TheCorporateCounsel.net

As I noted in the blog back at the end of November, the PCAOB announced the adoption of a set of new requirements regarding public reporting of standardized firm and engagement metrics, as well as a separate set of amendments regarding the PCAOB framework for collecting information from audit firms. These amendments were subject to approval by the SEC.

As this Thomson Reuters Tax & Accounting article notes, the PCAOB requirements have faced significant pushback from the accounting industry. Right before Christmas, the AICPA submitted a comment letter to the SEC, stating:

As we expressed to the PCAOB in our comment letter dated June 18, 2024, the recently adopted rules mandate the disclosure of performance metrics for audits of accelerated and large accelerated filers, and expanded operational and financial condition reporting by registered accounting firms. These rules will disproportionately affect smaller and medium-sized audit firms. We believe these rules will have unintended negative consequences, including driving small and medium-sized firms out of the public company auditing practice. This would result in fewer firms performing such audits which are critically important for smaller and medium size companies seeking to access the U.S. capital markets. Consequently, companies will face greater challenges and higher costs in meeting necessary audit requirements to access the U.S. capital markets. The PCAOB acknowledges that mid-sized and smaller accounting firms serving small to mid-sized public companies will incur substantial, if not prohibitive, costs in complying with the proposed amendments. The final rules reaffirm the PCAOB’s belief that these rules will disproportionately affect smaller firms.

Other groups have opposed the PCAP rulemaking, including the U.S. Chamber of Commerce, which stated in its letter:

Unfortunately, conditions for sound rulemaking have not been followed in this instance. The PCAOB rushed to adopt these transformative and controversial rules without appropriate consideration of comments, adequate economic analysis, and respect for due process. Despite attempts to address some issues raised in the comment process substantive issues remain.

The SEC also rushed due process and ignored options to give stakeholders sufficient time to participate in a robust comment process. The SEC submitted the Proposed Rules to the Federal Register within two business days of Board adoption and allowed only a few weeks for comments (i.e., twenty-one days from publication in the Federal Register). Other factors likewise reinforce the need for an extended comment period.

On the flip side, the Thomson Reuters article notes that investor groups, including the Council for Institutional Investors, have supported the PCAOB’s action.

Given this comment file, I imagine that this might be a tough one to squeeze under the wire before January 20!

– Dave Lynn