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26See Securities Exchange Act Release No. 51808 

(June 9, 2005), 70 FR 37496, 37499 (June 29, 2005). 

27NetCoalition v. SEC, 615 F.3d 525, 539 (D.C. 

Cir. 2010) (quoting Securities Exchange Act Release 

No. 59039 (December 2, 2008), 73 FR 74770, 74782– 

83 (December 9, 2008) (SR–NYSEArca–2006–21)). 

28 15 U.S.C. 78s(b)(3)(A). 

29 17 CFR 240.19b–4(f). 

30 17 CFR 200.30–3(a)(12). 

1 15 U.S.C. 7217(b). 

2 15 U.S.C. 78s(b). 

3See Public Company Accounting Oversight 

Board; Notice of Filing of Proposed Rules on A 

Firm’s System of Quality Control and Related 

Amendments to PCAOB Standards, Release No. 34– 

100277 (June 5, 2024) [89 FR 49588 (June 11, 2024)] 

(‘‘Notice of Filing of Proposed Rules’’), available at 

https://www.sec.gov/files/rules/pcaob/2024/34- 

100277.pdf. 

4 Id. 

competitive products are available for 

trading. Moreover, the Commission has 

repeatedly expressed its preference for 

competition over regulatory 

intervention in determining prices, 

products, and services in the securities 

markets. Specifically, in Regulation 

NMS, the Commission highlighted the 

importance of market forces in 

determining prices and SRO revenues 

and, also, recognized that current 

regulation of the market system ‘‘has 

been remarkably successful in 

promoting market competition in its 

broader forms that are most important to 

investors and listed companies.’’ 26 The 

fact that this market is competitive has 

also long been recognized by the courts. 

In NetCoalition v. Securities and 

Exchange Commission, the D.C. Circuit 

stated as follows: ‘‘[n]o one disputes 

that competition for order flow is 

‘fierce.’ . . . As the SEC explained, ‘[i]n 

the U.S. national market system, buyers 

and sellers of securities, and the brokerdealers that act as their order-routing 

agents, have a wide range of choices of 

where to route orders for execution’; 

[and] ‘no exchange can afford to take its 

market share percentages for granted’ 

because ‘no exchange possesses a 

monopoly, regulatory or otherwise, in 

the execution of order flow from broker 

dealers’ . . . .’’.27 Accordingly, the 

Exchange does not believe its proposed 

change imposes any burden on 

competition that is not necessary or 

appropriate in furtherance of the 

purposes of the Act. 

C. Self-Regulatory Organization’s 

Statement on Comments on the 

Proposed Rule Change Received From 

Members, Participants, or Others 

The Exchange neither solicited nor 

received comments on the proposed 

rule change. 

III. Date of Effectiveness of the 

Proposed Rule Change and Timing for 

Commission Action 

The foregoing rule change has become 

effective pursuant to Section 19(b)(3)(A) 

of the Act 28 and paragraph (f) of Rule 

19b–4 29 thereunder. At any time within 

60 days of the filing of the proposed rule 

change, the Commission summarily may 

temporarily suspend such rule change if 

it appears to the Commission that such 

action is necessary or appropriate in the 

public interest, for the protection of 

investors, or otherwise in furtherance of 

the purposes of the Act. If the 

Commission takes such action, the 

Commission will institute proceedings 

to determine whether the proposed rule 

change should be approved or 

disapproved. 

IV. Solicitation of Comments 

Interested persons are invited to 

submit written data, views and 

arguments concerning the foregoing, 

including whether the proposed rule 

change is consistent with the Act. 

Comments may be submitted by any of 

the following methods: 

Electronic Comments 

• Use the Commission’s internet 

comment form (https://www.sec.gov/ 

rules/sro.shtml); or 

• Send an email to rule-comments@

sec.gov. Please include file number SR– 

CboeEDGX–2024–055 on the subject 

line. 

Paper Comments 

• Send paper comments in triplicate 

to Secretary, Securities and Exchange 

Commission, 100 F Street NE, 

Washington, DC 20549–1090. 

All submissions should refer to file 

number SR–CboeEDGX–2024–055. This 

file number should be included on the 

subject line if email is used. To help the 

Commission process and review your 

comments more efficiently, please use 

only one method. The Commission will 

post all comments on the Commission’s 

internet website (https://www.sec.gov/ 

rules/sro.shtml). Copies of the 

submission, all subsequent 

amendments, all written statements 

with respect to the proposed rule 

change that are filed with the 

Commission, and all written 

communications relating to the 

proposed rule change between the 

Commission and any person, other than 

those that may be withheld from the 

public in accordance with the 

provisions of 5 U.S.C. 552, will be 

available for website viewing and 

printing in the Commission’s Public 

Reference Room, 100 F Street NE, 

Washington, DC 20549, on official 

business days between the hours of 10 

a.m. and 3 p.m. Copies of the filing also 

will be available for inspection and 

copying at the principal office of the 

Exchange. Do not include personal 

identifiable information in submissions; 

you should submit only information 

that you wish to make available 

publicly. We may redact in part or 

withhold entirely from publication 

submitted material that is obscene or 

subject to copyright protection. 

All submissions should refer to file 

number SR–CboeEDGX–2024–055 and 

should be submitted on or before 

October 3, 2024. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.30

Sherry R. Haywood, 

Assistant Secretary. 

[FR Doc. 2024–20633 Filed 9–11–24; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–100968; File No. PCAOB– 

2024–002] 

Public Company Accounting Oversight 

Board; Order Granting Approval of QC 

1000, A Firm’s System of Quality 

Control, and Related Amendments to 

PCAOB Standards, Rules, and Forms 

September 9, 2024. 

I. Introduction 

On May 24, 2024, the Public 

Company Accounting Oversight Board 

(the ‘‘Board’’ or the ‘‘PCAOB’’) filed 

with the Securities and Exchange 

Commission (the ‘‘Commission’’), 

pursuant to Section 107(b) 1 of the 

Sarbanes-Oxley Act of 2002 (‘‘SOX’’) 

and Section 19(b) 2 of the Securities 

Exchange Act of 1934 (the ‘‘Exchange 

Act’’), a proposal to adopt Quality 

Control (‘‘QC’’) 1000, A Firm’s System of 

Quality Control (‘‘QC 1000’’), and 

supersede existing PCAOB QC 

standards; adopt EI 1000, Integrity and 

Objectivity, and supersede existing ET 

102, Integrity and Objectivity; and 

amend several other related existing 

auditing standards, rules, and forms 

(collectively, the ‘‘Amendments’’).3

The Amendments were published for 

comment in the Federal Register on 

June 11, 2024.4 On July 1, 2024, the 

Commission extended the public 

comment period until July 16, 2024, and 

extended the date by which the 

Commission shall either approve or 

disapprove, or institute proceedings to 

determine whether to approve or 

disapprove, the Amendments to August 


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5See Public Company Accounting Oversight 

Board; Extension of Comment and Approval 

Periods for Proposed Rules on General 

Responsibilities of the Auditor in Conducting an 

Audit and Amendments to PCAOB Standards and 

A Firm’s System of Quality Control and Related 

Amendments to PCAOB Standards, Release No. 34– 

100451 (July 1, 2024) [89 FR 55993 (July 8, 2024)], 

available at https://www.sec.gov/files/rules/pcaob/ 

2024/34-100451.pdf. 

6See Public Company Accounting Oversight 

Board; Extension of Approval Periods for Proposed 

Rules on A Firm’s System of Quality Control and 

Related Amendments to PCAOB Standards, 

Proposed Rules on Amendments Related to Aspects 

of Designing and Performing Audit Procedures that 

Involve Technology-Assisted Analysis of 

Information in Electronic Form, and Proposed Rules 

on Amendment to PCAOB Rule 3502 Governing 

Contributory Liability, Release No. 34–100724 (Aug. 

13, 2024) [89 FR 67117 (Aug. 23, 2024)], available 

at https://www.sec.gov/files/rules/pcaob/2024/34- 

100724.pdf. 

7Copies of the comment letters received on the 

Commission notice of the Amendments are 

available on the Commission’s website at https://

www.sec.gov/comments/pcaob-2024-02/ 

pcaob202402.htm. 

8See Section 107(b)(4)(A)–(B) of SOX, 15 U.S.C. 

7217(b)(4)(A)–(B). 

9See A Firm’s System of Quality Control and 

Other Amendments to PCAOB Standards, Rules, 

and Forms, PCAOB Release No. 2024–005 (May 13, 

2024) (‘‘Adopting Release’’), available at https://

assets.pcaobus.org/pcaob-dev/docs/default-source/ 

rulemaking/docket046/2024-005-

qc1000.pdf?sfvrsn=355bf24_2. 

10See PCAOB, Concept Release: Potential 

Approach to Revisions to PCAOB Quality Control 

Standards (Dec. 17, 2019) (‘‘Concept Release’’), 

available at https://assets.pcaobus.org/pcaob-dev/ 

docs/default-source/rulemaking/docket046/2019- 

003-quality-control-conceptrelease.pdf?sfvrsn=5856398d_0. 

11See Proposed Quality Control Standard—A 

Firm’s System of Quality Control and Other 

Proposed Amendments to PCAOB Standards, Rules, 

and Forms, PCAOB Release No. 2022–006 (Nov. 18, 

2022) (‘‘Proposing Release’’), available at https://

assets.pcaobus.org/pcaob-dev/docs/default-source/ 

rulemaking/docket046/2022-006- 

qc.pdf?sfvrsn=b89546e2_4. 

