[Federal Register: January 4, 2005 (Volume 70, Number 2)]
[Notices]
[Page 408-412]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr04ja05-94]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-50936; File No. PCAOB-2004-02]
Public Company Accounting Oversight Board; Notice of Filing of
Proposed Rule and Amendment No. 1 Amending Bylaws
December 27, 2004.
Pursuant to section 107(b) of the Sarbanes-Oxley Act of 2002 (the
``Act''), notice is hereby given that on March 18, 2004, the Public
Company Accounting Oversight Board (the ``Board'' or the ``PCAOB'')
filed with the Securities and Exchange Commission (the ``Commission'')
the proposed rule amendments described in Items I and II below, which
items have been prepared by the Board and are presented here in the
form submitted by the Board. On November 12, 2004, the PCAOB filed with
the Commission Amendment No. 1 to the proposed rule amendments. The
Commission is publishing this notice to solicit comments on the
proposed rule amendments, as amended by Amendment No. 1, from
interested persons.
I. Board's Statement of the Terms of Substance of the Proposed Rule
On March 9, 2004, the Board adopted amendments to its bylaws. On
October 26, 2004, the Board adopted amendments to the bylaws as adopted
on March 9. The portions of its bylaws that the Board has amended
through these cumulative adoptions are set out below, with italics
indicating the text that is added, and brackets surrounding text that
has been deleted, by the amendments adopted by the Board.
Bylaws of the Public Company Accounting Oversight Board[, Inc.]
[A Nonprofit Membership Corporation]
Pursuant to the Provisions of Title I of the Sarbanes-Oxley Act of 2002
Bylaws of the Public Company Accounting Oversight Board[, Inc.]
Table of Contents
Article I: Name
Article II: Object
2.1. Organization
2.2. Exempt Organization Purposes
2.3. Exempt Organization Uses of Earnings and Activities
Article III: Offices
3.1. Principal Office
3.2. Other Offices
3.3. Agent and Office for Service of Process
Article IV: Governing Board
4.1. Composition
4.2. Powers and Duties
4.3. Quorum [and Majority]
4.4. Board Action
4.5[4]. Compensation and Expenses
Article V: Governing Board Meetings
5.1. [General] Governing Board Meetings
[5.2. Regular Public Meetings
5.3. Special Meetings
5.[4]2. Telephonic Participation
Article VI: Officers
6.1. General
6.2. Other Officers
6.3. Powers of the Chief Executive Officer
Article VII: Liability and Indemnification
7.1. No Personal Liability
7.2. Indemnification
7.3. Insurance
[7.4. Severability
Article VIII: Bylaw Amendments [And] and Rules [Of the Corporation]
of the Governing Board
8.1. Amendments to Bylaws
8.2. Rules
Article IX: Miscellaneous Provisions
9.1. Fiscal Year
9.2. Capital Expenditures
9.3. Selection of Auditor
9.4. Headings
9.5. Variation of Terms
9.6. Severability
Article I
Name
1. The name of the [Corporation] body corporate shall be the Public
Company Accounting Oversight Board[, Inc] (the ``Corporation'').
Article II
Object
2.1. Organization. The Corporation is organized pursuant to, and
shall be operated for such purposes as are set forth in, Title I of the
Sarbanes-Oxley Act of 2002 (the ``Act'').
2.2. Exempt Organization Purposes. The Corporation is organized
exclusively for charitable, educational, and scientific purposes,
including, for such purposes, the making of distributions to
organizations that qualify as exempt organizations under section
501(c)(3) of the Internal Revenue Code, or corresponding section of any
future federal tax code.
2.3. Exempt Organization Uses of Earnings and Activities. No part
of the net earnings of the Corporation shall inure to the benefit of,
or be distributable to, members or trustees of the Corporation, if any,
or to officers of the Corporation, or other private persons, except
that the Corporation shall be authorized and empowered to
[[Page 409]]
pay reasonable compensation for services rendered and to make payments
and distributions in furtherance of the purposes set forth in the
purpose hereof. No substantial part of the activities of the
Corporation shall be the carrying on of propaganda, or otherwise
attempting to influence legislation, and the Corporation shall not
participate in, or intervene in (including the publishing or
distribution of statements) any political campaign on behalf of any
candidate for public office. Notwithstanding any other provision of
this document, the Corporation shall not carry on any other activities
not permitted to be carried on (a) by an organization exempt from
federal income tax under section 501(c)(3) of the Internal Revenue
Code, or corresponding section of any future federal tax code, or (b)
by an organization, contributions to which are deductible under section
170(c)(2) of the Internal Revenue Code, or corresponding section of any
future federal tax code.
