The new amendment provides a mechanism for deregistering firms. Credit: PAJDJW/Shutterstock.

The Securities and Exchange Commission (SEC) has given the green light to an amendment from the Public Company Accounting Oversight Board (PCAOB) that introduces a new procedure for handling the registrations of non-operational accounting firms.  

This amendment will be initially effective for annual reports and fees due in 2025. 

The PCAOB adopted the amendment following a proposal in February 2024, titled “Proposals Regarding False and Misleading Statements Concerning PCAOB Registration and Oversight and Constructive Requests to Withdraw from Registration”.  

The development of the amendment considered public feedback on the proposal and aims to enhance the accuracy of the public record of registered accounting firms. 

Under existing rules, a firm’s registration with the PCAOB can only be removed if the PCAOB authorises a withdrawal request initiated by the firm or imposes a disciplinary sanction revoking the registration.  

The new amendment provides a mechanism for deregistering firms that are no longer operational or do not wish to remain registered, as evidenced by their failure to file annual reports and pay fees for two consecutive years. 

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The order states: “We note that the PCAOB currently has only two mechanisms for removing a registered public accounting firm from PCAOB registration: (1) authorising a withdrawal from registration based on a firm-initiated withdrawal request or (2) imposing a disciplinary sanction revoking the firm’s registration.  

“Both mechanisms require some active engagement with the firms—they begin with either the firm initiating a request for withdrawal or the PCAOB’s Office of Secretary providing notice of an Order Instituting Disciplinary Proceedings to the firm, which may not be possible in circumstances where the firm has ceased to exist, is non-operational, or for some other reason fails to comply with the basic requirements of registration.” 

Starting 2025, if a registered firm fails to file an annual report and pay the annual fee for two consecutive years, its registration could be deemed withdrawn from the fall of 2026.  

The PCAOB concluded that a two-year period of non-compliance is an adequate indicator that a firm may no longer be operational or interested in maintaining its registration, striking a balance between regulatory efficiency and fairness.