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Notice

Self-Regulatory Organizations; Notice of Filing of Proposed Rule Change by the American Stock Exchange LLC Adopting a Peer Review Requirement for Auditors of Listed Companies

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Information about this document as published in the Federal Register.

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Start Preamble May 22, 2000.

Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 Start Printed Page 34237(“Act”) [1] and Rule 19b-4 thereunder, [2] notice is hereby given that on February 14, 2000, the American Stock Exchange LLC (“Amex” or “Exchange”) filed with the Securities and Exchange Commission (“Commission”) the proposed rule change as described in Items, I, II, and III below, which Items have been prepared by the Amex. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons.

I. Self-Regulatory Organization's Statement of the Terms of Substance of the Proposed Rule Change

The Exchange proposes to amend the Amex Company Guide to adopt a peer review requirement for auditors of listed companies. The text of the proposed rule change is as follows (all text is proposed to be added):

Sec. 605. Peer Review

(a) A listed company must be audited by an independent public accountant that: (i) Has received an external quality control review by an independent public accountant (“peer review”) that determines whether the auditors' system of quality control is in place and operating effectively and whether established policies and procedures and applicable auditing standards are being followed; or

(ii) Is enrolled in a peer review program and within 18 months receives a peer review that meets acceptable guidelines.

(b) The following guidelines are acceptable for the purposes of Sec. 605: (i) The peer review should be comparable to AICPA standards included in Standards for Performing on Peer Reviews, codified in the AICPA's SEC Practice Section Reference Manual;

(ii) The peer review program should be subject to oversight by an independent body comparable to the organizational structure of the Public Oversight Board as codified in the AICPA's SEC Practice Section Reference Manual; and

(iii) The administering entity and the independent oversight body of the peer review program must, as part of their rules of procedure, require the retention of the peer review working papers for 90 days after acceptance of the peer review report and allow the Exchange access to those working papers.

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

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

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

1. Purpose

The Exchange believes that auditors of listed companies should be subject to a practice monitoring program under which their auditor's quality control system is reviewed by an independent peer auditor on a periodic basis. [3] The Nasdaq Stock Market and certain banking agencies such as the Federal Deposit Insurance Corporation (“FDIC”) have implemented a peer review requirement. In addition, the Commission has generally expressed support for the concept of peer review.[4] Although it withdrew its mandatory peer review proposal, the Commission nonetheless confirmed its belief that “the peer review process contributes significantly to improving the quality control systems of accounting firms auditing Commission registrants and enhances the consistency and quality of practice before the Commission.” [5]

The proposed rule would require all independent public accountants auditing Exchange listed companies to have received, or be enrolled in, peer review that meets acceptable guidelines. Acceptable guidelines would include comparabiity to standards of the American Institute of Certified Public Accountants (“AICPA”) included in the Standards for Performing on Peer Reviews codified in the AICPA's SEC Practice Section Reference Manuel, and oversight of the peer review program by an independent body comparable to the organizational structure of the Public Oversight Board as codified in the AICPA's SEC Practice Section Reference Manuel. Further, copies of peer review reports, accompanied by any letters of comment and letters of response, would be maintained by the administering entity of the peer review program and be made available to the Exchange upon request.[6] Similarly, working papers of the administrating entity and the independent oversight body would also be required to be retained for 90 days after the report is filed, and be made available to the Exchange upon request.

2. Statutory Basis

The Exchange believes that the proposed rule change is consistent with Section 6(b)(5) [7] of the Act, which requires, among other things, the Exchange's rules to be designed to prevent fraudulent and manipulative acts and practices, to promote just and equitable principles of trade, and, in general, to protect investors and the public interest. Specifically, the peer review requirement for auditors of Exchange listed issuers will provide safeguards for investors by ensuring that an auditing firm's quality control systems are subjec to an industry-accetped level of review.

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

The Exchange does not believe that the proposed rule change will result in any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act.

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

The Exchange did not solicit or receive written comments on the proposed rule change.

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

Within 35 days of the date of publication of this notice in the Federal Register or within such longer period (i) as the Commission may designate up to 90 days of such date if it finds such longer period to be appropriate and publishes its reasons for so finding or Start Printed Page 34238(ii) as to which the Exchange consents, the commission will:

(A) By order approve such proposed rule change, or

(B) Institute proceedings to determine whether the proposed rule change should be disapproved.

IV. Solicitation of Comments

Interested persons are invited to submit written data, views and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Persons making written submissions should file six copies thereof with the Secretary. Securities and Exchange Commission, 450 Fifth Street, NW., Washington, DC 20549-0609. Copies of the submission, all subsequent amendments, all written statements with respect to the proposed rule change that are filed with the Commission, and all written communications relating to the proposed rule change between the Commission and any person, other than those that may be withheld from the public in accordance with the provisions of 5 U.S.C. 552, will be available for inspection and copying in the Commission's Public Reference Room. Copies of the filing will also be available for inspection and copying at the principal office of the Amex. All submissions should refer to the File No. SR-Amex-00-04 and should be submitted by June 16, 2000.

Start Signature

For the Commission, by the Division of Market Regulation, pursuant to delegated authority. [8]

Margaret H. McFarland,

Deputy Secretary.

End Signature End Preamble

Footnotes

3.  After the initial peer review required by proposed Section 605(a), independent auditors of listed companies would be required to receive a peer review that meets the guidelines of proposed Section 605(b) every three years. Telephone call between Sonia Patton, Attorney, Commission, and John Nachmann, Attorney, Office of the General Counsel, the Nasdaq-Amex Market Group, on March 28, 2000.

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4.  See Securities Act Release No. 6695 (April 1, 1987), 52 FR 11665 (April 10, 1987).

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5.  See Securities Act Release No. 6958A (Sept. 24, 1992), 57 FR 45287 (Oct. 1, 1992), n.24.

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6.  The administering entity would be required to maintain the reports until the completion of the next peer review report. Telephone call between Sonia Patton, Attorney, Commission, and John Nacmann, Attorney, Office of the General Counsel, The Nasdaq-Amex Market Group, on Mach 28, 2000.

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[FR Doc. 00-13259 Filed 5-25-00; 8:45 am]

BILLING CODE 8010-01-M