such
determinations apply to firms that are headquartered in the
jurisdiction would likewise be appropriate. No commenter asserted that
jurisdiction-wide determinations would be inconsistent with the HFCAA
or otherwise inappropriate.
    The Board believes that a jurisdiction-wide approach to its
determinations under the HFCAA is consistent with the structure of the
statute. The statute requires the Board's determinations to be based on
``a position taken by an authority in the foreign jurisdiction.'' It
follows that if a foreign authority articulates or maintains a position
that applies generally to PCAOB inspections or investigations in a
foreign jurisdiction, that position could provide the basis for a
jurisdiction-wide determination. Hence, the statute, in the Board's
view, can reasonably be interpreted to allow the Board to make
jurisdiction-wide determinations.\77\
---------------------------------------------------------------------------

    \77\ See, e.g., 166 Cong. Rec. H6033 (daily ed. Dec. 2, 2020)
(statement of Rep. Gonzalez) (``[T]he act should be read to apply to
companies where the auditor that signs the audit report is located
in a jurisdiction that does not permit PCAOB inspection access.'').
---------------------------------------------------------------------------

    Having a jurisdiction-wide approach at the Board's disposal is
important for consistency and efficiency. When the obstacles to
completing inspections and investigations are not specific to
individual registered firms, but instead reflect threshold or general
positions taken by a foreign authority, the Board believes that it
should be able to address those obstacles on a jurisdiction-wide basis
in a consistent manner and in a single determination. Under those
circumstances, separate determinations as to each registered firm in
the jurisdiction should not be required.
    The proposed rule provides that jurisdiction-wide determinations
would be limited to registered firms that are

``headquartered'' in the jurisdiction. The Board believes that a
position taken by a foreign authority will impact registered firms
headquartered in the jurisdiction, but its impact on firms that are
headquartered elsewhere can turn on multiple factors, including the
extent of a firm's presence in the jurisdiction and the nature and
extent of the audit work it performs in that jurisdiction. Limiting
jurisdiction-wide determinations to firms that are headquartered in the
jurisdiction is intended to ensure that these determinations are
appropriately tailored and do not encompass firms that have a physical
presence of any kind, or personnel of any number, in the jurisdiction.
Consistent with the scope of the HFCAA, however, the proposed rule
provides that the Board may make individualized determinations as to
firms that have an ``office'' in a noncooperative jurisdiction but are
headquartered elsewhere, as discussed below.
    A firm is ``headquartered,'' as that term is used in the proposed
rule, at its principal place of business (i.e., where the firm's
management directs, controls, and coordinates the firm's
activities).\78\ The Board would presume that a firm is headquartered
at the physical address reported by the firm as its headquarters to the
Board in the firm's required filings.\79\ Absent an indication that the
headquarters address reported by a firm may not be its principal place
of business, the Board would use that address to determine where the
firm is ``headquartered'' for purposes of the proposed rule. If
questions arise as to whether a firm's reported headquarters address is
the firm's principal place of business, however, the Board may consider
other relevant and reliable information regarding the firm and may
request additional information from the firm pursuant to the Board's
rules when determining where a firm is headquartered.\80\
---------------------------------------------------------------------------

    \78\ See, e.g., Hertz Corp. v. Friend, 559 U.S. 77, 92-93 (2010)
(defining ``principal place of business'' in the context of federal
diversity jurisdiction, and further explaining that ``in practice it
should normally be the place where the corporation maintains its
headquarters--provided that the headquarters is the actual center of
direction, control, and coordination, i.e., the `nerve center,' and
not simply an office where the corporation holds its board
meetings'').
    \79\ When registering with the Board, an applicant must provide
its ``HEADQUARTERS PHYSICAL ADDRESS'' in Item 1.2.1 of its
application for registration on Form 1. Each year thereafter, in
Item 1.2.a of its annual report on Form 2, a firm must provide the
``Physical address of the Firm's headquarters office.''
    \80\ See PCAOB Rule 4000(b) (``In furtherance of the Board's
inspection process, the Board may at any time request that a
registered public accounting firm provide to the Board additional
information or documents relating to information provided by the
firm in any report filed pursuant to Section 2 of these Rules, or
relating to information that has otherwise come to the Board's
attention.''). This approach aligns with the Board's decade-long
practice when assessing registration applications from firms located
in non-U.S. jurisdictions where there are obstacles to PCAOB
inspections. This approach has been applied to applicants that are
headquartered in such jurisdictions, and the Board has sought
additional information from applicants when necessary to assess
where they are headquartered.
---------------------------------------------------------------------------

    Several commenters stated that it was appropriate for the Board to
look at a firm's required filings with the Board in the first instance
for information as to where the firm is headquartered. One commenter
suggested that the Board look beyond such filings and also consider a
firm's filings with its home-country regulator as well as other facts
and circumstances regarding the firm. As noted in the preceding
paragraph, the Board retains the ability to request and consider
additional information--including the information identified by the
commenter--if any questions arise regarding the location of a firm's
headquarters. Another commenter, contemplating that the Board might
look to filings of Form AP for information as to where a firm is
headquartered, cautioned that such forms may not be timely filed.\81\
The Board intends to rely on annual reports on Form 2 rather than Form
APs for such information, though the Board is not precluded from
considering information on Form APs or any other relevant and reliable
information.\82\
---------------------------------------------------------------------------

    \81\ Item 3.1.7 of Form AP identifies the office (not the
headquarters) of the firm that issued the audit report for the
referenced audit engagement, but Item 4.1 of Form AP identifies the
headquarters' office location of the other accounting firms that
contributed 5% or more of the total audit hours.
    \82\ In any event, PCAOB Rule 3211, Auditor Reporting of Certain
Audit Participants, already requires timely filing of accurate Form
APs, and the failure to comply with that rule can provide the basis
for inspection findings or disciplinary sanctions.
---------------------------------------------------------------------------

    In some instances, a member firm of an international firm network
might be headquartered in a jurisdiction that becomes subject to a
jurisdiction-wide determination of the Board. In such a circumstance,
if that member firm is a separate legal entity from the other member
firms in the network and signs audit reports in its own name, the Board
would not treat other member firms in the network as being ``located''
or having an ``office'' in that jurisdiction merely because they are
part of the same network as a member firm subject to the jurisdiction-
wide determination.\83\ One commenter addressed this topic and agreed
with this approach.
---------------------------------------------------------------------------

    \83\ See SEC Exchange Act Release No. 91364, at 4 n.8.
---------------------------------------------------------------------------

