On August 1, 2003 the Securities and Exchange Commission (the "SEC") approved the funding rules proposed by the Public Company
Accounting Oversight Board (the "Board"),
[fn1] which was created by the Sarbanes-Oxley Act of 2002 (the "Act"). The Act requires that the funds to cover the Board's annual
budget (less registration and annual fees paid by public accounting firms) are to be collected from public companies (i.e.,
"issuers" as defined in the Act) as an "accounting support fee." The funding rules provide for the allocation, assessment
and collection of the accounting support fee. The SEC also approved the Board's 2003 calendar year budget of $68 million.
On August 4, 2003, the Board announced that it had begun to notify publicly-traded companies, investment companies and other
equity issuers of the accounting support fee that they will be required to pay to fund the Board's 2003 operations.
The funding rules provide that the accounting support fee will be allocated to, and payable by, two classes of issuers: (1)
publicly-traded companies with average, monthly U.S. equity market capitalizations during the preceding year, based on all
classes of common stock, of greater than $25 million (excluding the market value of securities traded outside the United States
but including all common equity traded in the United States, whether or not the issuer is a domestic company), and (2) investment
companies with average, monthly U.S. equity market capitalizations of greater than $250 million and whose share price (or
net asset value) on a monthly, or more frequent, basis are publicly-available. In recognition of the structure of investment
companies and the relatively less-complex nature of investment company audits (compared to operating company audits), investment
companies will be assessed at a lower rate. All other issuers will not be allocated a portion of the accounting support fee,
including (i) issuers that are not required to file audited financial statements with the SEC, (ii) employee stock purchase,
savings and similar plans, (iii) bankrupt issuers that file modified reports, (iv) publicly traded companies or investment
companies with average, monthly U.S. equity market capitalization during the preceding year of less than $25 million or $250
million, respectively, and (v) issuers whose only outstanding publicly-traded securities are debt securities.
The accounting support fee will be payable by issuers yearly during the first quarter of the calendar year, other than the
fee for 2003, which will be payable within 30 days of the date of the notice sent out by the Board. The Board will set the
aggregate accounting support fee at an amount equal to the Board's budget for the year in question less the amount of registration
and annual fees received during the prior year from registered public accounting firms. An issuer's average, monthly market
capitalization will be based on closing stock prices on the closest trading day on or before the last day of each calendar
month measured. Issuers will pay their allocable percentage of the aggregate accounting support fee based upon their respective
market values, except that when calculating the fee payable by investment company issuers, their average, monthly market capitalization
will be one-tenth of their actual average, monthly market capitalization. [fn2] The actual amount payable will be rounded to the nearest $100 and issuers whose fee is calculated to be less than $50 will
not be required to pay any fee.
The determination whether an issuer must pay a portion of the accounting support fee will be made annually as of the date
the aggregate fee is determined by the Board. If the issuer does not meet the market capitalization threshold, it will be
exempt for only that year. Issuers will have the right to petition the Board to correct both the amount of any fee demanded
as well as whether they are obligated to pay the fee at all. Failure to pay the fee will be a violation of Section 13(b)(2)(C)
of the Securities Exchange Act of 1934, which could result in administrative, civil or criminal sanctions.
The funding rules also require that under most circumstances no registered public accounting firm may sign an unqualified
audit opinion or issue a consent with respect to an issuer's financial statements if that issuer has outstanding any past-due
accounting support fee not being contested by that issuer. On July 30, 2003, the Board amended this rule[fn3] to provide that an auditor may sign an unqualified audit opinion, or issue a consent to the use of previously issued auditor
opinions, even if the issuer has outstanding fees if the issuer needs the opinion or consent in order to submit a report to,
or make a filing with, the SEC. The issuer has to notify the Board of such opinion or consent not later than one business
day after the related filing is made with the SEC. This exception would not continue longer than 15 business days after the
earlier of the submission of the notice to the Board or the filing of the report or registration statement with the SEC, and
may not be invoked for more than one such 15-business day period with respect to such issuer's accounting support fee. The
rules permit a registered public accounting firm to confirm an issuer's payment of the required fee by obtaining a management
representation of payment or seeking confirmation of payment from the Board. The funding rules also permit an auditor to issue
a qualified, adverse or disclaimed opinion irrespective of whether the fee had been paid.
In its announcement, the Board noted that about 5,200 publicly traded companies and about 3,300 investment companies will
receive invoices for the accounting support fee due the Board for its 2003 budget. The Board expects that about 62% of the
issuers will pay $1,000 or less, and that the largest 1,000 issuers will pay about 87% of the total fee due. In addition,
the Board has determined that publicly traded companies will together pay about 96% of the total fee due, with about 3.5%
collected from open-end mutual funds and the remainder from other investment companies.
Additional information about the accounting support fee and the Board may be found at its website at www.pcaobus.org.
Footnotes
1: Release No. 34-48278; File No. PCAOB-2003-02; http://www.sec.gov/rules/pcaob/34-48278.htm.
2: The applicable rule provides that each issuer will be allocated a share of the accounting support fee in an amount equal
to the accounting support fee multiplied by a fraction "(i) the numerator of which is the average, monthly market capitalization
of the issuer during the preceding calendar year, except that for [investment company issuers], the numerator is one-tenth
of the average, monthly market capitalization of the issuer; and (ii) the denominator of which is the sum of the average,
monthly market capitalizations of the [public company issuers] and one-tenth of the average, monthly market capitalizations
of the [investment company issuers]."
3: The SEC's August 1st approval of the funding rules included approval of this amendment even though the amendment had not
yet been published in the Federal Register, as required. The release states that the SEC believes it had good cause for accelerated
approval including that the amendment refines the rules, facilitates capital formation, clarifies auditors' obligations and
does not contain major modifications from the scope and purpose of the rules as originally proposed.
