(The news featured below is a selection from the news covered in the Federal Securities Report Letter, which is distributed to subscribers of the Federal Securities Law Reports.)

Audit Standard on References to PCAOB Approved

The SEC approved the Public Company Accounting Oversight Board's audit standard concerning references in auditing reports to PCAOB standards (2003-04 CCH Dec. ¶87,139). The standard is effective with regard to reports issued or reissued on or after May 24, 2004. In addition, the SEC published interpretive guidance regarding the standard.

The SEC noted that the new standard directly impacts several agency rules, regulations, releases and staff bulletins, as well as certain provisions in the federal securities laws, which refer to Generally Accepted Auditing Standards and to specific standards under GAAS, including related professional practice standards. The standard directs auditors to cease referring to GAAS in audit reports relating to financial statements of issuers and instead to refer to the standards of the PCAOB. Accordingly, the SEC issued guidance applicable to auditors' engagements that are governed by PCAOB rules.

The SEC stated that even though the new standard may supersede references to GAAS or standards established by the American Institute of Certified Public Accountants, it does not supersede SEC rules or regulations. Many parts of Commission rules and staff guidance include direct references to GAAS, stated the SEC. According to the agency, references in SEC rules, staff guidance and in the federal securities laws to GAAS or to specific standards under GAAS should be understood to mean the standards of the PCAOB plus any applicable SEC rules. The SEC stated that it intends to codify this interpretation in the near future.

Some registrants are able to incorporate by reference previously issued and filed reports by including an auditor's consent to the use of their report in the registrant's filing that requires the audit report. The SEC advised that if a registrant incorporates by reference a report previously filed with the agency, the report incorporated by reference would not need to include the otherwise-required reference to the standards of the PCAOB. The advice is effective May 14, 2004.

¨ Release Nos. 34-49707 and 34-49708 will be published in a forthcoming REPORT.