News
November 8, 2021

SEC Approves PCAOB Rule Under the Holding Foreign Companies Accountable Act

Advisory

The Sarbanes-Oxley Act of 2002, as amended, mandates that the Public Company Accounting Oversight Board (PCAOB) inspect registered public accounting firms in both the United States and in foreign jurisdictions, and investigate potential standards violations committed by registered public accounting firms and their associated persons. The Holding Foreign Companies Accountable Act (HFCAA) requires, among other things, that the PCAOB determine if it is unable to inspect or investigate completely registered public accounting firms located in a foreign jurisdiction because of a position taken by an authority in that jurisdiction. A negative determination will be used by the SEC, along with information in an issuer’s annual reports, to compile a list of “Commission Identified Issuers.” Commission Identified Issuers will be subject to specified documentation submission requirements (and additional disclosure requirements in the case of foreign issuers), and ultimately (if so identified for three consecutive years), a prohibition on the trading of their securities on national securities exchanges or OTC markets.

On November 5, 2021, the SEC approved the PCAOB’s Rule 6100, Board Determinations Under the Holding Foreign Companies Accountable Act. This represents the next step in implementation of the HFCAA, following the SEC’s adoption of interim final rules in March of 2021 governing the document submission and disclosure requirements pertaining to Commission Identified Issuers noted above and described in our April 2021 Advisory.

Rule 6100 establishes the process for the PCAOB’s determinations under the HFCAA; the factors the PCAOB will evaluate and the documents and information the PCAOB 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. The rule addresses the two types of determinations that the Board may make: (i) determinations as to a particular foreign jurisdiction (which would apply to all firms headquartered in that jurisdiction), and (ii) determinations as to a particular registered firm. PCAOB Rule 6100 is effective immediately.

© Arnold & Porter Kaye Scholer LLP 2021 All Rights Reserved. This Advisory is intended to be a general summary of the law and does not constitute legal advice. You should consult with counsel to determine applicable legal requirements in a specific fact situation.

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