[15770]
March 19, 2003
TO: ACCOUNTING/TREASURERS COMMITTEE No. 11-03
CLOSED-END INVESTMENT COMPANY COMMITTEE No. 16-03
SEC RULES COMMITTEE No. 23-03
UNIT INVESTMENT TRUST COMMITTEE No. 7-03
RE: PCAOB PROPOSAL FOR ESTABLISHMENT OF ACCOUNTING SUPPORT FEE
The Public Company Accounting Oversight Board (the “Board”) has proposed rules to
establish the accounting support fee required under the Sarbanes-Oxley Act (the “Act”) to fund
the Board’s activities.1 We are pleased to report that, consistent with recommendations
submitted by the Institute, the proposed rules assess investment company issuers accounting
support fees at a substantially reduced rate.2
Comments on the proposed rules are due by Friday, April 4. If you have any comments
on the proposal, please contact the undersigned by Monday, March 31 at 202/326-5851 or
smith@ici.org.
A. Issuers Subject to the Accounting Support Fee
Once each year, the Board will compute the accounting support fee. The accounting
support fee will be equal to the Board’s budget for that year, as approved by the SEC, less the
amount of registration fees collected from public accounting firms during the preceding year.
In order to allocate the accounting support fee among issuers, the Board proposes that
all issuers be divided into four classes:
1. All issuers whose average, monthly U.S. equity market capitalization during the
preceding calendar year, based on all classes of common stock, is greater than $25
million (“Equity Issuer Class”);
1 Proposal For Establishment of Accounting Support Fee, PCAOB Release No. 2003-002 (March 14, 2003) (the “Proposing
Release”). The Proposing Release is available at http://www.pcaobus.org/pcaob1/Rules/Release2003-002.pdf.
2 The Institute recommended that registered investment companies be assessed accounting support fees at ten
percent of the rate at which operating companies are assessed. See Memorandum to Accounting/Treasurers
Committee No. 57-02, Closed-End Investment Company Committee No. 58-02, SEC Rules Committee No. 109-02,
Unit Investment Trust Committee No. 34-02, dated December 23, 2002.
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2. Registered investment companies and issuers that have elected to be regulated as
business development companies whose average, monthly market capitalization (or net
asset value), during the preceding calendar year, is greater than $250 million
(“Investment Company Issuer Class”);
3. All issuers that (i) have a basis, under a Commission rule or pursuant to other action of
the Commission or its staff not to file audited financial statements, (ii) are employee
stock purchase, savings and similar plans, interests in which constitute securities
registered under the Securities Act of 1933 or (iii) are subject to the jurisdiction of a
bankruptcy court and satisfy the modified reporting requirements of Commission Staff
Legal Bulletin No. 2 (“Issuers Permitted Not to File Audited Financial Statements”); and
4. All other issuers (i.e., issuers that do not fall in classes one, two or three) (“All Other
Issuers Class”).
In the case of an investment company with multiple series, the net asset value of all
series in the company would be aggregated to determine whether the $250 million threshold
has been exceeded. A company’s status as an issuer within the classes will be determined as of
the date on which the amount of the annual accounting support fee is set. Companies that are
not issuers on that date will not be required to pay any fee during the year.
The Proposing Release indicates that unit investment trusts that have not filed or
updated a registration statement that became effective during the preceding year are included
in the Issuers Permitted Not to File Audited Financial Statements class. We understand unit
investment trusts often update their registration statement with audited financial statements
during the first several years of their existence so that the sponsor can make a secondary market
in the trust’s shares. These trusts would fall in the second class of issuers. However, other unit
investment trusts, depending on their circumstances, may not file an updated registration
statement. These trusts would fall in the third class of issuers and would pay no accounting
support fee.
B. Allocation of the Accounting Support Fee to Issuers
The accounting support fee will be allocated among the issuers in the four classes in the
following manner:
1. Each company in the Equity Issuer Class and the Investment Company Issuer Class will
be allocated an amount equal to the accounting support fee, multiplied by a fraction.
The numerator of the fraction will be the issuer’s average monthly market capitalization
during the preceding calendar year. The denominator will be the sum of the average
monthly market capitalizations of all Equity and Investment Company Issuers. For
purposes of this allocation, however, the market capitalization of an investment company issuer
will be ten percent of the investment company’s net asset value.
2. All issuers in the other two classes – Issuers Permitted Not to File and All Other Issuers
– will be allocated a share of zero.
Issuers will be required to pay their allocated shares of the accounting support fee, rounded to
the nearest hundred. Accordingly, issuers whose shares of the accounting support fee are less
than $50 will have their shares rounded to zero and will not be assessed a fee. We estimate that,
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under the proposal, investment company issuers would pay an accounting support fee of $300
or $400 per billion in fund net assets.
C. Notice of Allocation and Collection of Amount Due
After the annual accounting support fee is determined, the Board will send a notice to
each issuer to which a share of the fee has been allocated. Notices will be sent either
electronically or by first class mail to the address shown on the issuer’s most recent periodic
report filed with the SEC. We understand that the Board plans to send fee notices to issuers in
the next several months. Payment will be due on the 30th day after transmittal, after which
interest will accrue at a rate of six percent per annum. If an issuer has not paid its share of the
accounting support fee by the 60th day after a notice was sent, the Board may send a second
notice by certified mail. If payment has not been made after the 90th day, the Board may report
the issuer’s non-payment to the SEC.
According to the Proposing Release, failure to pay is a violation of Section 13(b)(2) of the
Securities Exchange Act of 1934. In addition, under the rule proposal no registered public
accounting firm may sign an unqualified opinion (or issue a consent) with respect to an issuer’s
financial statements if that issuer has outstanding any past due share of the accounting support
fee.
D. Collection of Fees for FASB
Under the Act, the standard-setting body designated by the Commission to establish
accounting principles is also authorized to collect an accounting support fee from public
companies to cover its budget. The Board’s proposed rules recognize that, as contemplated in
the Act, the standard-setting body could designate an agent to assess and collect its fees and the
Board could be that agent. If that occurs, the Board’s assessment and collection of the standard-
setting body’s fees will be governed by the same rules as apply to the Board’s fees. If the Board
is designated as the standard-setting body’s agent, issuers would receive one notice
representing their combined fee due and would make one payment.
The standard-setting body, however, is not required by the Act to use the Board as its
collection agent or to use its allocation formula. The accounting-standard setting body
(presumably the FASB) cannot collect accounting support fees until it is officially designated as
such by the Commission. The Commission has not yet designated the FASB as the accounting
standard-setting body.
Gregory M. Smith
Director - Operations/Compliance & Fund
Accounting