12See, e.g., Briefing Paper for the Standard 

Advisory Group (‘‘SAG’’), Quality Control: 

Governance and Leadership (Nov. 29, 2018). The 

materials for the November 29, 2018 SAG meeting 

are available at https://pcaobus.org/news-events/ 

events/event-details/standing-advisory-groupmeeting_1137. 

13See Establishment of Interim Professional 

Auditing Standards, PCAOB Release No. 2003–006 

(Apr. 18, 2003), available at https://

assets.pcaobus.org/pcaob-dev/docs/default-source/ 

rulemaking/interim_standards/release2003-006.

pdf?sfvrsn=2424c91_0; Order Regarding Section 

103(A)(3)(B) of the Sarbanes-Oxley Act of 2002, 

Release No. 33–8222 (Apr. 25, 2003) [68 FR 23335 

(May 1, 2003)] (Commission order approving 

PCAOB’s interim standards). See infra note 32 for 

a discussion of the AICPA’s new quality control 

standard, which will become effective on December 

15, 2025. 

14See Adopting Release, supra note 9, at 5. 

15 Id. 

16See PCAOB Rule 1001(p)(ii) (defining the 

phrase ‘‘play a substantial role in the preparation 

or furnishing of an audit report’’) and Rule 2100 

(requiring each public accounting firm that (a) 

prepares or issues any audit report with respect to 

any issuer, broker, or dealer; or (b) plays a 

substantial role in the preparation or furnishing of 

an audit report with respect to any issuer, broker, 

or dealer to be registered with the Board). 

17QC 1000 defines ‘‘applicable professional and 

legal requirements’’ as ‘‘(1) Professional standards, 

as defined in PCAOB Rule 1001(p)(vi); (2) Rules of 

the PCAOB that are not professional standards; and 

(3) To the extent related to the obligations and 

responsibilities of accountants or auditors in the 

conduct of engagements or in relation to the QC 

system, rules of the SEC, other provisions of U.S. 

federal securities law, ethics laws and regulations, 

and other applicable statutory, regulatory, and other 

legal requirements.’’ See QC 1000, Appendix A, 

.A2. 

18Adopting Release, supra note 9, at 10. 

Circumstances where firms are only required to 

design a QC system that meets the requirements of 

QC 1000, but not implement or operate it, are 

sometimes referred to as being subject to the 

‘‘design-only requirement’’ or ‘‘design-only firms.’’ 

19 Id. at 8. 

20 Id. 

21 Id. 

22 Id. at 40. 

23 Id. 

25, 2024.5 On August 13, 2024, the 

Commission further extended the date 

by which the Commission shall either 

approve or disapprove, or institute 

proceedings to determine whether to 

approve or disapprove, the 

Amendments to September 9, 2024.6

The Commission received over 20 

comment letters from the public 

regarding the Amendments and one 

response to comments from the PCAOB 

(‘‘PCAOB response letter’’).7 This order 

approves the Amendments, which we 

find to be consistent with the 

requirements of Title I of SOX and the 

rules and regulations issued thereunder 

and necessary or appropriate in the 

public interest or for the protection of 

investors.8 The Amendments and the 

Commission’s findings with respect 

thereto are discussed in further detail 

below. 

II. Description of the Amendments 

On May 13, 2024, the Board adopted 

the Amendments.9 The Amendments 

were preceded by a 2019 concept 

release,10 a proposal in November 

2022,11 and other outreach engaged in 

by the PCAOB.12 QC 1000 would 

replace current PCAOB QC standards 

that were developed decades ago by the 

American Institute of Certified Public 

Accountants (‘‘AICPA’’), before the 

PCAOB was established, and which 

were adopted by the Board on an 

interim, transitional basis in 2003.13

In the Notice of Filing of Proposed 

Rules, the PCAOB stated that it was 

proposing a new QC standard that it 

believes will lead registered public 

accounting firms to significantly 

improve their QC systems and thereby 

protect investors by facilitating the 

consistent preparation and issuance of 

informative, accurate, and independent 

audit reports.14 As described by the 

Board, QC 1000 is an integrated, riskbased standard that mandates quality 

objectives and key processes for all 

firms’ QC systems.15 While QC 1000 

requires all public accounting firms that 

are registered with the PCAOB to design 

a QC system that meets the 

requirements of QC 1000, firms are only 

required to implement and operate the 

QC system in compliance with QC 1000 

when they lead an engagement under 

PCAOB standards, play a substantial 

role in the preparation or furnishing of 

an audit report (as defined in PCAOB 

rules),16 or have current responsibilities 

under ‘‘applicable professional and legal 

requirements’’ 17 regarding any such 

engagement.18

According to the Board, QC 1000 

provides a framework for a QC system 

that is grounded in the ongoing practice 

of proactively identifying and managing 

risks to audit quality, with a feedback 

loop from ongoing monitoring, an 

explicit focus on firm governance and 

leadership, firm culture, and individual 

accountability, and specific direction in 

a number of areas the current PCAOB 

standards do not address.19 QC 1000 

consists of two process components: (1) 

the firm’s risk assessment process and 

(2) the monitoring and remediation 

process.20 It also consists of six 

components that address aspects of the 

firm’s organization and operations: (1) 

governance and leadership; (2) ethics 

and independence; (3) acceptance and 

continuation of engagements; (4) 

engagement performance; (5) resources; 

and (6) information and 

communication.21 The risk assessment 

process applies to these six components, 

requiring firms to: (i) establish outcomebased ‘‘quality objectives,’’ including 

those specified throughout the standard 

(i.e., the desired outcomes to be 

achieved by the firm with respect to that 

component); (ii) identify and assess 

‘‘quality risks’’ to the quality objectives; 

(iii) design and implement ‘‘quality 

responses’’ (i.e., policies and procedures 

to address the quality risks); and (iv) 

establish policies and procedures to 

monitor internal and external changes 

that may require modifications to the 

quality objectives, quality risks, or 

quality responses.22 The monitoring and 

remediation process applies to all of the 

components of the QC system, including 

monitoring and remediation itself (i.e., 

firms are required to identify and 

remediate deficiencies that are observed 

in their monitoring and remediation 

activities).23


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24 Id. 

25 Id. at 8. 

26 Id. at 42 (stating that the ‘‘specified quality 

responses are not intended to be comprehensive’’ 

and ‘‘alone will not be sufficient to enable the firm 

to achieve all established quality objectives’’). 

27 Id. 

28 Id. at 10. 

29 Id. 

30The PCAOB response letter states that, as of 

2023, the EQCF requirement would apply to 14 

firms. See PCAOB response letter (Aug. 16, 2024) 

at 3 & n.7. However, one of these 14 firms has since 

filed an application for withdrawal from 

registration with the PCAOB. See PCAOB, 

Registered Public Accounting Firms—Withdrawal 

Request Pending (Aug. 15, 2024), available at 

https://assets.pcaobus.org/pcaob-dev/docs/defaultsource/registration/firms/documents/withdrawalrequests.pdf?sfvrsn=d30aab29_459 (listing BF 

Borgers CPA PC among the firms that have filed a 

request for withdrawal from registration). 

31See EY, How Our Independent Audit Quality 

Committee Strengthens Our Focus on Audit Quality 

(Feb. 20, 2023) (stating that EY’s Independent Audit 

Quality Committee consists of three external senior 

leaders and ‘‘provides independent advice to EY US 

senior leadership on all matters related to the 

Firm’s system of quality control that affect audit 

quality, including its business, operations, culture, 

talent strategy, governance, and risk management’’), 

available at https://www.ey.com/en_us/insights/ 

assurance/independent-audit-quality-committeestrengthens-our-focus-on-audit-quality; KPMG LLP 

(US), KPMG U.S. Appoints Katrina Helmkamp and 

Harit Talwar to Serve on its U.S. Board (Jan. 8, 

2024) (stating that it has three independent 

directors on its U.S. Board of Directors), available 

at https://kpmg.com/us/en/media/news/helmkamptalwar-us-board-2024.html; KPMG US Announces 

Formation of Independent Audit Quality Advisory 

Committee to Build on the Success of Quality 

Initiatives (Aug. 28, 2024) (stating that the 

committee is responsible for advising KPMG on 

matters including ‘‘the firm’s efforts to meet new 

quality standards from regulatory bodies and 

respond to PCAOB inspections, including root 

cause analysis, and the design, development, 

implementation and measurement of strategic audit 

quality initiatives’’), available at https://kpmg.com/ 

us/en/media/news/kpmg-announces-iaqac2024.html; Chris Johnson, Deloitte follows PwC in 

search for independent board members, Riotact 

(Apr. 9, 2024) (stating that PWC Australia has 

announced plans to increase the number of 

independent directors to three on its nine-person 

board), available at https://the-riotact.com/deloittefollows-pwc-in-search-for-independent-boardmembers/758971; Deloitte, Leadership and 

Governance (stating that the Deloitte Global Chair 

and Deputy Chair receive input from the Deloitte 

Global Independent Non-Executive (INE) Advisory 

Council, which provides advice and insights on a 

variety of matters, including strategy, planning, 

public policy, quality, risk and regulatory matters, 

and broader stakeholder engagement), available at 

https://www.deloitte.com/global/en/about/story/ 

purpose-values/leadership-governance.html; Grant 

Thornton, Audit Quality & Transparency Report 

2022 (stating that its audit quality advisory council 

includes two independent council members and its 

purpose is to advise the board regarding ways to 

maintain and improve the firm’s system of quality 

control in accordance with applicable professional 

legal standards), available at https://

www.grantthornton.com/content/dam/

grantthornton/website/assets/content-page-files/ 

audit/pdfs/2023/audit-quality-transparency-report2022.pdf; and BDO USA P.C., 2023 Audit Quality 

Report (stating that it has an ‘‘Audit Quality 

Advisory Council’’ comprised of five (5) members 

that includes two (2) Independent Council 

Members), available at ASSR-BDO-2023-AuditQuality-Report-web.pdf. See also infra note 112. 