    Based on its experience with inspections and investigations in
foreign jurisdictions, the Board anticipates that most determinations
made under proposed Rule 6100 would be jurisdiction-wide determinations
under subparagraph (a)(1). Historically, the positions taken by foreign
authorities have impaired the Board's ability to conduct inspections or
investigations in the jurisdiction generally.
    Some of the positions taken by foreign authorities have been based
upon ``gatekeeper'' laws, which provide that a registered firm can
transfer its audit work papers to the Board only via a local non-U.S.
regulator. (By contrast, no audit oversight law in the U.S. requires
foreign auditor oversight authorities to involve the PCAOB when seeking
audit work papers from a U.S. firm.) As noted above, the Board has
considerable experience resolving conflicts that arise from gatekeeper
laws using bilateral arrangements, or statements of protocol, whereby
the non-U.S. regulator facilitates the PCAOB's access to audit work
papers and associated information that registered firms are obligated
to provide to the Board upon request. The Board's ability to conduct
inspections or investigations could become impaired in any of these
jurisdictions, however, if such an arrangement were terminated; if non-
performance under an arrangement were significant; or if, in the case
of countries within the European Economic Area, an arrangement were
rendered ineffective because the European Commission revoked or failed
to renew its ``adequacy decision'' regarding the PCAOB.\84\ The
resulting impairment would have jurisdiction-wide impact, and thus
could give rise to a jurisdiction-wide determination under subparagraph
(a)(1) of the proposed rule. The Board believes that a jurisdiction-
wide determination would be an efficient, appropriate response to such
an impairment.
---------------------------------------------------------------------------

    \84\ Article 47 of the Directive 2014/56/EU of the European
Parliament and of the Council of 16 April 2014 amending Directive
2006/43/EC on statutory audits of annual accounts and consolidated
accounts requires that the European Commission issue an adequacy
decision regarding a third country audit regulator (such as the
PCAOB) and that regulator's ability to safeguard audit work papers
and related confidential information before a European Union member
state audit regulator can execute a working arrangement allowing
firms to provide access to such information. See Directive 2014/56/
EU, available at https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=celex%3A32014L0056. The European Commission's July 2016
adequacy decision with respect to the PCAOB is set to expire in July
2022.

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

    Apart from gatekeeper laws, foreign authorities' positions also may
be based on other substantive laws (e.g., personal data protection
laws, state secrecy laws, banking secrecy laws, or commercial secrecy
laws) that impair the Board's ability to conduct inspections or
investigations by obstructing the Board's access to firm personnel,
audit work papers, or other documents or information relevant to an
inspection or investigation. The Board also has considerable experience
working collaboratively with non-U.S. regulators to employ working
practices that enable compliance with such non-U.S. laws without
impairing the Board's ability to complete inspections or
investigations. The proposed rule contemplates circumstances in which a
cooperative resolution to those legal conflicts might not be achieved.
    In those circumstances, the Board believes that investors and the
public interest would be best served by making a jurisdiction-wide
determination under the HFCAA, even if the foreign jurisdiction's law
(or interpretation or application of that law) affects the Board's
ability to inspect or investigate only certain types of audit
engagements. For instance, a foreign jurisdiction might deny to the
PCAOB access to critical parts of the audit work papers for entities
operating in a particular business sector (e.g., financial services) or
with particular business models (e.g., state-owned enterprises). In
such a case, even if only a few registered firms in that jurisdiction
presently are auditing issuers in that sector or with that business
model, the Board would assess whether its access would be equally
impaired should any registered firm in the jurisdiction perform the
restricted engagements. If the foreign authority's position applies
generally to firms within the jurisdiction, then it impairs the Board's
ability to conduct inspections or investigations completely on a
jurisdiction-wide basis, regardless of the differences among registered
firms' client portfolios at the time of the Board's determination. No
commenter challenged this reasoning, nor did any commenter suggest that
investors or the public interest would be better served if the Board
were to make determinations as to particular firms, rather than
jurisdiction-wide determinations, in such circumstances.
    In the situation described above, the Board does not believe that
firm-by-firm determinations would be appropriate. While the Board could
make a determination as to particular firms under subparagraph (a)(2)
of the proposed rule based, for instance, on the composition of each
firm's client portfolio at a moment in time, the Board believes that
such an approach may not effectively accomplish the HFCAA's objectives.
For instance, it might incentivize an issuer whose audit engagement
cannot be inspected or investigated by the Board (a financial
institution or state-owned enterprise in the example) to switch audit
firms frequently. Specifically, if the issuer's audit firm were made
subject to a Board determination under the HFCAA, the issuer could
switch to another audit firm in the jurisdiction that had not
previously handled a restricted engagement and, when the Board
subsequently issued a determination under the HFCAA as to the issuer's
new audit firm, the issuer could switch yet again. Such purposeful
migration by issuers could trigger a perpetual cycle of Board
determinations as to particular audit firms, while the issuers
potentially evade some or all of the intended consequences of the
HFCAA. A jurisdiction-wide determination, by contrast, would eliminate
these concerns. No commenter disagreed with this analysis or the
Board's rationale.
    The jurisdiction-wide determinations contemplated by subparagraph
(a)(1) of the proposed rule also comport with the historical practice
of identifying publicly the jurisdictions where there are unresolved
obstacles to Board inspections or investigations. Since 2010,
information of this kind has been posted on the PCAOB's website, for
two purposes: To notify investors and potential investors of the public
companies whose audit reports were issued by firms from those
jurisdictions, and to notify firms considering potential registration
with the Board of the consequences of obstacles to inspections in their
jurisdictions.\85\
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    \85\ See Audit Reports Issued by PCAOB-Registered Firms in
Jurisdictions where Authorities Deny Access to Conduct Inspections,
available at https://pcaobus.org/oversight/international/denied-access-to-inspections; Frequently Asked Questions Regarding Issues
Relating to Non-U.S. Accounting Firms (Apr. 20, 2021), available at
https://pcaobus.org/oversight/registration/non_us_registration_faq
(FAQ 6); see also International, available at https://pcaobus.org/oversight/international/ (providing map showing where the Board
currently can and cannot conduct oversight activities).
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    Jurisdiction-wide determinations would rest, as the HFCAA directs,
on whether the Board is able ``to inspect or investigate completely''
firms in the jurisdiction. The HFCAA, however, does not define what it
means ``to inspect or investigate completely.'' The Board does not view
that phrase as limited to instances where the Board started, but was
unable to finish, an inspection or investigation of a registered firm,
because foreign authorities' positions also can make it impossible or
infeasible, as a practical matter, for the Board to attempt to commence
such inspections or investigations in the first place. In other words,
the Board may make a determination under the HFCAA under a range of
circumstances, including when it is not able to commence an inspection
or investigation or when, based on the Board's knowledge and
experience, it has concluded that commencing an inspection or
investigation would be futile as a result of the position taken by a
foreign authority.
    With that in mind, the proposed rule ties the Board's ability to
``inspect or investigate completely'' to the three core principles that
guide the Board's framework for international cooperation.
Specifically, the Board will consider whether it (1) can select the
audits and audit areas it will review during inspections and the
potential violations it will investigate; (2) has timely access to firm
personnel, audit work papers, and other documents and information
relevant to its inspections and investigations, and the ability to
retain and use such documents and information; and (3) can otherwise
conduct its inspections and investigations in a manner consistent with
the Act and the Board's rules. For a further discussion of how these
three principles would inform the Board's assessment of whether it can
``inspect or investigate completely,'' see below.
    The Board's jurisdiction-wide determinations under the proposed
rule would be based on ``a position taken by one or more authorities''
in the foreign jurisdiction. While the proposed rule refers to a
singular ``position,'' that term encompasses all of the various
positions taken by authorities in the jurisdiction that, when
aggregated together, collectively constitute the position of
authorities in the jurisdiction. In a similar vein, the proposed rule's
reference to ``one or more authorities'' acknowledges that, in some
jurisdictions, multiple authorities can take positions that impair the
Board's ability to conduct inspections or investigations. Those
``authorities'' are not limited to a ``foreign auditor oversight
authority,'' as that phrase is defined in the Act,\86\ but rather
include any authority whose position can obstruct the Board's
oversight. Such authorities may include, for example, securities
regulators, industry regulators, data protection authorities, national
security bodies, foreign