Article III
Offices
3.1. Principal Office. The principal office of the Corporation
shall be in the City of Washington, District of Columbia.
3.2. Other Offices. The Governing Board of the Corporation (the
``Governing Board'') may designate other office locations, [outside of]
within or without the District of Columbia, as the Governing Board may
determine are necessary or appropriate to meet the [Corporation's]
Governing Board's objectives.
3.3. Agent and Office for Service of Process. The Secretary (or
Acting Secretary, as applicable) of the Corporation shall serve as the
agent of the Corporation upon whom any process, notice or demand
required or permitted by law to be served upon the Corporation may be
served. The office of the Corporation for purposes of such service of
process, notice or demand shall initially be the office located at 1666
K Street, NW, Washington, DC 20006.
Article IV
Governing Board
4.1. Composition. The Governing Board shall consist of those
persons appointed thereto by the Securities and Exchange Commission,
pursuant to Section 101 of the Act.
4.2. Powers and Duties. The Governing Board shall have such powers
and duties as are provided in Title I of the Act.
4.3. Quorum [and Majority]. A majority of the members of the
Governing Board shall constitute a quorum.
4.4. Board Action. [An] Any act (i) authorized [approved] by
majority vote of the members of the Governing Board present at a
meeting of the Governing Board at which a quorum is present, or (ii)
authorized by at least a majority of the Governing Board (other than at
a meeting of the Governing Board) in accordance with any other
procedure permitted by law, shall be [the] an act by vote of the
Governing Board. If a Governing Board member has recused himself or
herself from a decision, and a quorum of otherwise qualified Governing
Board members cannot reasonably be assembled in time to meet the
exigencies of that particular situation, the recused Governing Board
member may be counted for quorum purposes only. As used in this
section, ``the exigencies of that particular situation'' shall be
defined to require circumstances in which the Governing Board is
required to act within a limited period of time or in which the public
interest or the protection of investors otherwise [prevent] prevents
the deferral of action until a quorum of non-recused Governing Board
members is available.
4.5[4]. Compensation and Expenses. The Governing Board shall set
the compensation for its [Members] members. The Corporation shall pay
or reimburse members [Members] of the Governing Board [shall be
reimbursed by the Board] for reasonable expenses incurred in the
discharge of their duties.
Article V
Governing Board Meetings
[5.1. General. As soon as practical after the adoption of these
bylaws, the Governing Board shall adopt a written policy defining the
circumstances under which meetings of the Board will be open to the
public (the ``Open Meeting Policy'').]
5.[2]1. [Regular Public] Governing Board Meetings. The Governing
Board shall hold at least one (1) public meeting each [month, which
meeting shall take place on the first Tuesday of each month (the
``Regular Public Meeting''), or at] calendar quarter, and such other
[time] meetings, which may be either public or non-public (in
accordance with the Open Meeting Policy of the Governing Board), as the
Chair [shall determine. The Board shall ensure that, under procedures
defined in its Open Meeting Policy] (as defined below) deems necessary
or appropriate to further the purposes of the Act. The Governing Board
shall ensure that, absent exigent circumstances as determined by the
Governing Board, the public is informed, at least five (5) calendar
days in advance, of the time, location, and general topics scheduled
for discussion of each [Regular Public Meeting.] public meeting, and,
in the event of such exigent circumstances, shall ensure that notice of
a public meeting is provided as soon as practicable.
[5.3. Special Meetings. The Governing Board may hold additional
meetings (``Special Meetings''), which may be public or non-public (in
accordance with the Open Meeting Policy) as it deems necessary or
appropriate to further the purposes of the Act. The Open Meeting Policy
shall set forth procedures for providing the public with reasonable
notice of public Special Meetings.]
5.[4]2. Telephonic Participation. [The Governing Board] Provided
that all Governing Board members are able to hear each other (and, in
the case of public meetings, the public located at the location
specified in the meeting notice is able to hear all of the
participating members of the Governing Board), the Governing Board may
meet via telephone or teleconference, and any member thereof may
participate in a meeting by telephone, provided that, in the case of a
meeting that is open to the public, at least one Governing Board member
shall be present at the location specified in the meeting notice.
Article VI
Officers
6.1. General. The [Chair] Chairman of the Governing Board (the
``Chair'') shall also be the President and Chief Executive Officer of
the Corporation. All other Governing Board members shall also be Vice
Presidents of the Corporation. Governing Board members shall serve as
officers of the Corporation without additional compensation.
