Dive Brief:
- The Securities and Exchange Commission approved revisions proposed by the Public Company Accounting Oversight Board softening quality control safeguards for audits in line with endorsements by the Big Four accounting firms.
- The amendments to “QC 1000, A Firm’s System of Quality Control,” ease compliance burdens without undermining safeguards for investors, according to the PCAOB, which proposed the amendments in September. In letters to the SEC, KPMG, PwC, Deloitte and EY supported the changes, which will take effect on Dec. 15.
- “We believe that the amendments could reduce unnecessary costs and enhance efficiency while not compromising QC 1000’s goal of driving continuous improvements in firms’ quality control systems and maintaining the standard’s investor protection benefits,” the commission said in a notice Monday.
Dive Insight:
The PCAOB amendments align with efforts by SEC Chair Paul Atkins to streamline compliance rules and return the commission to “First Principles.”
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, who has led the commission since April 2025, also seeks to soften shareholder proxy rules and reduce non-financial disclosure requirements for companies.
“Too often in the recent past, the agency’s regulatory approach drifted from following the plain letter of the law,” Atkins said in a speech on Friday.
“Rules were sculpted for political and social pursuits rather than grounded in First Principles,” he said. “Disclosure obligations, designed to inform investors about what is material, were quietly redirected toward what regulators found merely interesting — or worse, to cater to the demands of special interest groups.”
The PCAOB amendments approved by the SEC 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 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.
The amendment rule “continues our efforts to refocus on our core mission by strengthening the effectiveness of our standards while also preserving the rigor our U.S. capital markets deserve,” PCAOB Chairman Demetrios Logothetis said Monday in a statement.
“By enhancing alignment with international quality management frameworks, where appropriate, refining requirements that imposed unnecessary burdens and facilitating a modern, quality control-focused inspection program, the amendments advance the PCAOB’s broader modernization agenda,” Logothetis said.
Investor groups opposed weakening 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.