ministries, or authorities of political subdivisions (e.g., a
provincial authority).
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    \86\ See Section 2(a)(17) of the Act.
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Determinations as to a Particular Registered Firm With an Office in a
Foreign Jurisdiction
    Although the Board anticipates that most determinations under the
proposed rule would be jurisdiction-wide determinations, the Board
cannot anticipate every scenario that it might encounter when
conducting oversight of firms in foreign jurisdictions. In light of
that practical limitation, subparagraph (a)(2) of the proposed rule
provides that the Board may determine that it is unable to inspect or
investigate completely a particular registered firm that has an office
\87\ located in a foreign jurisdiction because of a position taken by
one or more authorities in that jurisdiction. This provision would
complement the Board's ability to make jurisdiction-wide determinations
in two important respects.
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    \87\ The HFCAA authorizes the Board to make determinations as to
firms having a ``branch'' or ``office'' in a foreign jurisdiction
where the Board is unable to inspect or investigate completely
because of a position taken by an authority in that jurisdiction.
HFCAA Sec.  2(i)(2)(A), 15 U.S.C. 7214(i)(2)(A). Unlike in other
contexts (such as banking), however, there is no commonly recognized
distinction between a ``branch'' and an ``office'' with respect to
accounting firms. Accordingly, the proposed rule refers only to an
``office,'' which is a term commonly used by the Board in connection
with its oversight programs. A majority of the commenters who
addressed this rationale agreed with it.
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    First, if a foreign authority obstructs a Board inspection or
investigation of a particular firm headquartered in the jurisdiction--
but does not obstruct inspections or investigations in a more general
manner that might apply to all firms in the jurisdiction--subparagraph
(a)(2) provides the Board with an avenue for making a more tailored
determination under the HFCAA when a jurisdiction-wide determination
might be inappropriately broad.
    Second, subparagraph (a)(2) allows the Board to make determinations
under the HFCAA as to firms that are not headquartered in the foreign
authority's jurisdiction but have an office located there. In this
respect, a determination under subparagraph (a)(2) can supplement a
jurisdiction-wide determination under subparagraph (a)(1) that applies
to firms headquartered in the jurisdiction. Furthermore, the reach of
subparagraph (a)(2) ensures that the Board's determinations under the
proposed rule can match the scope of its mandate under the HFCAA.
    The Board's approach to determining where a firm's offices are
located is similar to the Board's approach to determining where a firm
is headquartered. The Board will look principally to the firm's filings
with the Board,\88\ but if there is any uncertainty as to whether a
firm has an office in a jurisdiction, the Board may consider other
information regarding the firm and may request additional information
from the firm pursuant to Rule 4000(b).
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    \88\ Firms are required to identify all of their offices when
they first register with the Board (in Item 1.5 of the application
for registration on Form 1) and annually thereafter (in Item 5.1 of
the annual report on Form 2).
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    Apart from those two distinguishing features (namely, that
determinations are directed to a particular firm and can reach firms
that have an office in the foreign jurisdiction but are not
headquartered there), subparagraph (a)(2) mirrors the operation of
subparagraph (a)(1). The Board's inability ``to inspect or investigate
completely'' is tied to the three principles that guide the Board's
approach to international cooperation, as noted above and discussed
further below. The phrase ``position taken by one or more authorities''
has the same meaning as in subparagraph (a)(1). Finally, if a member
firm of an international firm network becomes subject to a Board
determination under subparagraph (a)(2), and is a separate legal entity
from the other member firms in the network and signs audit reports in
its own name, the Board would not treat it as an ``office'' of other
member firms within the network, and accordingly the other member firms
would not be subject to that Board determination under subparagraph
(a)(2).
    The Board adopted subparagraph (a)(2) as proposed, except for one
addition to the subparagraph's title.\89\ Commenters generally
supported the Board's proposed approach to determinations as to a
particular registered firm and stated that the distinction between
those determinations and the jurisdiction-wide determinations
contemplated in subparagraph (a)(1) is clear. Several commenters also
stated that it is appropriate for the Board to look at a firm's
required filings with the Board in the first instance for information
as to where the firm's offices are located, though two commenters
suggested that the Board look beyond such filings to ascertain or
validate the location of a firm's offices. As previously noted, the
Board retains the ability to consider other relevant and reliable
information, including the information identified by the commenters,
when determining where a firm's offices are located.
---------------------------------------------------------------------------

    \89\ The phrase ``Particular Registered Firm in a Foreign
Jurisdiction'' has been revised to ``Particular Registered Firm With
an Office in a Foreign Jurisdiction'' to mirror more closely the
text of subparagraph (a)(2), create a parallel structure between the
titles of subparagraphs (a)(1) and (a)(2), and provide a clearer
contrast between the scope of those two subparagraphs.
---------------------------------------------------------------------------