6.2. Other Officers. The other officers of the Corporation shall
include a Secretary, Treasurer, General Counsel, Chief Auditor, Chief
Administrative Officer, Director of [Inspections and] Registration and
Inspections, Director of [Investigations and] Enforcement and
Investigations, and such other officers as the Governing Board may
establish in accordance with such rules of the Governing Board as may
be adopted for establishing officers.
6.3. Powers of the Chief Executive Officer.
(a) The Chief Executive Officer is responsible for, and has
authority over, the management and administration of the Corporation,
including
[[Page 410]]
responsibility and authority for the appointment, dismissal, and
supervision of personnel (other than Governing Board members and
personnel employed regularly and full-time within the immediate offices
of the Governing Board members), the distribution of business among
such personnel and among organizational units of the Corporation, the
use and expenditure of funds (including the procurement of goods and
services), and the development (for Governing Board review) of
strategic policy initiatives.
(b)(1) In carrying out any of the responsibilities under the
provisions of this section 6.3, the Chief Executive Officer shall be
governed by the general policies of the Governing Board and by such
rules and decisions as the Governing Board may lawfully make.
(2) The appointment by the Chief Executive Officer of the officers
of the Corporation designated in and established under section 6.2
shall be subject to the approval of, and made in consultation with, the
Governing Board, and the dismissal of the officers of the Corporation
designated in and established under section 6.2 shall be made in
consultation with the Governing Board, except that when the Governing
Board determines that the dismissal arises out of a conflict regarding
the general policies of the Governing Board, it is also subject to the
approval of the Governing Board.
(3) Each Governing Board member has responsibility and authority
for the appointment, dismissal, and supervision of personnel employed
regularly and full-time within the immediate office of the Governing
Board member, subject to the Governing Board's overall personnel
policies.
(4) The Chief Executive Officer has the responsibility and
authority to develop, and present to the Governing Board for approval,
an annual budget as well as mid-year adjustments, if any. There is
reserved to the Governing Board its responsibility and authority with
respect to determining the distribution of funds according to major
programs and purposes, including those related to salary schedules and
other conditions of employment.
(c) Notwithstanding any other provision of these bylaws, however,
the Director of the Office of Internal Oversight and Performance
Assurance shall report directly to the Governing Board and the
Governing Board shall have exclusive authority to hire, fire, and
establish the compensation and other terms of employment of the
Director.
Article VII
Liability and Indemnification
7.1. No Personal Liability. No contract entered into by or on
behalf of the Corporation shall personally obligate any employee,
officer, or Governing Board member of the Corporation, including the
employee, officer or Governing Board member authorizing such contract
or executing same.
7.2. Indemnification.
(a) Unless and to the extent otherwise prohibited by law and as
otherwise provided in this Section 7.2[(b)], the Corporation shall
indemnify any employee, officer, or Governing Board member, or any
former employee, officer, or Governing Board member (each, a
``Potential Indemnitee''), against any and all [expenses and]
liabilities (including without limitation judgments, fines, and
penalties against such Potential Indemnitee) and reasonable expenses
(including without limitation reasonable counsel fees and other
reasonable related fees) actually and necessarily incurred by [him or
her,] or imposed on him or her, in connection with such Potential
Indemnitee's defense against any claim, action, suit, or proceeding
(whether actual or threatened, civil, criminal, administrative, or
investigative, including appeals)[,] (each, a ``Proceeding'') to which
he or she may be or is made a party by reason of being or having been
such [employee, officer, or Board member.] a Potential Indemnitee (such
liabilities and expenses, collectively, ``Indemnifiable Amounts'').
Notwithstanding the foregoing, Indemnifiable Amounts shall include
amounts paid in settlement by a Potential Indemnitee only if such
amounts are approved by the Governing Board.
(b) [Notwithstanding section 7.2(a), there] There shall be no
indemnification in relation to matters as to which the Governing Board
finds that the [employee, officer, or Board member] Potential
Indemnitee acted or omitted to act, in either case in bad faith, or
engaged in willful misconduct in the performance of a duty to the
Corporation. Prior to making any such finding, the Governing Board
shall provide the Potential Indemnitee with at least ten (10) business
days written notice of its intent to consider the matter, within which
time the Potential Indemnitee shall have the right to submit relevant
written materials to the Governing Board for its consideration.
