On March 24, the Securities and Exchange Commission adopted interim final amendments to implement congressionally mandated submission and disclosure requirements of the Holding Foreign Companies Accountable Act (HFCA Act).
The HFCA Act became law on December 18, 2020. Among other things, Section 2 of the HFCA Act amended Section 104 of the Sarbanes-Oxley Act of 2002 to require that the SEC identity each “covered issuer” that has retained a registered public accounting firm to issue an audit report where that firm has a branch or office located in a foreign jurisdiction, and the Public Company Accounting Oversight Board (PCAOB) has determined that it is unable to inspect or investigate completely because of a position taken by an authority in the foreign jurisdiction. The interim final amendments adopting release seeks comment on this requirement.
The interim final amendments will apply to registrants that the SEC identifies as having filed an annual report on Forms 10-K, 20-F, 40-F or N-CSR with an audit report issued by a registered public accounting firm that is located in a foreign jurisdiction and that the PCAOB has determined it is unable to inspect or investigate completely because of a position taken by an authority in that jurisdiction. Before any registrant will have to comply with the interim final amendments, the SEC must implement a process for identifying such a registrant. Thus, the SEC is seeking public comment on this identification process.
Consistent with the HFCA Act, the amendments will require any such identified registrant to submit documentation to the SEC establishing that the registrant is not owned or controlled by a governmental entity in that foreign jurisdiction, and will also require disclosure in a foreign issuer’s annual report regarding the audit arrangements of, and governmental influence on, such a registrant. The SEC is seeking public comment on these submission and disclosure requirements. The HFCA Act requires the SEC to issue rules within 90 days of the date of enactment to establish the manner and form in which registrants must comply with the documentation submission requirement. The SEC is issuing the interim final amendments to comply with this 90-day deadline.
The SEC staff is actively assessing how best to implement other requirements of the HFCA Act not subject to the 90-day deadline, including the identification process and the trading prohibition requirements.