    One commenter requested guidance about the application of the
proposed rule when a firm that is headquartered in a cooperative
jurisdiction uses local personnel in a noncooperative jurisdiction to
perform an audit for an issuer located in the noncooperative
jurisdiction. In such a circumstance, the firm could not be subject to
a jurisdiction-wide determination under subparagraph (a)(1) because it
is not headquartered in a noncooperative jurisdiction, but it could be
subject to a determination under subparagraph (a)(2) if it has an
office in the noncooperative jurisdiction.
Timing of Board Determinations
    Subparagraph (a)(3) of the proposed rule addresses the timing of
the Board's determinations under the HFCAA. Promptly after the Board's
proposed rule becomes effective upon the Commission's approval, the
Board will make any determinations under subparagraph (a)(1) or (a)(2)
that are appropriate. Thereafter, the Board will consider, at least
annually, whether changes in facts and circumstances support any
additional determinations under subparagraph (a)(1) or (a)(2). If so,
the Board will make such additional determinations, as and when
appropriate, to allow the Commission on a timely basis to identify
covered issuers in accordance with the Commission's rules.
    The Board is well positioned to assess the facts and circumstances
surrounding its inspections and investigations and gauge whether and
when a determination is appropriate under the proposed rule. The
relevant circumstances in a jurisdiction can change quickly and
unpredictably because foreign authorities can enact or amend laws,
issue or modify rules or regulations, change their interpretation or
application of those laws and rules, and otherwise take new positions
with limited or no notice. The proposed rule allows the Board to make
new determinations whenever appropriate, while acknowledging that the
Board's timing will be informed by the Commission's process for timely
identifying covered issuers and also establishing that the Board will
consider whether new determinations are warranted at least once each
year.
    When considering whether changed facts or circumstances provide a
sufficient basis for a new Board

determination, the Board may confront a number of different scenarios.
It is not possible to identify with specificity all the developments
that might lead to a new determination, but they could include the
enactment of a new law or regulation, a change in the interpretation or
the application of an existing law or regulation, the termination of or
failure to perform under an existing cooperative arrangement, and the
failure to take or renew an administrative action necessary to
facilitate the Board's oversight. The Board's experience in a
particular inspection or investigation also could supply the grounds
for a new Board determination in accordance with the proposed rule.
    The Board adopted subparagraph (a)(3) substantially as
proposed.\90\ The majority of commenters who addressed this issue
expressed support for the Board's approach to the timing of
determinations.
---------------------------------------------------------------------------

    \90\ For clarity, in the second sentence of the subparagraph,
``changes in the facts and circumstances'' has been changed to
``changes in facts and circumstances.''
---------------------------------------------------------------------------

    One commenter emphasized that the Board's approach should be
sufficiently flexible so that Board determinations do not conflict with
the language and intent of the HFCAA. The Board believes that
subparagraph (a)(3) provides such flexibility, insofar as it provides
that the Board will make any appropriate determinations promptly after
the proposed rule becomes effective and thereafter will make additional
determinations as and when appropriate to allow the Commission to
identify covered issuers on a timely basis.
    Another commenter suggested that the Board require firms to file
special reports on Form 3 to apprise the Board of headquarters or
office location changes. Such changes already are reported to the Board
annually on Form 2. The Board does not believe that a new Form 3
reporting obligation should be imposed. If a firm opts to expose its
issuer clients to the potential consequences of the HFCAA by moving the
firm's headquarters to a jurisdiction that is subject to a
jurisdiction-wide determination, such a change could be captured
through the Board's current reporting procedures.\91\ Moreover, if a
firm that is headquartered outside a noncooperative jurisdiction opens
an office in a noncooperative jurisdiction, the Board would not
anticipate making a determination as to that particular firm under
subparagraph (a)(2) without evidence that the Board's ability to
inspect and investigate the firm completely has become restricted as a
result of the opening of the new office. Lastly, if a firm that is
subject to a Board determination moves its headquarters out of or
closes all of its offices in a noncooperative jurisdiction, the firm is
required to notify the Board within five days of that development
pursuant to subparagraph (e)(4) of the proposed rule, discussed below.
---------------------------------------------------------------------------

    \91\ For instance, whenever the business mailing address of a
firm's primary contact with the Board changes, the firm must file a
special report on Form 3 that supplies the new address in Item 7.2.
See PCAOB Rule 2203, Special Reports. Additionally, if a firm
obtains a new license or certification to engage in the business of
auditing or accounting from a governmental or regulatory authority,
the firm must file a special report on Form 3 that identifies, in
Item 6.2, the name of the state, agency, board, or other authority
that issued the new license or certification. See id. And if a firm
changes the jurisdiction under the law of which it is organized, the
firm may file a Form 4 to succeed to the registration status of its
predecessor. See PCAOB Rule 2109, Procedure for Succeeding to the
Registration Status of a Predecessor.
---------------------------------------------------------------------------

Factors for Board Determinations
    Paragraph (b) provides factors for Board determinations under the
proposed rule. When determining whether it can ``inspect or investigate
completely'' under subparagraph (a)(1) as to a particular jurisdiction
or subparagraph (a)(2) as to a particular firm, the Board will assess
whether ``the position taken by the authority (or authorities)'' in the
jurisdiction ``impairs the Board's ability to execute its statutory
mandate with respect to inspections or investigations,'' as detailed
above.
    To make this assessment, the Board will evaluate three factors,
which correlate to the three principles that guide the Board's approach
to international cooperation. These factors embody the access the Board
needs, and already experiences nearly worldwide, to fulfill its
inspection and investigation mandates. Conceding on these factors in
particular jurisdictions would dilute the Board's oversight in a
selective, unequal manner and would be detrimental to the PCAOB's
mission. In other words, this framework promotes a level playing field
for U.S. and non-U.S. registered firms, in accordance with the Act's
directive that non-U.S. registered firms are subject to the Act and the
Board's rules in the same manner and to the same extent as U.S.
registered firms.
    No commenter suggested other benchmarks or factors that the Board
should employ when making determinations, and one commenter stated that
the factors set forth in paragraph (b) are appropriate and clear. The
Board adopted paragraph (b) as proposed, except for one addition to
subparagraph (b)(2)'s second factor, as discussed below.
    The first factor is ``the Board's ability to select engagements,
audit areas, and potential violations to be reviewed or investigated.''
The ability to make such selections is critical to the Board's
oversight activities and is embedded in its statutory mandate.\92\ This
factor would encompass situations in which a foreign authority takes
the position that certain engagements, or certain parts of engagements,
cannot be reviewed during an inspection, or that the Board cannot
decide when (i.e., in which inspection year) certain engagements will
be reviewed. It also would encompass situations in which a foreign
authority takes the position that the Board cannot decide what
potential violations it will investigate. No commenter expressed the
view that this factor is unclear or inappropriate or sought further
guidance about it.
---------------------------------------------------------------------------