[(c) Amounts paid in indemnification of expenses and liabilities
may include, but shall not be limited to, counsel and other related
fees; costs and disbursements; and judgments, fines, and penalties
against, and amounts paid in settlement by, such employee, officer, or
Board member.]
[(d) The Corporation may advance expenses to, or where appropriate
may itself, at its expense, undertake the defense of any employee,
officer, or Board member; provided, however, that such employee,
officer, or Board member shall undertake to repay or to reimburse such
expense if it should be ultimately determined that he or she is not
entitled to indemnification under this Article.]
(c) In lieu of providing the advancements or indemnification
provided for herein, the Corporation may, at its own expense not to be
reimbursed by the Potential Indemnitee, undertake the defense of any
such Potential Indemnitee, in which case the Governing Board in its
discretion may determine whether the Corporation shall reimburse such
Potential Indemnitee for any fees and expenses incurred as a result of
his or her engagement of separate counsel, whether through advancements
or indemnification. The provisions of this subsection 7.2(c) shall not
apply to any Proceeding by or in the right of the Corporation.
(d) Except as otherwise provided herein, within fifteen (15)
business days after the Corporation's receipt of a request therefore,
and of a written undertaking by the Potential Indemnitee to repay or to
reimburse all such amounts if it is determined that such Potential
Indemnitee is not entitled to indemnification under this Article, the
Corporation shall advance Indemnifiable Amounts to a Potential
Indemnitee.
(e) The provisions of this Article shall be applicable to [claims,
actions, suits, or proceedings] Proceedings made or commenced after the
adoption hereof, whether arising from acts or omissions to act
occurring before or after adoption hereof.
(f) The indemnification and advancements provided by this Article
shall not be deemed exclusive of any other rights to which [such
employee, officer, or Board member] any Potential Indemnitee may be
entitled under any applicable law.
(g) The indemnification and advancements provided by this Article
shall not restrict the power of the Governing Board to provide any
additional indemnification and advancements permitted by law.
(h) As a condition precedent to a Potential Indemnitee's right to
be indemnified or receive advancements hereunder, he or she shall (i)
give to the Corporation notice in writing directed to
[[Page 411]]
the Secretary of the Corporation (or to such other individual as the
Corporation may designate) as soon as practicable of any Proceeding
made against such Potential Indemnitee for which indemnity will or
could be sought, and (ii) other than in connection with a Proceeding by
or in the right of the Corporation, provide the Corporation with such
information and cooperation as it may reasonably request.
7.3. Insurance. The Governing Board may purchase insurance on
behalf of any [employee, officer, or Governing Board member] Potential
Indemnitee against any liability which may be asserted against or
incurred by him or her [which] that arises out of such person's status
as [an employee, officer, or Board member] a Potential Indemnitee or
out of acts taken in such capacity, whether or not the Corporation
would have the power to indemnify such person against that liability
under law. To the extent that any applicable insurance is available to
respond to any [claim] Proceeding addressed in this Article, such
insurance shall be exhausted before any payment is made pursuant to the
advancement and indemnification provisions in this Article.
[7.4. Severability. If any part of this Article shall be found in
any action, suit, or proceeding to be invalid or ineffective, the
validity and effectiveness of the remaining parts shall not be
affected.]
Article VIII
Bylaw Amendments and Rules of the Governing Board [Corporation]
8.1. Amendments to Bylaws. Subject to the approval of the U.S.
Securities and Exchange Commission as provided in the Act, the [The]
Governing Board may from time to time amend, repeal, or supplement
these bylaws.
8.2. Rules. In addition to, and separate from, these bylaws, the
Governing Board may adopt such rules of the Governing Board
[Corporation] as it deems necessary or appropriate to discharge its
responsibilities under the Act.
Article IX
Miscellaneous Provisions
9.1. Fiscal Year. The Corporation's fiscal year shall be the
calendar year.
9.2. Capital Expenditures. Except as expressly delegated by the
Governing Board, no capital expenditure or investment shall be made
without the approval of the Governing Board.
9.3. Selection of Auditor. The Governing Board shall retain an
accounting firm to annually audit the Corporation's financial records,
which firm shall not perform any other services, except tax services,
for the Corporation.
9.4. Headings. Section and other headings contained herein are for
reference purposes only, and are not intended to describe, interpret,
define, or limit the scope, extent, or intent of any of the provisions
hereof.
9.5. Variation of Terms. All terms and any variations thereof shall
be deemed to refer to masculine, feminine, or neuter, singular or
plural, as the identity of the respective person or persons may
require.
