backOn June 12, 2024, the PCAOB approved the adoption of an amendment to PCAOB Rule 3502, previously titled Responsibility Not to Knowingly or Recklessly Contribute to Violations. The rule, originally enacted in 2005, governs the liability of an associated person of a registered public accounting firm who contributes to that firm’s violations of the laws, rules, and standards that the PCAOB enforces. The updated rule lowers the liability standard from recklessness to negligence, aligning it with the same standard of reasonable care auditors are already required to exercise anytime they are executing their professional duties. Similarly, the SEC already has the ability to bring enforcement actions against associated persons when they negligently cause firm violations.
In adopting the amended Rule, the Board stated that it “does not anticipate that a change in the liability standard for contributory conduct will be used to sanction isolated, good-faith errors in professional judgment – let alone be wielded as a ‘blunt’ or ‘draconian’ instrument . . . including with respect to less senior engagement team members.” Additionally, the Board walked backed its initial proposal to amend the rule to allow individual liability for contributing to a violation by any registered firm. Instead, the Board retained the Rule’s language that permits individual liability only for contributing to violations of a firm with which the individual is associated.
The amended rule is subject to SEC approval. A link to the PCAOB’s announcement and adopted rule can be found here.