PCAOB Issues First Policy Statement Regarding Treatment Of 'Extraordinary Cooperation' In Investigations

Author:Mr Louis Greenstein and Jennifer L. Farer
Profession:McGuireWoods LLP

In its first public Policy Statement regarding the treatment of cooperation in investigations, the Public Company Accounting Oversight Board (PCAOB or Board) provided guidance on how it will consider a firm's or associated person's "extraordinary cooperation," which goes above the level of cooperation that is otherwise legally required, in determining the outcome of an investigation. In the Policy Statement, which includes many of the same themes set forth in the SEC's Seaboard Report, the PCAOB identified categories and examples of conduct that would be considered and the credit that may be afforded such extraordinary cooperation. The PCAOB explained that increasing extraordinary cooperation through such incentives may shorten investigations and reduce the burdens to the Board's resources. This maximization of the Board's time and resources will allow the Board to address possible audit or other violations sooner, reduce the risk that such violative conduct will be repeated to the increased detriment of investors and assist the Board in identifying inaccurate audit reports.

In the Policy Statement, the PCAOB defines "extraordinary cooperation" as voluntary and timely action, beyond compliance with legal or regulatory obligations, that contributes to the mission of the Board. The PCAOB identifies the following three types of cooperation that might merit cooperation credit and, in its Statement, sets forth example conduct that might fall within these categories.

Self-reporting: full disclosure before the Board or another regulator becomes aware of the conduct, with earlier self-reporting considered more valuable. However, self-reporting required by legal or regulatory obligations, such as the obligation of an auditor pursuant to Section 10A of the Exchange Act to report a client's illegal act, is not eligible for cooperation credit. Remedial or corrective action: meaningful actions designed to reduce the likelihood and risk that similar violations will occur and to correct the violative conduct. Such conduct must be voluntary, so credit would not be applied to those improvements made in response to quality control criticisms or the Board's identification of defects during inspections. Substantial assistance: providing information or documents during the Board's investigative processes or to other law enforcement authorities that might not have been discovered absent that cooperation or that goes beyond information...

To continue reading