32Adopting Release, supra note 9, at 7. The 

International Auditing and Assurance Standards 

Board (‘‘IAASB’’) released a suite of new quality 

management standards, including ISQM 1, which 

became effective on December 15, 2022. ISQM 1 is 

the international quality control standard and it 

applies to firms that perform audits of companies 

(non-SEC registrants) in jurisdictions that have 

adopted IAASB standards. See IAASB Fact Sheet, 

Introduction to ISQM 1, Quality Management for 

Firms that Perform Audits or Reviews of Financial 

Statements, or Other Assurance or Related 

Engagements (Dec. 2020) (‘‘ISQM 1’’), available at 

https://www.ifac.org/_flysystem/azure-private/ 

publications/files/IAASB-ISQM-1-Fact-Sheet.pdf. In 

May 2022, the Auditing Standards Board of the 

AICPA adopted new quality management standards, 

including Statement of Quality Management 

Standards No. 1, A Firm’s System of Quality 

Management (‘‘SQMS 1’’), which will become 

effective on December 15, 2025. SQMS 1 applies to 

accounting firms in the United States that perform 

audits under generally accepted auditing standards 

(‘‘GAAS’’) for non-issuers. See AICPA Statement on 

Quality Management Standards No. 1 (June 2022), 

available at https://www.aicpa-cima.com/resources/ 

download/aicpa-statement-on-quality-managementstandards-no-1. 

33 ISQM 1 and SQMS 1 are substantially similar 

to each other. 

34See, e.g., QC 1000.02–03; ISQM 1.06; and 

SQMS 1.07. 

35 Id. 

36See, e.g., QC 1000.12; SQMS 1.21; and ISQM 

1.20. All three standards require assignment of 

individuals to three roles of operational 

responsibility that are substantively the same. QC 

1000.12 requires assignment of operational 

responsibility for: (1) the QC system as a whole, (2) 

compliance with ethics and independence 

requirements, and (3) the monitoring and 

remediation process. SQMS 1.21 and ISQM 1.20 

require assignment of operational responsibility for: 

(1) the system of quality management, (2) 

compliance with independence requirements, and 

(3) monitoring and remediation process. 

QC 1000 also requires an annual 

evaluation of the effectiveness of the QC 

system and reporting to the PCAOB on 

the QC system evaluation by the 

registered public accounting firm for 

any period in which it is required to 

implement and operate a QC system.24

The standard includes requirements 

regarding individual roles and 

responsibilities in the QC system and 

documentation requirements.25

As noted above, firms are required to 

design and implement quality responses 

as part of the risk assessment process. 

Although QC 1000 requires firms to 

design and implement their own quality 

responses to respond to their particular 

assessed quality risks, QC 1000 also 

includes some specified quality 

responses, which are mandatory for the 

firms to which they apply.26 Some 

specified quality responses carry 

requirements from current PCAOB 

standards into QC 1000 or provide new 

requirements that the PCAOB stated 

were important to a firm’s QC system.27

For example, with respect to the 

governance and leadership component, 

QC 1000 includes a specified quality 

response that requires firms with larger 

PCAOB audit practices (firms that issue 

audit reports for more than 100 issuers 

in the prior calendar year) to adopt and 

implement an external quality control 

function (‘‘EQCF’’) that is composed of 

one or more persons who are not 

principals or employees of the firm and 

do not otherwise have a relationship 

with the firm that would interfere with 

the exercise of independent judgment 

with regard to matters related to the QC 

system.28 The EQCF is required to 

evaluate the significant judgments made 

and related conclusions reached by the 

firm when evaluating and reporting on 

the effectiveness of its QC system. Firms 

have flexibility in how the role is 

structured, depending on their 

governance structure or other factors. In 

addition, firms may, at their discretion, 

assign additional responsibilities to the 

EQCF and those could vary across 

firms.29 As noted above, the EQCF 

requirement only applies to firms that 

issue audit reports for more than 100 

issuers in the prior calendar year, which 

currently is 13 out of the approximately 

1,600 PCAOB-registered firms.30 A 

number of these firms have stated 

publicly that they have independent 

representation in their governance 

structure or plan to add such a role in 

the near term.31 The EQCF role is 

discussed and analyzed in greater detail 

in Section III.B, below. 

The Board described the QC 1000 

framework as having commonalities 

with other international and domestic 

standards for firm QC systems, though 

it goes beyond those requirements in 

some areas.32 QC 1000, ISQM 1, and 

SQMS 1 (the latter two collectively, the 

‘‘Other QC Standards’’) 33 share the 

same basic framework, with the same 

eight components and risk-based 

approach to quality control.34 Both QC 

1000 and the Other QC Standards 

include requirements to design, 

implement, and operate specified 

quality objectives, risks, and responses 

on an annual basis; 35 and specify 

structures of governance, including 

requiring the assignment of individuals 

to the same specified roles.36 A 

discussion of the similarities and 

differences between QC 1000 and the 

Other QC Standards is included below 

in Section III. 

The Amendments also include 

expanding the auditor’s responsibility to 

respond to deficiencies on completed 

engagements under an amended and 

retitled AS 2901, Responding to 

Engagement Deficiencies After Issuance 

of the Auditor’s Report. These changes 

would extend the scope of AS 2901 to 

cover engagement deficiencies in audits 


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37See AS 2901, as amended. 

38See AT No. 1 and AT No. 2, as amended. 

39See EI 1000. 

40The term ‘‘emerging growth company’’ is 

defined in Section 3(a)(80) of the Exchange Act (15 

U.S.C. 78c(a)(80)). See also Inflation Adjustments 

under Titles I and III of the JOBS Act, Release No. 

33–11098 (Sept. 9, 2022) [87 FR 57394 (Sept. 20, 

2022)], available at https://www.sec.gov/files/rules/ 

final/2022/33-11098.pdf. 

41See PCAOB Posts 2023 Annual Inspection 

Reports Alongside Staff Observations and New 

Charts To Boost Transparency, available at https:// 

pcaobus.org/news-events/news-releases/newsrelease-detail/pcaob-posts-2023-annual-inspectionreports-alongside-staff-observations-new-charts-toboost-transparency. 

42See Spotlight Staff Update and Preview of 2022 

Inspection Observations (July 2023), available at 

https://assets.pcaobus.org/pcaob-dev/docs/defaultsource/documents/spotlight-staff-preview-2022- 

inspection-observations.pdf (pcaobus.org). Figures 

exclude registered broker-dealer audits in all 

periods. 43See supra note 7. 44See, e.g., letters from American Federation of 

Labor and Congress of Industrial Organizations 

(July 1, 2024) (‘‘AFL–CIO’’); Better Markets (July 2, 

2024) (‘‘Better Markets’’); Sherrod Brown, 

Chairman, U.S. Senate Committee on Banking, 

Housing, and Urban Affairs (Aug. 15, 2024) (‘‘S. 

Brown’’); CFA Institute (July 1, 2024) (‘‘CFA 

Institute’’); Jack Ciesielski, CPA (July 2, 2024) (‘‘J. 

Ciesielski’’); Consumer Federation of America (July 

1, 2024) (‘‘Consumer Federation of America’’); 

Robert A. Conway, CPA (June 26, 2024) (‘‘R. 

Conway’’); Council of Institutional Investors (June 

27, 2024) (‘‘CII’’); Members of the Investor Advisory 

Group (June 28, 2024) (‘‘Members of IAG’’); and 

Lynn E. Turner (Aug. 20, 2024) (‘‘L. Turner’’) 

(discussing the history of quality control standards 

in the audit profession). 

45See letter from CII. See also letter from 

Members of IAG (‘‘We believe the Amendments, if 

approved by the SEC, would provide enhanced 

protections for investors, consistent with the 

mandate set forth in SOX.’’). 

46See letter from Consumer Federation of 

America. 

47 Id. See also letters from AFL–CIO (‘‘The need 

for enforceable quality control standards is 

demonstrated by the fact that approximately 40 

percent of audits inspected by the PCAOB in 2022 

contained deficiencies where the auditor failed to 

obtain sufficient appropriate audit evidence to 

support its opinion.’’); Better Markets (stating that 

‘‘the PCAOB’s recent Staff Inspection Briefs 

indicate that significant improvements to firms’ 

quality control systems are necessary and long 

overdue’’ and that ‘‘the deficiencies that inspection 

staff describe do not simply involve arcane, highly 

technical issues that could trip up even the most 

experienced, ethical auditor—they involve 

foundational issues of critical importance to high 

quality audit’’). 