    \92\ See, e.g., Sections 104(d) and 105(b)(1) of the Act.
---------------------------------------------------------------------------

    The second factor is ``the Board's timely access, and the ability
to retain and use, any document or information (including through
conducting interviews and testimony) in the possession, custody, or
control of the firm(s) or any associated persons thereof that the Board
considers relevant to an inspection or investigation.'' The Board's
access to firm personnel, documents, and information is pivotal to its
inspections and investigations, and is built into its mandate to
oversee the audits of issuers that avail themselves of the U.S. capital
markets.\93\
---------------------------------------------------------------------------

    \93\ See, e.g., Sections 104(d) and 105(b)(2) of the Act.
---------------------------------------------------------------------------

    One commenter suggested that the Board add ``timely'' to this
factor so that it refers to ``timely access,'' and, after
consideration, the Board has made that revision. The Board agrees with
the commenter that the Board cannot inspect or investigate completely
if its access to documents or information is not timely. Unreasonable
delays in obtaining documents or information hinder the Board's ability
to execute its statutory mandate \94\ and therefore its ability to
protect the interests of investors and further the public interest. No
other commenter made any suggestions regarding this factor, and no
commenter asserted that this factor is

unclear or inappropriate or sought further guidance about it.
---------------------------------------------------------------------------

    \94\ See, e.g., Section 104(b) of the Act (specifying inspection
frequency requirements); Section 105(b)(2)(B) of the Act
(authorizing the Board to require production of audit work papers
and other documents or information); PCAOB Rule 5103(b) (providing
that requests for documents or information shall set forth ``a
reasonable time . . . for production'').
---------------------------------------------------------------------------

    The third factor is ``the Board's ability to conduct inspections
and investigations in a manner consistent with the provisions of the
Act and the Rules of the Board, as interpreted and applied by the
Board.'' This provision captures all of the other aspects of the
Board's inspection and investigation mandates not already subsumed in
the first and second factors. That includes the Board's ability to
satisfy inspection frequency requirements,\95\ to identify potentially
violative acts during inspections,\96\ to impose sanctions for
noncooperation with an investigation,\97\ and to share information with
the Commission and other regulators.\98\ No commenter indicated that
this factor is unclear or inappropriate or sought further guidance
about it.
---------------------------------------------------------------------------

    \95\ See Section 104(b) of the Act.
    \96\ See Section 104(c)(1) of the Act.
    \97\ See Section 105(b)(3)(A) of the Act.
    \98\ See Sections 104(c)(2) and 105(b)(4)-(5) of the Act.
---------------------------------------------------------------------------

    Importantly, these three factors do not function as separate
prerequisites for a Board determination. Instead, impairment in any one
respect may be sufficient under the circumstances to support a Board
determination. To underscore the disjunctive nature of this three-
factor analysis, the proposed rule provides that the Board will assess
whether its ability to execute its mandate has been impaired in ``one
or more'' of these three respects. No commenter objected to, or
expressed concerns about, this approach.
    Additionally, to make a determination under the proposed rule, the
Board does not need to conclude that it has been impaired as to both
its inspections and its investigations. The HFCAA authorizes the Board
to make a determination if the Board is unable to inspect ``or''
investigate completely, and the proposed rule uses ``or'' in similar
fashion: It is enough that the Board is impaired in its ability to
execute its mandate with respect to either inspections or
investigations. This approach is consistent with the HFCAA, and no
commenter suggested otherwise.
Basis for Board Determinations
    Paragraph (c) of the proposed rule addresses the basis for a Board
determination. This provision establishes, first and foremost, that
when assessing whether its ability to execute its mandate has been
impaired, the Board may consider ``any documents or information it
deems relevant.'' From there, the proposed rule specifies, for the
avoidance of doubt, three non-exclusive categories of documents and
information that the Board can rely upon when making a determination.
No commenter objected to this approach or expressed concern about the
three non-exclusive categories identified in the proposed rule, and one
commenter stated that paragraph (c) provides adequate and substantive
guidance. The Board adopted paragraph (c) as proposed.
    Subparagraph (c)(1) states that the Board may consider a foreign
jurisdiction's laws, statutes, regulations, rules, and other legal
authorities; in other words, the black-letter law of the foreign
jurisdiction (and any political subdivisions thereof) in all of its
varying forms. The Board also may consider relevant interpretations of
those laws, whether by the promulgating authority or others, as well as
real-world applications of those laws.
    Subparagraph (c)(2) provides that the Board may consider the
entirety of its efforts to reach and secure compliance with agreements
with foreign authorities in the jurisdiction. In so doing, the Board
can take into account whether an agreement was reached, the terms of
any such agreement, and the foreign authorities' interpretation of and
performance under any such agreement.
    Subparagraph (c)(3) recognizes that the Board may consider its
experience with foreign authorities' other conduct and positions
relative to Board inspections or investigations. This allows the Board
to consider the totality of a foreign authority's prior conduct and
positions in all contexts, including public and private statements
made, positions asserted, and actions taken. This provision also may
encompass circumstances where a foreign authority precipitously changes
its position regarding PCAOB access without making any change to its
laws or demanding any form of cooperative agreement.
    Together, these provisions establish that the Board can consider
any relevant information (including, but not limited to, the three
categories of information discussed above) when making a determination.
As a corollary, paragraph (d) of the proposed rule establishes that the
Board's determination need not depend on the Board's ``commencement of,
but inability to complete, an inspection or investigation.'' The Board
should not be expected to attempt to initiate inspections or
investigations in a foreign jurisdiction that rejects the guiding
principles for international cooperation, because such futile efforts
would not advance the Board's mission of protecting investors and
furthering the public interest in the preparation of informative,
accurate, and independent audit reports. No commenter challenged the
Board's reasoning or expressed the view that the Board must initiate an
inspection or investigation as a prerequisite to making a determination
under the HFCAA. Nor did any commenter indicate that the approach
described in paragraph (d) is inappropriate. The Board adopted
paragraph (d) as proposed.
Form and Publication of Board Determinations
Board Reports to the Commission
    The HFCAA does not specify how the Board should communicate its
determinations to the Commission. Subparagraph (e)(1) of the proposed
rule establishes that process.
    When the Board makes a determination, whether as to a particular
jurisdiction under subparagraph (a)(1) or a particular firm under
subparagraph (a)(2), the Board's determination will be issued in the
form of a report to the Commission.\99\ Such a reporting process is
authorized under Sections 101(c)(5), 101(g)(1), and 101(f)(6) of the
Act.\100\
---------------------------------------------------------------------------

