WilmerHale
MONTH-IN-BRIEF (Sep 2024)
SEC Approves PCAOB Rule and Standards
By: Thomas W. White, Retired Partner, WilmerHale
The Public Company Accounting Oversight Board’s current strategic objectives include modernization of auditing and other professional standards and strengthening enforcement. Consistent with this agenda, in August and September, the Securities and Exchange Commission approved one new rule and three standards adopted by the PCAOB. The approved actions were:
- Contributory Liability. The PCAOB amended its Rule 3502 to loosen the liability standard for associated persons of registered public accounting firms whose actions or omissions “directly and substantially contribute” to the firm’s violation of relevant laws, rules, or standards. Previously, liability could only be imposed for knowing or reckless conduct; the revised standard also allows liability for conduct that is merely negligent. The SEC approved this rule change by a 3–2 vote.
- General Auditor Responsibilities. The PCOAB adopted a new Auditing Standard (AS) 1000, and related amendments. AS 1000 reorganizes and consolidates auditing standards that address general principles and responsibilities of the auditor in conducting an audit, such as the concepts of due professional care, professional skepticism, competence, and professional judgment. The SEC approved this standard unanimously.
- Technology. The PCAOB adopted amendments to auditing standards that address aspects of audit procedures that involve technology-assisted data analysis. The SEC approved these amendments unanimously.
- Quality Control. The PCAOB adopted a new Quality Control (QC) standard, QC 1000. QC 1000 establishes an integrated, risk-based quality control standard that will require all registered public accounting firms to identify specific risks to their practice and design a quality control system that includes appropriate responses to guard against those risks. The SEC approved this standard by a 3–2 vote. Notably, the final standard includes a requirement that firms that audit more than one hundred public companies establish an independent External Quality Control Function, which was not included in the proposed rule. The SEC rejected criticisms of the procedure by which PCAOB adopted this provision.