48See letter from R. Conway. 

49See letter from L. Turner. 

50 Id. (listing fundamental changes such as the 

change from peer reviews by other audit firms to 

PCAOB inspections for audits of issuers, significant 

growth in the size of audit firms, expansion of 

consulting and other non-audit services, 

international expansion, increased efforts by 

partners and leadership to monetize their 

investment in an audit firm, and firms establishing 

external QC advisory committees). 

51See, e.g., letters from Better Markets (stating 

that although ‘‘it is pleased that the PCAOB has 

adopted improvements to auditing quality control 

standards’’ that it is ‘‘disappointed that the Proposal 

does not sufficiently ensure high-quality audits or 

adequate transparency and accountability’’); 

Consumer Federation of America (stating ‘‘while 

these amendments do not go as far as we would 

have liked, we nonetheless expect that they will 

benefit investors’’); and L. Turner (recommending 

that the PCAOB adopt an approach of requiring an 

independent board of directors for audit firms as 

proposed by the U.S. Treasury Advisory Committee 

on the Auditing Profession (‘‘ACAP’’) and used by 

the U.K. Financial Reporting Council (‘‘FRC’’) and 

the Japan Financial Services Agency). 

52See, e.g., letters from BDO USA, P.C. (July 2, 

2024) (‘‘BDO’’); Ernst & Young, LLP (Aug. 26, 2024) 

(‘‘EY’’); Forvis Mazars, LLP (July 2, 2024) (‘‘Forvis 

Mazars’’); Moss Adams, LLP (July 2, 2024) (‘‘Moss 

Adams’’); and Tom Quaadman, Executive Vice 

President, Center for Capital Markets 

Continued 

of internal control over financial 

reporting, incorporate the concepts and 

terminology introduced in QC 1000, and 

bring the standard into alignment with 

the auditor’s existing responsibility to 

obtain sufficient appropriate audit 

evidence to support the opinion.37 The 

changes also include related 

amendments to AT No. 1, Examination 

Engagements Regarding Compliance 

Reports of Brokers and Dealers, and AT 

No. 2, Review Engagements Regarding 

Exemption Reports of Brokers and 

Dealers, which would prompt auditors 

of registered brokers-dealers to take 

appropriate action if they discover that 

the opinion or conclusion in a 

previously issued attestation report was 

not supported.38 Finally, the 

Amendments replace existing standard 

ET 102, Integrity and Objectivity, with a 

new standard, EI 1000, Integrity and 

Objectivity, to better align PCAOB ethics 

requirements with the scope, approach, 

and terminology of QC 1000.39

The Amendments will be effective on 

December 15, 2025. The first annual 

evaluation period will cover the period 

beginning on the effective date of the 

standard (i.e., December 15, 2025) and 

ending on September 30, 2026. 

Subsequent evaluation periods will 

cover the 12-month period ending on 

September 30. The PCAOB has 

proposed application of the 

Amendments to include audits of 

emerging growth companies (‘‘EGCs’’),40

as discussed in Section IV below. 

III. Discussion and Commission 

Findings 

The Commission continues to observe 

concerning indications that registered 

firms’ QC systems are inadequate to 

ensure the high level of audit quality 

necessary for investor protection. Recent 

PCAOB inspection reports indicate that 

inspection deficiency rates are 

continuing to rise, with 46% of the 

engagements reviewed in 2023 having at 

least one Part I.A deficiency,41

compared to 40% in 2022 and 34% in 

2021.42 While PCAOB inspection 

deficiency rates are not the only 

measure of audit quality and cannot 

necessarily be generalized to all PCAOB 

audits, these high deficiency rates place 

investors in harm’s way. Effective QC 

systems provide firms with reasonable 

assurance that their audit engagements 

will be performed in compliance with 

applicable legal and professional 

requirements. The continuing rise in 

deficiency rates supports the need for 

the Amendments as they would 

enhance registered audit firms’ QC 

systems to help ensure firms are able to 

perform their gatekeeper function, 

which is critical to investor protection 

and the functioning of our capital 

markets. 

As noted above, in response to the 

Notice of Filing of Proposed Rules, to 

date the Commission has received over 

20 comment letters from the public and 

one response to comments from the 

PCAOB.43 Several commenters 

expressed support for the Amendments, 

stating that they would improve upon 

existing standards and lead to better 

protection of investors.44 For example, 

one commenter stated that the 

Amendments ‘‘would better protect the 

interests of investors, consistent with 

the mandate set forth in SOX.’’ 45

Similarly, another commenter stated 

that it expected the Amendments ‘‘will 

enhance the quality of audits, raising 

the level of trust and confidence 

investors can place in the accuracy and 

reliability of public company financial 

disclosures.’’ 46 This commenter also 

stated that ‘‘[c]urrent quality control 

systems at many firms are not achieving 

an even minimally acceptable level of 

audit quality, let alone the high level of 

audit quality that investors have a right 

to expect and on which the reliability of 

our financial reporting system 

depends.’’ 47 Another commenter stated 

that ‘‘the PCAOB has done a good job 

of articulating why the improvements to 

the Quality Control Standards are 

warranted.’’ 48 One commenter stated 

that it ‘‘strongly supported’’ the 

Amendments, highlighting requests by 

the investor community over the years 

to update ‘‘outdated quality control 

standards’’ that were written in a preSOX era when the profession was selfregulated.49 This commenter stated that 

many areas of the PCAOB’s existing QC 

standards have not been updated to 

reflect fundamental changes in the 

profession.50 Some commenters who 

supported the proposal also stated that 

they did not believe the requirements in 

the Amendments went far enough.51

Other commenters stated that the 

Commission should not approve the 

Amendments.52 While several 


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Competitiveness, U.S. Chamber of Commerce (July 

15, 2024) (‘‘Chamber’’). 

53See, e.g., letters from BDO; EY; Forvis Mazars; 

Johnson Global Advisory (June 26, 2024) (‘‘Johnson 

Global’’); Moss Adams; Pennsylvania Institute of 

CPAs (June 24, 2024) (‘‘PICPA’’); 

PricewaterhouseCoopers LLP (July 1, 2024) 

(‘‘PWC’’); and RSM US LLP (July 16, 2024) 

(‘‘RSM’’). 

54See letter from Forvis Mazars. 

55See letter from PWC. 

56See letter from Chamber. 

57As discussed below, the Commission views the 

statements in the PCAOB response letter as being 

on par with statements made by the Board in the 

Adopting Release about the scope and application 

of the QC 1000 requirements. See Section III.G. 

58We note that QC 1000’s quality objectives may 

use different terminology from the Other QC 

standards to align with other PCAOB standards and 

requirements (e.g., using the term ‘‘QC system’’ 

instead of ‘‘system of quality management’’). 

59For example, in establishing quality objectives 

in the Governance and Leadership component, QC 

1000.25.e requires firms to establish an objective 

that ‘‘The firm’s organizational and governance 

structure and the assignment of roles, 

responsibilities, and authority enable the design, 

implementation, and operation of the firm’s QC 

system and support performance of the firm’s 

engagements in accordance with applicable 

professional and legal requirements’’ (emphasis 

added). ISQM 1.28 requires firms to establish an 

objective that ‘‘The organizational structure and 

assignment of roles, responsibilities and authority 

is appropriate to enable the design, implementation 

and operation of the firm’s system of quality 

management.’’ These objectives are substantively 

the same, but QC 1000 places more emphasis on 

supporting the firm’s engagements, which is 

inherent in the operation of the firm’s QC system, 

and therefore implicitly included in both standards. 

The additional specificity in QC 1000 is not 

expected to result in substantively different 

responses (i.e., policies and procedures) between 

the two standards. 

60See Adopting Release, supra note 9, at 38. 

Many of the prescriptive requirements in QC 1000 

that are incremental to those that are in the Other 

QC Standards relate to existing PCAOB standards 

that the PCAOB determined were still relevant. See, 

e.g., QC 20.10, .13a, .13b, and .15a. 

61For example, the specified responses to 

determine the nature, timing, and extent of 

monitoring in the Monitoring and Remediation 

Processes (see QC 1000.64 and ISQM 1.37) are 

substantively similar, except QC 1000.64(d) and (f) 

specifically require firms to consider characteristics 

of particular engagements and partners. When a 

firm designs its monitoring process, as long as a 

firm considers the characteristics of particular 

engagements and partners, the same policies and 

procedures would likely be suitable for both QC 

1000 and ISQM 1. 

62For example, QC 1000.33.a and ISQM 1.34(a)(i) 

both require firms to establish policies and 

procedures to identify threats to independence; 

however, QC 1000.34 provides specific procedures 

the firm should establish in order to do so, 

including, for example, maintaining and making 

commenters stated that they supported 

the Board’s efforts and goal to 

modernize quality control standards, 

they did not support certain aspects of 

the Amendments.53 For example, one 

commenter stated that it was concerned 

that the Amendments ‘‘could potentially 

have unintended negative consequences 

to the profession, including significant 

costs without notable improvement to 

audit quality.’’ 54 One commenter 

expressed its ‘‘overall support for the 

project and the large majority of the 

provisions of the standard’’ but stated 

that the Commission should not 

approve the standard in its final form 

because the EQCF function ‘‘raises 

significant concerns,’’ including being 

inconsistent with SOX, and because, in 

the commenter’s view, the PCAOB did 

not adequately address concerns it and 

others raised regarding the ability for 

small firms to comply with QC 1000, in 

particular the design-only 

requirement.55 Another commenter 

stated that ‘‘the SEC should reject the 

PCAOB’s final QC 1000 standard 

because it contains fundamental failures 

and flaws.’’ 56 Commenters also 

provided feedback on specific aspects of 

the Amendments as described below, 

which informed their general views 

discussed above. 