    \99\ The Board will decide whether to conduct a public or non-
public meeting to consider a potential determination under the HFCAA
in accordance with the PCAOB bylaws. See Bylaw 5.1, Governing Board
Meetings.
    \100\ See Section 101(c)(5) of the Act (the Board shall
``perform such other duties or functions as the Board . . .
determines are necessary or appropriate . . . to carry out this
Act''); Section 101(g)(1) of the Act (the Board's rules ``shall . .
. provide for . . . the performance of its responsibilities under
this Act''); Section 101(f)(6) of the Act (the Board is authorized
to ``do any and all . . . acts and things necessary, appropriate, or
incidental to . . . the exercise of its obligations . . . imposed''
by the Act).
---------------------------------------------------------------------------

    The Board's report will describe its assessment of whether the
position taken by the foreign authority (or authorities) impairs the
Board's ability to execute its mandate with respect to inspections or
investigations. The report will analyze the relevant factor(s) set
forth in paragraph (b) and describe the basis for the Board's
conclusions. The Board will identify the firm(s) subject to the Board's
determination in two ways: by the name under which the firm is
registered with the Board, and by the firm's identification number with
the Board. No commenter identified any additional information that
should be included in the Board's reports to the Commission.
    The Board adopted subparagraph (e)(1) as proposed but with one
modification: The Board will identify the firm(s) to which a
determination applies in an appendix to the Board's report. Identifying
such firms in a

separate appendix will facilitate the Board's efforts to keep the list
of firms subject to the determination current, as discussed below.
Publication of Board Reports
    Promptly after the Board issues a report to the Commission, a copy
of the report will be made publicly available on the PCAOB's website.
The Board expects that a copy of the report ordinarily will be
prominently featured on the Board's website on or about the same day
the Board issues its report to the Commission.
    Subparagraph (e)(2) of the proposed rule specifies, however, that
the content of the Board's publicly available report will be subject to
two limitations. First, the Board will be bound by Section 105 of the
Act, which provides, in pertinent part, that ``all documents and
information prepared or received by or specifically for the Board . . .
in connection with an inspection . . . or with an investigation . . .
shall be confidential . . . , unless and until presented in connection
with a public proceeding or released'' in accordance with Section
105(c) of the Act.\101\ If the Board's report contains material
encompassed by Section 105(b)(5)(A) of the Act, such material will be
redacted from the publicly available version of the report posted on
the PCAOB's website, in accordance with the Act.
---------------------------------------------------------------------------

    \101\ Section 105(b)(5)(A) of the Act.
---------------------------------------------------------------------------

    Second, while the Board does not anticipate that such situations
will frequently arise, the version of the Board's report posted on the
PCAOB's website will be redacted if it contains proprietary, personal,
or other information protected by applicable confidentiality laws. In
this respect, the proposed rule aligns with the Act's treatment of
registration applications and annual reports filed with the Board,
which the Board may make publicly available subject to ``applicable
laws relating to the confidentiality of proprietary, personal, or other
information.'' \102\
---------------------------------------------------------------------------

    \102\ Section 102(e) of the Act.
---------------------------------------------------------------------------

    Commenters generally supported redacting from the Board's publicly
available reports any information that is subject to applicable
confidentiality laws. One commenter suggested that redaction should not
be limited to information covered by applicable confidentiality laws,
but rather should be based on broader concepts of confidentiality. That
commenter offered one example of such a concept, but that example--
accountants' professional responsibilities of confidentiality--does not
apply to the Board's performance of its oversight functions. Another
commenter similarly suggested that redaction should extend to all
confidential information whether explicitly covered by confidentiality
laws or not, but that commenter did not suggest how to define this
broader concept of confidential information or what categories of
information it would encompass. Neither of these commenters identified
any specific type of relevant information that is not subject to a
confidentiality law but is nevertheless worthy of protection under a
broader view of confidential information.
    Besides one minor revision unrelated to redaction,\103\ the Board
adopted subparagraph (e)(2) as proposed. The Board believes that it is
appropriate to limit redaction to confidential information protected by
law. That approach comports with the Board's congressionally mandated
treatment of registration applications and annual reports, which the
Board also has extended to other reports filed with the Board. This
approach also is more readily administrable than one that relies
instead on broader, undefined concepts of confidentiality.
---------------------------------------------------------------------------

    \103\ For simplicity, the phrase ``Board report containing a
determination pursuant to subparagraph (a)(1) or (a)(2)'' has been
changed to ``Board report pursuant to subparagraph (e)(1).''
---------------------------------------------------------------------------

Transmittal of Board Reports to Subject Firms
    The Board revised the proposed rule to add a new provision
regarding the transmittal of reports to firms that are subject to a
determination. While some commenters stated that posting Board reports
on the Board's website would give sufficient notice of Board
determinations to such firms, other commenters disagreed, and the Board
has concluded that it would be prudent to transmit reports to those
firms.
    Subparagraph (e)(3) provides that promptly after the Board issues a
report to the Commission under subparagraph (e)(1), a copy of the
report will be sent by electronic mail to each registered public
accounting firm that is listed in the appendix to that report (i.e.,
each firm as to which the determination applies). The Board expects
that the report will be transmitted to the subject firm(s) by
electronic mail after it has been posted on the Board's website, though
both actions will take place promptly after the issuance of the report.
Such reports will be redacted to the extent required by confidentiality
laws, and the electronic mail will be directed to the electronic mail
address of the firm's primary contact with the Board.\104\
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    \104\ When applying to register with the Board, firms provide an
electronic mail address for their primary contact with the Board in
Item 1.3.7 of Form 1. Thereafter, firms confirm the electronic mail
address for their primary contact with the Board annually in Item
1.3 of Form 2. If that electronic mail address changes, the firm
must notify the Board within 30 days of the new electronic mail
address for its primary contact with the Board in Item 7.2 of Form
3.
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    Two commenters suggested that the Board provide non-public advance
notice of a forthcoming determination to firms that would be subject to
that determination. One of those commenters indicated that firms could
use this advance notice to initiate discussions with their issuer audit
clients about the Board's forthcoming determination.
    The Board does not believe that it is appropriate to provide non-
public advance notice to firms. A firm headquartered in a
noncooperative jurisdiction and performing audit work that subjects the
firm to the PCAOB inspection requirement should know if it has not been
inspected due to the PCAOB's inability to inspect such firm or firms in
that jurisdiction.\105\ Furthermore, as described above, the Board has
long taken efforts to make known the access challenges it faces in
certain jurisdictions. Although those disclosures are distinct from
determinations under the proposed rule and predate the HFCAA's
enactment, they underscore the Board's commitment to transparency about
its oversight access. And if a firm-specific obstacle to Board
inspections or investigations were to arise that might warrant a
determination as to a particular registered firm pursuant to
subparagraph (a)(2), the Board expects that it would have engaged with
that firm about the Board's inability to inspect or investigate the
firm completely before such a determination would be made.
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    \105\ See also, e.g., SEC Exchange Act Release No. 91364, at 26
(noting ``a highly similar type and pattern of disclosure regarding
the PCAOB's inability to inspect those firms'' in Item 3 of Form 20-
F and in Item 1A of Form 10-K).
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    In addition, providing non-public advance notice of a Board
determination to firms would create information asymmetry in the
marketplace: A forthcoming Board determination would be known to firms
and to anyone with whom the firm elects to share that information
(including not only the firm's issuer clients' management, but also
potentially the issuers' directors, the issuers' outside counsel and
other professional advisors, foreign government officials, and others),
while