9.6. Severability. If any part of these bylaws shall be found in
any action, suit, or proceeding to be invalid or ineffective, the
validity and effectiveness of the remaining parts shall not be
affected.
* * * * *
II. Board's Statement of the Purpose of, and Statutory Basis for, the
Proposed Rule
A. Board's Statement of the Purpose of, and Statutory Basis for, the
Proposed Amendments to Its Bylaws
(a) Purpose
The purpose of the amendments is to clarify existing bylaws
provisions, and to cause the bylaws of the PCAOB to address the
following internal operational and administrative PCAOB matters in the
manner best suited to the organization:
The PCAOB's Status as a Tax-Exempt Organization
The amendments specify that the PCAOB's purposes, activities and
uses of earnings comport with the requirements of the Internal Revenue
Service for exemption from federal taxation pursuant to Section
501(c)(3) of the Internal Revenue Code.
Agent and Office for Service of Process, Notices and Demands
The amendments identify the office and agent of the PCAOB for
purposes of service of process, notices, and demands.
Board Meetings and Action
The amendments modify the prior provisions regarding the frequency,
scheduling and notice requirements of public Board meetings. The
amendments require the Board to hold at least one public meeting per
calendar quarter and, absent exigent circumstances, to ensure that
public notice thereof is provided at least five days prior to the
meeting. The amendments also address the manner in which the Board may
act by vote outside of a Board meeting.
Officer Titles
The amendments clarify the current titles of two of the Board's
officers.
Director of the Office of Internal Oversight and Performance Assurance
The Board has established an Office of Internal Oversight and
Performance Assurance in order to provide internal examination of the
programs and operations of the PCAOB to help ensure the efficiency,
integrity and effectiveness of those programs and operations. The
amendments specify that the Director of this office reports directly to
the Board, and that the Board has the exclusive authority to hire, fire
and establish the compensation and other terms of employment of this
Director.
Indemnification
The amendments condense portions of the indemnification provisions
of the prior bylaws and include substantive modifications. These
substantive modifications clarify (i) the types of costs and expenses
for which the PCAOB will provide indemnification; (ii) the manner in
which the Board may determine whether indemnification is to be
provided; (iii) the right of the Board to undertake an individual's
defense in lieu of payment of indemnification; (iv) the availability of
payment of indemnifiable amounts in advance of the final disposition of
a proceeding; and (v) basic conditions a potential indemnitee must
satisfy in order to receive payment from the PCAOB.
(b) Statutory Basis
The statutory basis for the proposed amendments to the Bylaws is
Title I of the Act.
B. Board's Statement on Burden on Competition
The Board does not believe that the proposed bylaws amendments will
result in any burden on competition that is not necessary or
appropriate in furtherance of the purposes of the Act.
C. Board's Statement on Comments on the Proposed Rules Received From
Members, Participants or Others
Not applicable.
III. Date of Effectiveness of the Proposed Rule 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
[[Page 412]]
90 days of such date if it finds such longer period to be appropriate
and publishes its reasons for so finding or (ii) as to which the Board
consents the Commission will:
(a) By order approve such proposed rule; or
(b) Institute proceedings to determine whether the proposed rule
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
is consistent with the requirements of Title I of the Act. Comments may
be submitted by any of the following methods:
Electronic Comments
Use the Commission's Internet comment form (http://www.sec.gov/rules/pcaob.shtml.
); or Send an e-mail to rule-comments@sec.gov. Please include
File Number PCAOB-2004-02 on the subject line.
Paper Comments
Send paper comments in triplicate to Jonathan G. Katz,
Secretary, Securities and Exchange Commission, 450 Fifth Street, NW.,
Washington, DC 20549-0609.
All submissions should refer to File Number PCAOB-2004-02. This
file number should be included on the subject line if e-mail is used.
To help the Commission process and review your comments more
efficiently, please use only one method. The Commission will post all
comments on the Commission's Internet Web site (http://www.sec.gov/rules/pcaob.shtml
). Copies of the submission, all subsequent
amendments, all written statements with respect to the proposed rule
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 Section,
450 Fifth Street, NW., Washington, DC 20549. Copies of such filing also
will be available for inspection and copying at the principal office of
PCAOB. All comments received will be posted without change; we do not
edit personal identifying information from submissions. You should
submit only information that you wish to make available publicly. All
submissions should refer to File Number PCAOB-2004-02 and should be
submitted on or before January 25, 2005.
By the Commission.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. E4-3923 Filed 1-3-05; 8:45 am]
BILLING CODE 8010-01-P