We have considered the information 

contained in the Notice of Filing of 

Proposed Rules and the PCAOB’s 

response letter 57 as well as the 

comments received by the Commission. 

Having carefully weighed all of the 

information before us, we find that the 

Amendments are consistent with the 

requirements of Title I of SOX and the 

rules and regulations thereunder and are 

necessary or appropriate in the public 

interest or for the protection of 

investors. In particular, we believe the 

Amendments as a whole will further the 

Board’s statutory mandate under SOX 

and enhance investor protection by 

creating an integrated, risk-based QC 

standard that can be applied by firms of 

varying sizes and complexities and is 

compatible with Other QC Standards 

that either have already been or are 

required to be implemented by the vast 

majority of registered public accounting 

firms. The Amendments will lead 

registered public accounting firms to 

significantly improve their quality 

control systems, thereby improving 

audit quality and investor protection. 

The existing interim QC standards— 

which were adopted on an interim basis 

in 2003 and were developed by the 

audit profession under an environment 

of self-regulation—do not adequately 

reflect the risks and requirements of the 

current auditing environment, overly 

focus on evaluating firms’ compliance 

with their own internally-developed 

policies designed in a peer review 

environment, and do not require 

evaluation or reporting that ultimately 

enhances audit quality and investor 

protection. 

The Amendments emphasize the 

importance of accountability and firm 

governance and a QC system that is 

proactive and responsive to risks. 

Replacing interim standards with 

permanent standards provides 

additional regulatory certainty that may 

have an incremental benefit of allowing 

audit firms to make long-term 

investments in their QC systems. 

Further, the Amendments will promote 

compliance by registered public 

accounting firms with applicable 

professional and legal requirements 

(including PCAOB auditing standards), 

which should help eliminate 

information asymmetries and 

expectation gaps for issuers, registered 

broker-dealers, and investors regarding 

whether audit firms are complying with 

such requirements. Improved 

compliance by registered public 

accounting firms with PCAOB auditing 

standards, among other professional and 

legal requirements, would result in 

improved financial reporting quality, 

which would further benefit investors. 

In addition, the Amendments share a 

common framework with Other QC 

Standards that are widely implemented 

by auditing firms across the globe, with 

specific enhanced requirements for the 

U.S. regulatory environment, which 

allows firms to leverage costs already 

expended or that will be expended to 

comply with these standards. In 

addition to the overarching structure 

and the eight components being the 

same among QC 1000 and the Other 

Standards as noted above in Section II, 

the requirements within the 

components are also aligned. 

Specifically, the required quality 

objectives (i.e., the outcomes specified 

by the standards that drive the firm’s 

responses) generally are substantively 

similar 58 although some of QC 1000’s 

quality objectives contain additional 

prescriptive requirements 59 that the 

Board considered to be relevant to the 

U.S. public company legal and 

regulatory environment as discussed in 

more detail below.60 Both QC 1000 and 

the Other QC Standards provide firms 

with flexibility to design responses to 

achieve these quality objectives taking 

into account the particular risks and 

circumstances faced by the firm. 

Further, there is overlap in the limited 

number of specified quality responses 

(i.e., individual responses required by 

QC 1000 and the Other QC Standards). 

In other words, the quality objectives 

that firms establish (and their resulting 

responses) under QC 1000 are expected 

to be sufficiently responsive to those of 

the Other QC Standards.61

QC 1000 does go beyond the Other QC 

Standards in that it contains relatively 

more prescriptive requirements than the 

Other QC Standards.62 The Board 


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available the list of restricted entities. While 

maintaining a list of restricted entities is likely a 

common way of complying with ISQM 1.34(a)(i), it 

is not explicitly required. 

63See supra note 60. 

64See, e.g., QC 1000.28. 

65See, e.g., QC 1000.14(d) (requiring a firm’s 

principal executive officer to certify the firm’s 

report to the PCAOB on its annual evaluation of the 

QC system). 

66Adopting Release, supra note 9, at 7. 

67See details of Commission staff analysis in 

Section III.C. 

68See Adopting Release, supra note 9, at 7. 

69 Id. at 60–61. 

70 Id. at 368. 71See PCAOB response letter at 25–26. 72See, e.g., letters from BDO; Chamber; Forvis 

Mazars; PICPA; and PWC. 73See, e.g., letters from BDO; Chamber; PICPA; 

and PWC. 74See letters from BDO and PICPA (citing Board 

Member Ho, Statement on the QC 1000 Adoption— 

Demise to Audit Competition (May 13, 2024) (‘‘C. 

Ho Statement’’), available at https://pcaobus.org/ 

news-events/speeches/speech-detail/statement-onthe-qc-1000-adoption---demise-to-auditcompetition). See also letters from Chamber (‘‘The 

Chamber urges the Commission to heed the serious 

concerns raised by Board Member Ho’s statement.’’) 

and RSM (same). 

75See PCAOB response letter at 25–27. 

76See Hughes Aircraft Co. v. Jacobson, 525 U.S. 

432, 438 (1999); see also Loper Bright Enter. v. 

Raimondo, 144 S. Ct. 2244 (June 28, 2024) (‘‘Courts 

interpret statutes, no matter the context, based on 

the traditional tools of statutory construction, not 

individual policy preferences.’’). 

77See 15 U.S.C. 7213(a)(2)(B). 

considered these requirements to be 

relevant to the U.S. regulatory 

environment and investors.63 Many of 

these additional requirements only 

apply to firms that issue audit reports 

for more than 100 issuers in the prior 

calendar year.64 Because QC 1000 

provides more precise and prescriptive 

requirements that drive accountability, 

it will enhance the Board’s ability to 

perform its inspections and to enforce 

its standards, which will further 

incentivize firms to design, implement, 

and operate effective QC systems.65 It is 

the Board’s view that building on the 

well-understood basic framework of the 

Other QC Standards, appropriately 

tailored and strengthened to address the 

U.S. legal and regulatory environment 

and our investor protection mandate, 

will enable firms to implement and 

comply with QC 1000 more 

effectively.66 In designing, 

implementing, and operating their QC 

systems, firms that are subject to both 

PCAOB standards and the Other QC 

Standards, which the Commission 

estimates to be 88% of registered firms 

that have performed engagements under 

PCAOB standards for an issuer or 

registered broker-dealer (‘‘PCAOB 

engagements’’) in the past year and 72% 

of registered firms that have not,67 will 

be able to leverage the work they have 

already done and the investments they 

have already made to comply with such 

Other QC Standards.68 In support of this 

conclusion, neither the Commission 

staff nor commenters have identified 

aspects of QC 1000 that are 

incompatible with the Other QC 

Standards. 

A. Requirements Related to the Design 

of QC System 

As discussed above, QC 1000 includes 

a design-only requirement. The PCAOB 

stated in the Adopting Release that the 

design-only requirement may facilitate 

timely implementation and operation of 

a compliant QC system.69 The Board 

also stated that not requiring all 

registered public accounting firms to 

design their QC system would create a 

risk that firms could be unprepared to 

accept and perform such engagements 

in compliance with applicable 

professional and legal requirements.70

Finally, the PCAOB stated that because 

registering with the PCAOB enables a 

firm to issue audit reports or play a 

substantial role on audits performed 

under PCAOB standards for issuers and 

registered broker-dealers, and because 

investors and companies considering 

engaging the firm could reasonably 

expect that any firm that could pursue 

such an engagement would already have 

a PCAOB-compliant QC system 

designed and ready for implementation 

and operation, it believes that imposing 

a design requirement on all registered 

firms promotes its mission of protecting 

investors and promoting the public 

interest.71

General 

A number of commenters expressed 

concerns regarding the design-only 

requirement.72 Commenters stated that 

this requirement will increase the 

barriers to entry for small firms to take 

on audits of small publicly-held 

companies, including EGCs, or 

registered broker-dealers and will 

incentivize firms to de-register.73 A few 

commenters stated they agreed with 

concerns expressed by PCAOB Board 

Member Ho in her statement 

accompanying the adoption of QC 1000 

indicating that the design-only 

requirement appears to be inconsistent 

with both the statutory text of SOX and 

a statement the PCAOB made to 

Congress in 2023, and that the 

requirement would impose undue 

burdens on competition.74 The PCAOB 

response letter responds to commenter 

feedback on the design-only 

requirement, including addressing why 

applying such a requirement to firms 

that do not presently have obligations 

with respect to PCAOB engagements is 

consistent with the PCAOB’s statutory 

mandate.75

While we acknowledge the concerns 

raised by commenters, we find that the 

design-only requirement is consistent 

with the requirements of Title I of SOX 

and the rules and regulations issued 

thereunder and is necessary or 

appropriate in the public interest or for 

the protection of investors. Allowing 

registered firms to design their QC 

system only upon entering into an audit 

engagement would create a risk that 

registered firms could be unprepared to 

accept and perform engagements in 

compliance with applicable professional 

and legal requirements, which in turn 

risks a reduction in audit quality to the 

detriment of investors. For example, one 

component of a well-designed QC 

system is policies and procedures 

around the acceptance of an 

engagement. Without having designed a 

QC system in advance, such firms 

would not be in a position to ensure that 

their QC system is effective in order to 

evaluate and take on a new PCAOB 

engagement. 

