(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.)

PCAOB Proposes Rules on Inspections, Investigations and Adjudications

The Public Company Accounting Oversight Board proposed rules concerning inspections of registered public accounting firms. The board also proposed rules concerning investigations and adjudications under its investigative and disciplinary authority over such firms and associated persons.

With regard to inspections, the proposals provide that firms that regularly provide audit reports for more than 100 issuers would be subject to annual inspections while those auditing less than 100 issuers would be subject to inspection every three years.

The rules would also provide for special inspections that are not subject to an inspection schedule. According to the release, these special inspections would be conducted as necessary or appropriate to address issues that come to the board's attention in any way, including public company filings, news reports and information from other regulators, professional associations, informants and members of the public. A registered public accounting firm could be subject to a special inspection without regard to the timing of the firm's regular inspection schedule.

Under the proposed rules concerning board proceedings, the PCAOB and its staff may conduct investigations concerning any acts or omissions by firms and associated persons that may violate any provision of the rules of the board, the federal securities laws and regulations relating to audit reports or professional standards. The proposals provide for both informal inquiries by the staff and for formal investigations by the board.

If violations are detected, the rules would provide for a hearing. The board could impose sanctions, including temporarily or permanently prohibiting a firm or associated person from participating in public company audits. The board could also require special remedial measures, such as training, new quality control procedures and the appointment of an independent monitor.

Comments on both proposals are due to the board by August 18, 2003. Rules proposed and adopted by the board are not effective until approved by the SEC.

¨ PCAOB Release No. 2003-012 is reported at ¶86,944 and PCAOB Release No. 2003-013 is reported at ¶86,945 .