the investing public would not be privy to the same information. The
Board does not believe it would be in the public interest or the
interests of investors to selectively preview its determinations in
such a manner.
    Several commenters also suggested that the Board establish a rule-
based mechanism that would allow firms to submit information to the
Board regarding a determination. Some of those commenters recommended
that the Board provide by rule for such a submission process before a
Board determination takes effect, while others expressed concern that
such an approach could delay the timely implementation of the HFCAA. No
commenter, however, identified any type of information that a firm
might have that would be both relevant to a Board determination and
previously unknown to the Board.
    Because the Board believes that firms are unlikely to have new and
relevant information regarding a determination, the Board is not
establishing a rule-based process for firms to make such submissions.
Board determinations turn on positions taken by authorities in foreign
jurisdictions, and such positions, by virtue of having previously been
``taken'' by a foreign authority, necessarily will be known to the
Board already. Indeed, the Board has extensive experience in this area
and, over more than a decade, has engaged significantly with foreign
authorities and registered firms regarding inspections and
investigations of non-U.S. firms. Therefore, the Board knows, and will
timely learn, relevant information about its ability to conduct
inspections and investigations abroad. The Board's history of
engagement and negotiations regarding such inspections and
investigations is detailed above, and no commenter disputed the Board's
description of that history.
    By the same token, any Board determination would be based on the
Board's judgment as to whether the extent of access available to it
impairs its ability to conduct oversight in any of the three respects
identified in paragraph (b). Consequently, the Board does not believe
that firms will be able to contribute meaningfully to the mix of
information available to the Board regarding foreign authorities'
positions or the Board's experience-driven assessment of paragraph
(b)'s three factors. Should a firm wish to communicate with the Board
about its inspection or investigation experience, however, it can do so
through existing channels for communicating with the Board's inspection
and enforcement staff.
Updating the Appendix to a Board Report
    Subparagraph (e)(4) addresses the Board's process for determining
that the list of firms subject to a determination remains accurate. A
few commenters expressed concern about potential developments that
could render such a list inaccurate, and the Board believes that it is
prudent to establish a process in the proposed rule to ensure the list
is appropriately updated and accurate.
    As provided in subparagraph (e)(1), the list of firms subject to a
determination will be contained in an appendix to the Board's report.
For a jurisdiction-wide determination under subparagraph (a)(1), the
appendix will provide, for each firm, the name under which it is
registered with the Board, its identification number with the Board,
and the jurisdiction in which its headquarters is located. For a
determination as to a particular firm under subparagraph (a)(2), the
appendix will provide the name under which the firm is registered with
the Board, its identification number with the Board, and the location
of the office(s) the firm maintains in the foreign jurisdiction whose
authorities have taken a position that results in the Board being
unable to inspect or investigate the firm completely.
    Subparagraph (e)(4) requires firms identified in an appendix to
notify the PCAOB Secretary of any changes to the firm's information in
the appendix within five days of such a change.\106\ Firm names,
identification numbers, headquarters locations, and office locations
can change, and this requirement ensures that the Board will be alerted
promptly to updated information.\107\ Instructions regarding how to
notify the Secretary of such a change will be provided in the appendix.
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    \106\ In practice, this five-day period would span at least
seven calendar days. See PCAOB Rule 1002, Time Computation
(providing that Saturdays, Sundays, and federal legal holidays are
excluded from the computation of time when a prescribed period of
time in a Board rule is seven days or less).
    \107\ For example, if a firm changes its name while remaining
the same legal entity, the firm has 30 days to notify the Board of
its name change in Item 7.1 of Form 3. But if a firm changes its
name while also changing its legal entity due to a change to its
legal form of organization or as the result of a business
combination, the firm may (but is not required to) file a Form 4
that, among other things, would notify the Board of the name change
in Item 1.1, and that filing would be due 14 days after the change
or business combination, unless the Board permits the firm to file
its form out of time.
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    Subparagraph (e)(4) provides that the Board may issue an updated
appendix at any time. This allows the Board to update its appendix to
reflect changes reported by firms as required by subparagraph (e)(4).
It also enables the Board to correct discrepancies or reflect changes
identified by the Board or its staff through other means.\108\ An
updated appendix will bear the date on which it was issued by the
Board.
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    \108\ For instance, the list of firms in the appendix could be
reduced if a firm withdraws from registration or has its
registration revoked, and could be expanded if a registered firm
moves its headquarters to a jurisdiction that is the subject of a
jurisdiction-wide determination.
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    The Board's issuance of an updated appendix would not constitute a
reassessment of the Board's underlying determination. In other words,
the Board can update an appendix without reanalyzing the three factors
identified in paragraph (b). Whenever the Board issues an updated
appendix, it will transmit that appendix to the Commission, make it
publicly available in accordance with subparagraph (e)(2), and send it
to firms that are identified in the appendix in accordance with
subparagraph (e)(3).
Effective Date and Duration of Board Determinations
    Paragraph (f) provides that a Board determination becomes effective
on the date the Board issues its report to the Commission. Most
commenters expressed support for this timing, though one commenter
suggested that this timing would be appropriate only if firms received
advance notice of a determination, and another commenter suggested that
the Board delay the effectiveness of its determinations (e.g., for 120
days) so that issuers have time to understand and plan for them.
    The Board adopted paragraph (f) substantially as proposed.\109\ For
many of the same reasons that the Board does not believe that firms
should receive advance notice of Board determinations (as discussed
above), the Board does not believe that the effectiveness of its
determinations should be delayed. Furthermore, delaying the
effectiveness of a determination could frustrate the objectives of the
HFCAA and, in the Board's view, impair the Commission's ability to
identify covered issuers on a timely basis pursuant to its rules.
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    \109\ For simplicity, at the beginning of the paragraph, ``When
the Board makes a determination pursuant to subparagraph (a)(1) or
(a)(2), the Board's determination becomes effective'' has been
replaced by ``A determination pursuant to subparagraph (a)(1) or
(a)(2) becomes effective.''
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    One commenter requested clarification regarding the date of
issuance of a Board report. The date of issuance will be the date that
appears on the report, which will correspond to the date upon which the
Board's report is transmitted to the Commission.