Below we discuss the views of 

commenters with respect to specific 

aspects of QC 1000’s design-only 

requirement, as well as the 

Commission’s findings regarding those 

matters. 

Statutory Authority 

We have considered comments on the 

statutory authority questions raised in 

Board Member Ho’s statement as well as 

the PCAOB’s response letter and find 

that the Board has the authority to 

require that all registered firms design a 

QC system that complies with QC 1000. 

The Supreme Court has stated that, in 

cases of statutory construction, a court’s 

analysis begins with ‘‘the language of 

the statute’’ and ‘‘where the statutory 

language provides a clear answer, it 

ends there as well.’’ 76 SOX Section 

103(a)(2)(B) refers to quality control 

standards that the Board adopts with 

respect to the issuance of audit 

reports.77 This section of SOX requires 

the PCAOB to include, in the quality 

control standards that it adopts with 

respect to the issuance of audit reports, 

seven requirements for every registered 

public accounting firm relating to: (i) 

monitoring of professional ethics and 

independence from issuers, brokers, and 

dealers on behalf of which the firm 

issues audit reports; (ii) consultation 

within such firm on accounting and 

auditing questions; (iii) supervision of 

audit work; (iv) hiring, professional 

development, and advancement of 

personnel; (v) the acceptance and 

continuation of engagements; (vi) 


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78See 15 U.S.C. 7213(a)(2)(B). 

79See 15 U.S.C. 7211(c)(1) (‘‘. . . register public 

accounting firms that prepare audit reports for 

issuers, in accordance with section 102. . . ’’) 

(emphasis added); 15 U.S.C. 7214(a)(2)((A) (‘‘The 

Board may, by rule, conduct and require a program 

of inspection in accordance with paragraph (1), on 

a basis to be determined by the Board, of registered 

public accounting firms that provide one or more 

audit reports for a broker or dealer.’’) (emphasis 

added); 15 U.S.C. 7216 (‘‘Any foreign public 

accounting firm that prepares or furnishes an audit 

report with respect to any issuer, broker, or dealer 

shall be subject to this Act . . .’’) (emphasis added). 

80 15 U.S.C. 7212. We also disagree that the 

design-only requirement is contrary to the 

statements in the PCAOB’s February 2023 letter to 

Senators Warren and Wyden. See C. Ho Statement 

(citing https://www.warren.senate.gov/imo/media/ 

doc/2023-02-08%20PCAOB%20Chair%20Erica%20

Williams%20response%20letter%20to%20

Senators%20Warren%20and%20Wyden.pdf). The 

PCAOB’s letter specifically addressed the PCAOB’s 

statutory authority as it relates to the 

cryptocurrency industry and stated, among other 

things, that ‘‘[a]s a general matter, audit firms 

registered with the PCAOB must follow PCAOB 

standards and rules specifically in connection with 

their audits of SEC-registered issuers, brokers or 

dealers only.’’ The letter does not specifically 

address whether an accounting firm that does not 

perform audits for issuers, brokers, or dealers that 

chooses to register with the PCAOB must comply 

with statutory requirements related to systems of 

quality control. 

81See letters from Chamber and Forvis Mazars. 

82See letter from PWC. See also letters from 

PICPA (recommending that an ‘‘inactive firm . . . 

not have to design its quality control system until 

after it decided to accept an engagement with a 

public company, broker, or dealer’’); RSM 

(recommending that firms be required to design, 

implement, and test the effectiveness of their 

system of quality control in compliance with QC 

1000 prior to being engaged to issue public 

company audit reports rather than upon 

registration). 

83See PCAOB response letter at 26–27. 

84 Id. at 26. 

85See Adopting Release, supra note 9, at 60–61. 

86 Id. at 368. 

87 Id. at 61. 

88See, e.g., id. at 330–31. 

internal inspections; and (vii) such 

other requirements as the Board may 

prescribe (subject to the general 

rulemaking authority provided to the 

PCAOB in SOX Section 103(a)(1)).78 QC 

1000 is a quality control standard with 

respect to the issuance of audit reports 

that includes each of these seven 

statutory requirements. Moreover, the 

fact that one of the statutory 

requirements relates to the acceptance 

of engagements implies that the 

PCAOB’s QC standards must address 

firms that have not yet accepted 

engagements and not just firms that 

currently issue audit reports. 

Furthermore, we find the use of the 

term ‘‘every’’ in Section 103(a)(2)(B) 

significant, because it is the only place 

in SOX that uses that term. In other 

sections of SOX, such as Sections 101, 

104 and 106, Congress used narrower 

language when it wanted to apply a 

particular regulation to a smaller 

universe of public accounting firms or 

registered public accounting firms.79

Further, requiring all registered public 

accounting firms to design a system of 

quality control that complies with QC 

1000 is consistent with the 

Congressional directive in SOX Section 

102, which requires applicant firms that 

want to register with the PCAOB to 

provide for review a description of ‘‘the 

quality control policies of the firm for 

its accounting and auditing 

practices.’’ 80 We therefore find the 

Amendments are within PCAOB’s 

authority under Title I of SOX. 

Barriers to Entry 

As noted above, several commenters 

expressed concerns that the design-only 

requirement will increase the barriers to 

entry for small firms to take on audits 

of smaller issuers or registered brokerdealers and incentivize firms to deregister. Some commenters suggested 

the requirement be revised to require 

the system to address only elements of 

QC covered by the professional QC 

standards the firm is currently subject to 

for the type of engagements they 

currently perform (e.g., the Other QC 

Standards).81 Similarly, one commenter 

suggested the Commission defer the 

effective date of QC 1000 for inactive 

firms until they become active.82 In the 

PCAOB response letter, the Board 

reiterated that the design-only 

requirement would benefit investors 

and explained why it believed the 

alternatives proposed by commenters 

would not achieve the same level of 

investor protection as QC 1000.83 The 

Board further stated that the design-only 

requirement comports with its historical 

practice of requiring firms to provide a 

summary of the design of their QC 

system upon registration, regardless of 

whether such firms perform 

engagements under PCAOB standards.84

We acknowledge concerns that the 

design-only requirement could create 

barriers to entry or otherwise impact the 

decision to either register, or remain 

registered, with the PCAOB for firms 

that do not perform PCAOB 

engagements, and as discussed more 

fully in Section III.C below, we have 

considered the overall competitive 

effects of the Amendments on the 

market for audit services. These 

concerns must be weighed against the 

investor protection benefits of the 

design-only requirement. In particular, 

as the Board noted in the Adopting 

Release, if a registered firm that has not 

led an engagement or played a 

substantial role on an engagement in the 

past anticipates the possibility of 

transitioning to performing 

engagements, the design-only 

requirement may facilitate timely 

implementation and operation of their 

QC 1000 compliant QC system.85 As 

would be the case in any profession or 

industry when quickly adopting 

business-wide quality control processes, 

allowing registered firms to design their 

QC system only upon entering into an 

audit engagement would create a risk 

that registered firms could be 

unprepared to accept and perform 

engagements in compliance with 

applicable professional and legal 

requirements, which in turn risks a 

reduction in audit quality.86

We further considered the alternatives 

raised by commenters, including 

allowing for compliance with Other QC 

Standards, or delaying the effective date 

until firms accept an engagement under 

PCAOB standards. However, we do not 

believe that either of these alternatives 

sufficiently addresses the risks to 

investors of a firm entering into audit 

engagements with an issuer or registered 

broker-dealer without a QC system in 

place that provides reasonable 

assurance the firm could conduct the 

engagement in accordance with 

applicable professional and legal 

requirements. An audit firm’s failure to 

conduct an engagement in accordance 

with applicable professional and legal 

standards undermines audit quality, 

puts at risk capital formation, and 

places investors and issuers at risk. 

Further, there are reasons to believe 

that the design-only requirement will 

not be a significant barrier to entry or 

cause for smaller firms to deregister, 

primarily due to the expected costs to 

the majority of registered firms being 

substantially mitigated by investments 

made by those firms to comply with the 

Other QC Standards, which have 

already been adopted by the IAASB and 

AICPA and will be effective at or before 

the effective date of QC 1000. In the 

Adopting Release, the PCAOB stated 

that QC 1000 shares a basic structure 

and approach with the Other QC 

Standards, so designing for the 

incremental features unique to QC 1000 

is not expected to be unduly 

burdensome for firms that are subject to 

either or both of those Other QC 

standards.87 The PCAOB also stated in 

the Adopting Release that it believes 

most audit firms will have either 

already implemented or be 

implementing one or both of the Other 

QC Standards when QC 1000 goes into 

effect on December 15, 2025.88 The 

Commission staff compared the 


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89Commission staff estimate that approximately 

77% of registered firms are subject to the 

requirements of one or both of the Other QC 

Standards. Details on this analysis can be found in 

Section III.C. 90Commission staff reviewed the publicly 

available PCAOB Form AP database, ‘‘FirmFilings,’’ 

and filtered for Forms AP with an ‘‘Audit Report 

Date’’ between April 1, 2022 to March 31, 2023 to 

identify ‘‘other participant’’ firms listed in column 

‘‘Audit Not Divided Percent Information,’’ available 

at https://pcaobus.org/resources/auditorsearch. For 

purposes of this analysis, staff assumed that only 

‘‘other participant’’ firms with a ‘‘Firm ID’’ in the 

database were registered. Staff then compared this 

information to the corresponding publicly available 

Form 2 data related to audit reports filed between 

April 1, 2022 to March 31, 2023 to identify firms 

that did not perform issuer audits, broker-dealer 

audits, or perform any substantial role work based 

on responses to questions in Part III, indicating that 

while not required to register, these firms are 

registered. Staff then filtered the Form AP data to 

isolate these firms, noting their roles are at less than 

a ‘‘substantial role’’ to varying degrees from 5–10% 

to 20–30% of total audit hours in many cases. 

