Dive Brief:
- The Big Four accounting firms called on the Securities and Exchange Commission to approve rule revisions by the Public Company Accounting Oversight Board that would soften quality control standards for audits.
- In comment letters filed at the SEC this month, KPMG, PwC, Deloitte and EY said the PCAOB amendments to “QC 1000, A Firm’s System of Quality Control” ease compliance burdens without undermining safeguards for investors.
- “The amendments reduce complexity, ease operational burdens and improve alignment with other quality management standards, while preserving the standard’s rigor and the Board’s investor protection objectives,” KPMG said in an Oct. 9 letter to the SEC. Investor groups filed comments to the agency opposing the diluted standards.
Dive Insight:
The PCAOB revisions may receive a warm response from the SEC. Since becoming chair of the agency in April 2025, Paul Atkins has pursued several efforts to ease compliance burdens and reverse a decline in the number of publicly listed companies.
For example, Atkins has proposed raising the thresholds determining which public companies are deemed “large accelerated filers” and subject to stringent reporting and internal-control audit requirements.
Atkins also seeks to soften shareholder proxy rules and reduce non-financial disclosure requirements for companies.
The PCAOB changes, as adopted by the board last month and scheduled to take effect on Dec. 15, would drop the requirement that firms create a so-called External QC Function if they published more than 100 audits during the previous calendar year. The external overseers would assess an auditor’s internal evaluation of its quality controls.
The revisions would also scuttle the “design only” rule requiring an accounting firm to expend time and money creating a quality control framework even if it did not audit publicly traded companies. A firm would only need to set up a framework if it began such audits.
“In our view, these changes do not diminish investor protection,” PwC said in an Oct. 7 letter to the SEC.
“Rather, they enhance the focus and scalability of the standard by addressing implementation challenges, eliminating unnecessary costs and redundancies, and addressing unintended consequences identified following the standard’s initial adoption,” PwC said.
Investor groups oppose the blunted quality control rules.
The CFA Institute deems upholding the requirement for external quality control assessments a “very high” priority, according to Sandra Peters, the institute’s senior head of corporate disclosure and information advocacy.
The External QC Function “represents the single clearest structural safeguard investors have over the firms auditing nearly all of U.S. public market capitalization,” Peters said in an Oct. 12 letter to the SEC.
The agency, at a minimum, should require that firms auditing more than 500 public companies should set up an EQCF, she said.
The Council of Institutional Investors believes the PCAOB should have retained the EQCF requirement for firms that issued audit reports for more than 500 publicly traded companies during the prior calendar year, CII General Council Jeffrey Mahoney said in a Oct. 8 letter to the SEC.
The agency should “institute proceedings to determine” whether the PCAOB standards should be rejected, he said.
