SEC Approves New PCAOB Standard and Amendments to Existing Standards and Rule

On August 20, 2024, the SEC approved a new PCAOB standard relating to general responsibilities of an auditor, amendments to two existing standards relating to technology-assisted analysis, and an amendment to a PCAOB rule relating to contributory liability.

The Commission unanimously approved AS 1000, General Responsibilities of the Auditor in Conducting an Audit, which merges previously existing auditing principles relating to due professional care, professional skepticism, competence, and professional judgment into a single standard. In approving the new standard, the Commission noted that AS 1000 would “reaffirm, consolidate, and modernize” an auditor’s responsibility on topics such as “the auditor’s duty to protect investors through the preparation and issuance of informative, accurate, and independent auditor’s reports; the exercise of due professional care, professional skepticism, and professional judgment when performing audits; and compliance with ethics and independence rules.”

With respect to technology-assisted analysis, the Commission unanimously approved amendments to AS 1105, Audit Evidence, and AS 2301, The Auditor’s Response to the Risks of Material Misstatement, which “specify and clarify” an auditors’ responsibility when using “technology-assisted data analysis in audit procedures.” PCAOB Chair Erica Williams explained in a statement regarding the Commission’s approval that these amendments “reduce the risk that auditors who use technology-assisted analysis will issue an opinion without obtaining relevant and reliable audit evidence.”

Lastly, a divided Commission approved the PCAOB’s amendment to Rule 3502, Responsibility Not to Knowingly or Recklessly Contribute to Violations, which governs the contributory liability of associated persons of a registered public accounting firm who directly and substantially contribute to a primary violation by that firm. The amendment lowers the standard for contributory liability from recklessness to negligence. SEC Chief Accountant Paul Munter described this amendment as “critical,” noting that it “aligns the rule with other negligence-based professional conduct standards” and “aligns the rule with the same standard of reasonable care that auditors are required to exercise when executing their professional duties.” SEC Chair Gary Gensler issued a statement supporting the amendment pointing to how the amendment would fix the inconsistency of a firm being held to a negligent standard while associated persons to a recklessness standard noting that “accounting firms are just collections of people.” Chair Gensler further noted that “[w]hen firms violate their obligations, the associated persons who directly and substantially contributed to such violations should be held to the same standards of accountability by the PCAOB.”

SEC Commissioners Hester Peirce and Mark Uyeda dissented to the approval of the Rule 3502 amendments. Commissioner Peirce did not support the proposed change because, among other reasons, it “could have the unintended consequence of lowering audit quality and could worsen the trend toward fewer talented individuals entering the auditing profession.” In voting against the proposed change, Commissioner Uyeda noted that he had “not received sufficient assurances that the amendments will strike the right balance when it comes to holding people accountable for unreasonable conduct, as opposed to simply errors in judgment.”

AS 1000 takes effect for audits for fiscal years beginning on or after December 15, 2024, with some firms exempted from the new documentation timing until fiscal years beginning on or after December 15, 2025. The amendments to AS 1105 and AS 2301, and conforming amendments, will take effect for audits of financial statements for fiscal years beginning on or after Dec. 15, 2025.  The amendments to Rule 3502 will become effective in 60 days from the date of approval.

PCAOB Chair Williams statement is here. SEC Press Release is here. SEC Chair Gensler statement is here. SEC Commissioner Peirce statement is here. SEC Commissioner Uyeda statement is here.