91See Adopting Release, supra note 9, at 118. 

92 Id. at 124. 

93 Id. 

94See letters from Consumer Federation of 

America and L. Turner. 

95See letter from Consumer Federation of 

America. 

96 Id. 

97 Id. 

98See letter from L. Turner. 

99See, e.g., letters from BDO; CAQ; Chamber; EY; 

Forvis Mazars; Moss Adams; PICPA; and PWC. 

100See, e.g., letters from BDO; CAQ; Chamber; 

Forvis Mazars; and PWC. See also letter from the 

Center for Audit Quality (Aug. 29, 2024) (‘‘CAQ 

Supplemental Letter’’) (stating that the PCAOB 

response letter did not address ‘‘certain other key 

matters’’ raised by commenters, such as ‘‘the 

PCAOB’s authority to compel disclosure of 

information afforded confidential and privileged by 

The Sarbanes-Oxley Act (e.g., Part II of PCAOB 

Inspection Reports)’’); letter from PICPA (expressing 

the view that the EQCF ‘‘presents concerns 

regarding the confidentiality of PCAOB Part II 

inspection findings’’); letter from RSM (‘‘The SEC 

should consider whether SOX restrictions on public 

disclosure of Part II inspection findings and 

confidentiality of communications with inspection 

Continued 

requirements of QC 1000 with the 

requirements of the Other QC Standards 

and similarly concluded that there is 

significant overlap and did not identify 

anything that is incompatible with those 

other requirements. Further, no 

commenters identified any aspects of 

QC 1000 that are incompatible with 

these other requirements. Many of the 

specified requirements in QC 1000 that 

are not in the Other QC Standards are 

applicable only to firms issuing audit 

reports for more than 100 issuers. 

Therefore, with respect to these 

incremental requirements, any firms 

required to design but not implement a 

QC system under QC 1000 would not be 

required to adopt those specified 

requirements. Further, any other 

incremental requirements over Other 

QC Standard requirements that are 

applicable to such firms are not 

expected to be burdensome to design, 

especially given the inherent scalability 

of QC 1000. The Commission staff also 

performed an analysis of registered 

firms and determined, consistent with 

the PCAOB’s evaluation, that most 

registered firms will be subject to the 

Other QC Standards by the time QC 

1000 is effective.89 Based on the 

Commission staff’s assessment, we 

believe that these existing standards are 

likely to mitigate compliance costs for a 

very substantial majority of registered 

firms. 

Furthermore, other factors may serve 

to mitigate any adverse competitive 

effects from the design-only requirement 

for smaller firms. For example, some 

registered firms currently participate in 

PCAOB engagements at a level below 

that of a ‘‘substantial role,’’ with the 

level of involvement varying, with some 

of those firms participating at a level 

approaching a ‘‘substantial role.’’ 90

Larger firms could have a greater 

incentive to use the work of registered 

public accounting firms that are 

currently participating at a level below 

that of a ‘‘substantial role,’’ or that are 

not participating in PCAOB 

engagements at all, if the larger firms 

knew that such firms had already 

designed a QC system in accordance 

with QC 1000. Therefore, such smaller 

firms may have more opportunity to 

participate in audits pursuant to PCAOB 

standards in the future. Other firms that 

would have been subject to the designonly requirement may indeed choose to 

deregister. Such deregistration may, 

nevertheless, not have an adverse 

competitive effect if such firms were 

only intending to continue to compete 

for work that does not require PCAOB 

registration, such as participating in an 

audit pursuant to PCAOB standards at a 

level below that of a ‘‘substantial role,’’ 

as their registration status would not 

impact their eligibility for this work. 

Accordingly, for these reasons and the 

reasons discussed in Section III.C, the 

Commission does not believe this aspect 

of the Amendments is likely to have a 

significant negative impact on the 

market for audit services or the pool of 

registered audit firms. 

B. EQCF Role 

As described above, QC 1000 includes 

a requirement for the small number of 

firms that issue audit reports for more 

than 100 issuers during the prior 

calendar year to implement an EQCF. 

Composed of one or more persons who 

are not principals or employees of the 

firm and do not otherwise have a 

commercial, familial or other 

relationship with the firm that would 

interfere with the exercise of 

independent judgment with regard to 

the matters related to the QC system, the 

EQCF is required to evaluate the 

significant judgments made and related 

conclusions reached by the firm when 

the firm is evaluating and reporting on 

the effectiveness of its QC system.91 The 

PCAOB stated in the Adopting Release 

that an external oversight function 

should enhance the discipline with 

which the firm carries out its own QC 

system evaluation.92 The PCAOB also 

stated that, based on comments it 

received on the Concept Release and the 

Proposing Release and experience with 

inspections of firms’ systems of quality 

control, it believes that investors, audit 

committees, and other stakeholders will 

benefit from the EQCF’s evaluation.93

General 

Some commenters stated that they 

specifically supported the EQCF role.94

One commenter emphasized the 

importance of the EQCF role.95 This 

commenter stated that it made sense to 

require firms that issue audit reports for 

more than 100 issuers per year to be 

subject to incremental requirements, 

such as the EQCF role, ‘‘given such 

firms’ greater involvement in the U.S. 

capital markets and their impact on 

investors.’’ 96 This commenter further 

stated that it appreciated that the 

Amendments stressed ‘‘the 

independence of the external oversight 

function.’’ 97 Another commenter stated 

that the creation of the EQCF ‘‘is 

necessary in light of ongoing instances 

around the globe which suggest the 

firms suffer from a lack of ethics 

throughout the firms, including senior 

leadership.’’ 98

On the other hand, several 

commenters stated that they do not 

support the requirement to incorporate 

an EQCF within the QC system.99

Among other concerns, commenters 

asserted that the EQCF requirement 

included prescriptive elements that 

were not exposed for public comment; 

that the costs and benefits of the EQCF 

requirement had not been adequately 

considered; that the requirement could 

vitiate confidentiality protections under 

SOX; and that the requirement raised 

personal liability and other concerns 

that could render the requirement 

unworkable. Several commenters 

expressed the view that the requirement 

would necessitate disclosure of firm 

deficiency information included in Part 

II of PCAOB inspection reports to the 

person or persons serving in the EQCF 

role in conflict with SOX and PCAOB 

rules or Congressional intent.100 More 


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teams create complexities for effectuating the 

PCAOB’s intention with respect to the EQCF’s 

role.’’). 

101See letter from Forvis Mazars. 

102See letter from BDO. 

103See letter from Chamber. See also letter from 

PWC (stating ‘‘[w]e do not believe that firms should 

be viewed as incapable of performing their own 

evaluations and conclusions on their QC systems 

with full transparency to the PCAOB through its 

inspections process but without third-party 

involvement’’). 

104See letter from Moss Adams. 

105This commenter stated that, for example, the 

PCAOB comment letter clarified the Board’s belief 

that those serving in an EQCF role would meet the 

definition of an ‘‘associated person.’’ See CAQ 

Supplemental Letter. 

106This commenter stated that, for example, the 

PCAOB response letter did not address the point 

raised in several comment letters that the 

Amendments would require firms to disclose 

confidential and privileged information to 

‘‘individuals a firm is not otherwise even required 

to employ or contract.’’ Id. In addition, the 

commenter stated that the Board ‘‘does not address 

concerns raised by commenters about the new 

EQCF requirements being stated by the Board to be 

analogous in some ways to an Engagement Quality 

Reviewer.’’ Id. 

107 Id. The commenter asked the Commission to 

clarify whether the PCAOB response letter ‘‘can be 

viewed as equally authoritative as the Final 

Standard and Adopting Release.’’ We respond to 

this comment in Section III.G below. 

108 Id. 

109See letter from L. Turner. 

110See PCAOB response letter at 3, 9. In 2008, 

one of ACAP’s recommendations was to urge the 

PCAOB and the SEC, in consultation with others, 

to ‘‘analyze, explore, and enable, as appropriate, the 

possibility and feasibility of firms appointing 

independent members with full voting power to 

firm boards and/or advisory boards with 

meaningful governance responsibilities to improve 

governance and transparency of audit firms.’’ See 

letter from L. Turner (citing and quoting from ACAP 

recommendations). 

111See PCAOB response letter at 3. 