    Paragraph (g) addresses the duration of Board determinations. The
Board adopted paragraph (g) substantially as proposed,\110\ save for
one conforming change. As first proposed, the proposed rule provided
that a Board determination would remain in effect ``unless and until''
it was modified or vacated. As discussed below, however, the Board has
elected to reassess at least annually each determination that is in
effect and to issue, at the conclusion of each reassessment, a report
reaffirming, modifying, or vacating the determination. To conform to
that approach, paragraph (g) has been revised to provide that a Board
determination will remain in effect until it is reaffirmed, modified,
or vacated by the Board.
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    \110\ For simplicity, at the beginning of the paragraph, ``A
determination made by the Board'' has been changed to ``A
determination.''
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Reassessment of Board Determinations
    As first proposed, paragraph (h) created a two-step process through
which the Board would annually monitor the continued justification for
a Board determination. First, the Board would consider whether changes
in facts and circumstances warrant a reassessment of a determination
that is in effect. Then, if the Board concludes that a reassessment is
warranted, the Board would analyze the three factors identified in
paragraph (b) and decide whether to leave its determination undisturbed
or issue a new report modifying or vacating the determination. Apart
from that annual process, the Board also could reassess a determination
on its own initiative or at the Commission's request at any time.
    Commenters generally supported that proposed two-step annual
process. A few commenters suggested that the result of a reassessment
should be made public in all circumstances, even when a determination
is left undisturbed, and one commenter indicated that such public
reporting could provide audit firms and issuers with more detailed
guidance and transparent information. Some commenters suggested that
firms should be able to request reevaluation of a determination outside
of the annual cycle, with one commenter asking the Board to confirm
that it would reassess a determination anytime there was a potentially
material development in the facts and circumstances.
    The Board has revised paragraph (h) to reduce the two-step process
to a one-step process by eliminating the ``annual consideration of
changed facts and circumstances'' contemplated in the proposed rule.
Instead of requiring the Board to conduct a threshold inquiry each year
to decide whether changes in facts and circumstances merit reassessment
of a determination, the proposed rule requires the Board to annually
reassess each determination that is in effect. The Board believes that
annual reassessment best aligns with the HFCAA's annual cycle, which
includes the Commission's identification of covered issuers based on
the filing of annual reports and its designation of non-inspection
years.\111\
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    \111\ HFCAA Sec.  2(i)(1)-(2), 15 U.S.C. 7214(i)(1)-(2).
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    Apart from its mandatory annual reassessments, the Board, on its
own initiative or at the Commission's request, may reassess a
determination at any time. It is not possible to specify every
development that might prompt the Board to reassess a determination
outside of the annual reassessment cycle. In certain circumstances, the
withdrawal of a law or the execution of a cooperative agreement might
suffice, if, for example, the law or the absence of an agreement were
the sole reason why the Board's access was impaired in one or more of
the respects identified in paragraph (b). However, as a general matter,
when a determination derives from the Board's prolonged inability to
complete inspections or investigations in a particular jurisdiction or
of a particular firm, the Board does not anticipate modifying or
vacating such a determination--even if a cooperative agreement is in
place--until it has concluded that the foreign authority has taken, and
the Board can reasonably conclude that the authority will maintain, new
positions that respond satisfactorily to the Board's access needs with
respect to each of the factors identified in paragraph (b). In such
instances of prolonged lack of access, the Board would expect to
conclude inspections or investigations in that jurisdiction or of that
firm before modifying or vacating a determination. The conclusion of an
inspection or investigation, however, is not necessarily conclusive
evidence that the conditions preventing the Board from inspecting or
investigating completely firms located in the foreign jurisdiction have
been resolved.
    Together, the proposed rule's framework of mandatory annual
reassessment and discretionary off-cycle reassessment gives the Board
the opportunity to reassess a determination whenever facts and
circumstances warrant, and will help ensure that the Commission's
actions under the HFCAA are based on Board determinations that reflect
the current status of the Board's ability to inspect and investigate
firms completely. When conducting a reassessment, whether annual or
off-cycle, the Board will reanalyze the three factors identified in
paragraph (b), and at the conclusion of that reassessment, the Board
will reaffirm, modify, or vacate its determination.
    Two commenters suggested that the Board allow firms to request
reevaluation of a determination outside of the Board's annual
reassessment process. One commenter further suggested that reevaluation
requests could be based on a triggering event, but did not provide any
examples of such an event or explain how a firm would have knowledge of
such an event that the Board would lack. As explained above, the Board
believes that firms are unlikely to have new, relevant information
about positions taken by foreign authorities vis-[agrave]-vis the
Board, and firms already have other channels through which they can
communicate with the Board's staff about inspection- and investigation-
related developments. Furthermore, even without a rule-based mechanism
through which firms could request reevaluation, the Board will reassess
determinations to which any firm is subject at least once a year.
    One commenter suggested that the Board allow ``jurisdictions'' to
request reevaluation of determinations at any time. That commenter was
not a foreign authority; indeed, no foreign authority submitted a
comment asking for the ability to request reevaluation. Nor did the
commenter explain why foreign authorities cannot communicate with the
Board through existing channels. The Board believes that those
customary channels for communication with foreign authorities, together
with the Board's annual mandatory reassessments and discretionary off-
cycle reassessments, suffice to provide the Board appropriate
information to reexamine determinations as and when appropriate.
Reaffirmed, Modified, and Vacated Board Determinations
    Paragraph (i) addresses reaffirmed, modified, and vacated Board
determinations. The Board adopted paragraph (i) with several conforming
changes that align paragraph (i) with other revisions to the proposed
rule, including revisions regarding appendices to Board reports, the
transmittal of Board reports by electronic mail, and annual
reassessment of determinations that are in effect.
    When the Board reaffirms, modifies, or vacates a determination, it
will issue a report to the Commission describing its assessment and the
basis for

reaffirming, modifying, or vacating the determination. In the case of a
reaffirmed or modified determination, the Board will update the