112 Id. (including, for example, one firm that 

disclosed it had ‘‘robust discussions’’ regarding its 

initial QC system evaluation under ISQM 1 with its 

external quality advisors and another firm that 

indicated its audit advisory council, which includes 

two independent members, addresses matters 

related to the QC system, including inspection 

results and remediation efforts). See also PWC, 2023 

Audit Quality Report, at 31 (describing its 

‘‘independent Assurance Quality Advisory 

Committee’’ as providing advice ‘‘on aspects of the 

business, operations, culture, governance, and risk 

management approach that are reasonably expected 

to impact audit and assurance quality’’ and stating 

that such committee ‘‘made us the first firm with 

both a Board that includes external members and 

an independent advisory committee focused on 

quality’’), available at https://www.pwc.com/us/en/ 

services/audit-assurance/library/audit-qualityreport.html. 

113See CAQ Supplemental Letter. 114See letter from PWC. 

generally, commenters stated that it was 

unclear ‘‘how the EQCF would function 

within a firm’s system of quality 

control’’ 101 and suggested that the 

standard the PCAOB adopted 

‘‘expanded the professional obligations 

and responsibilities’’ of the EQCF role, 

which would impose additional liability 

costs for those professionals.102 Another 

commenter stated that the EQCF 

requirement is ‘‘neither realistic nor 

needed’’ given that the QC systems of 

firms are complex and involve a 

multitude of judgments and conclusions 

and the PCAOB already inspects large 

firms annually.103 One commenter 

stated that ‘‘[f]irms that are close to or 

just above the 100-issuer mark may feel 

compelled to consider reducing their 

issuer count below this threshold’’ as a 

result of the EQCF requirement.104 One 

commenter raised concerns about the 

EQCF role in its initial comment letter 

to the Commission and stated, in a 

subsequent supplemental comment 

letter, that the PCAOB response letter 

‘‘provides additional clarity on several 

of our questions,’’ including with regard 

to the EQCF role,105 but stated the 

PCAOB response ‘‘did not address 

certain other key matters raised by 

commenters’’ 106 and that the letter 

‘‘raises additional questions.’’ 107

Specifically, this commenter stated ‘‘it 

is not clear how to square the Board’s 

stated belief that requiring the EQCF 

will ‘improve audit quality’ and ‘drive 

improvement in a firm’s QC system’ 

with the view that EQCF members 

would only be considered ‘supervisory 

persons’ if the EQCF had the 

‘responsibility, ability, or authority to 

affect the conduct of . . . associated 

persons. . . .’ ’’ 108

While we acknowledge the concerns 

raised by commenters about the EQCF 

requirement, the Commission finds that 

the EQCF role is consistent with the 

requirements of Title I of SOX and the 

rules and regulations issued thereunder 

and is necessary or appropriate in the 

public interest or for the protection of 

investors. We believe that an 

independent oversight function for the 

small number of firms subject to the 

requirement will enhance the 

effectiveness of a registered firm’s QC 

system, ultimately leading to 

improvements in audit quality. In 

support of the EQCF requirement, one 

commenter pointed to the importance of 

independence to ‘‘high quality corporate 

governance in the United States’’ and 

stated that ‘‘as independence has been 

implemented, enhanced and monitored, 

it has led to investors relying to a greater 

extent on corporate boards.’’ 109 We 

agree with this commenter’s views on 

the benefits of independence to 

governance structures and concur with 

the PCAOB that adding an independent 

perspective to an annually inspected 

firm’s QC system self-evaluation will 

promote a more rigorous evaluation 

process by those firms and drive 

improvements in audit quality.110 In 

fact, the PCAOB stated that, in 

connection with its oversight, ‘‘certain 

firms have acknowledged the 

limitations of internal QC functions led 

by non-independent firm employees 

and have touted the benefits of 

independent review.’’ 111 The PCAOB 

further stated that some firms have 

already created leadership or advisory 

roles for independent third parties.112

We find this evidence persuasive and 

therefore conclude that requiring an 

external quality control function for 

registered firms will serve the public 

interest and the protection of investors. 

One commenter expressed doubts that 

the EQCF would improve audit quality 

or drive improvements in a firm’s QC 

system given the PCAOB’s view that the 

EQCF would only be considered a 

supervisory person if it had 

responsibility, ability, or authority to 

affect the conduct of associated 

persons.113 We understand this 

commenter to be suggesting that the 

EQCF role will not result in 

improvements unless the EQCF has 

some control with respect to decisionmaking at the firm. To the extent the 

registered public accounting firms 

subject to the EQCF requirement share 

the concern raised by this commenter, 

the Amendments provide firms with 

flexibility to vest the EQCF with 

decision-making authority to the extent 

they see fit. However, even absent 

decision-making or other authority, we 

believe that the EQCF role will be able 

to drive improvements in audit quality 

and a firm’s QC system. An independent 

perspective on the significant judgments 

made and conclusions reached by the 

firm during its annual evaluation will 

help firms identify areas of 

improvement in their QC systems that 

they can consider when operating their 

QC systems. It is not uncommon for 

businesses to seek external perspectives 

on a variety of topics or issues and the 

fact that the business is the ultimate 

decision-maker does not mean that the 

input provided is not valuable or 

beneficial to the process. In addition, as 

noted above, some audit firms have 

voluntarily added independent 

oversight to their governance structures, 

indicating that they see a benefit to 

having an independent perspective. 

Relatedly, we do not believe that 

imposing an independent QC monitor or 

independent QC consultant for a 

prescribed period of time as remedial 

relief in a PCAOB enforcement action 

would serve as a viable substitute for 

the EQCF requirement for the small 

number of firms subject to the 

requirement, as suggested by one 

commenter.114 Based on our experience 

with Commission enforcement actions, 


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115See PCAOB response letter at 10. 116See QC 1000.28. 117The EQCF must be independent in accordance 

with the requirements in QC 1000.28. See Adopting 

Release, supra note 9, at 122 (stressing the 

importance of the independence requirement but 

otherwise providing firms with discretion to 

determine the specific credentials the EQCF must 

have as long as they have the experience, 

competence, authority, and time necessary to carry 

out their assigned responsibilities); PCAOB 

response letter at 8 (‘‘As long as the firm 

incorporates into its governance structure an EQCF 

that can appropriately discharge its single 

prescribed responsibility (and any additional 

responsibilities the firm might voluntarily assign to 

it) in accordance with the QC 1000 standard, the 

firm would have wide latitude to decide—in its 

discretion and based on its particular 

circumstances—how best to design its EQCF.’’). 

118A number of the audit firms that would be 

subject to the EQCF requirement have stated 

publicly that they have independent representation 

in their governance structure or plan to add such 

a role in the near-term. See supra notes 31 and 112. 119See QC 1000.28. 

120 Id. 121See PCAOB response letter at 7. 

122See Adopting Release, supra note 9, at 119– 

24. 

123See letter from L. Turner. 

124See, e.g., letters from CAQ; Chamber; EY; 

Forvis Mazars; Moss Adams; and PWC. 

125See letter from PWC. 

126See letter from Grant Thornton LLP (July 16, 

2024) (‘‘GT’’) (explaining that although the firm has 

an Audit Quality Advisory Counsel, it does not 

meet the EQCF requirements in QC 1000, 

particularly regarding the necessary authority and 

review of all ‘‘significant judgments’’). 

127See letter from L. Turner (discussing the 

relevant history of the proposed QC standard, 

including the 2008 ACAP recommendation, 2019 

Concept Release, and 2022 Proposing Release, and 

stating that the PCAOB has gone through an 

‘‘extensive process of outreach’’ to both its Investor 

Advisory Groups and Standards Advisory Groups 

with respect to quality control standards and noting 

that members of the Standards Advisory Groups 

include members of the ‘‘Big Four’’ as well as 

smaller firms). 

128 15 U.S.C. 7211(b). 

129See 5 U.S.C. 551(1) (defining an ‘‘agency’’ as 

‘‘each authority of the Government of the United 

Continued 

audit quality and investor protection 

benefits are greater with a prophylactic 

requirement aimed at preventing such 

violations from occurring in the first 

place—before investors are potentially 

placed at risk—than with only remedial 

relief in a handful of enforcement 

actions for limited periods of time.115

In addition to the overall benefits that 

an independent oversight function 

would provide, we find that the Board’s 

approach to mandating this requirement 

in QC 1000 appropriately balances the 

need to enhance the effectiveness of 

registered firms’ QC systems with an 

approach that provides flexibility in 

internal governance structures to 

minimize cost and disruption. As 

adopted by the Board, the EQCF 

requirement will provide significant 

flexibility for firms to design procedures 

that work best for their individual firm 

governance structure and requirements. 

QC 1000 does not specify where within 

the registered public accounting firm 

the EQCF must be housed or to whom 

the EQCF must report.116 These 

determinations are left to the discretion 

of the firm. This flexibility will allow an 

independent EQCF 117 to also serve, for 

example, as an independent member of 

a firm’s advisory committee or audit 

quality committee or governance body, 

including one that has a majority of 

non-independent members.118

Furthermore, to the extent that firms 

have existing QC advisory committees, 

nothing in the rule would prevent those 

committees, or independent members of 

those committees, from serving as 

EQCF, provided they meet the rule’s 

independence standard and can 

discharge the assigned duties. 

The Amendments also do not 

prescribe specific procedures to be 

followed by the EQCF and require only 

one EQCF activity.119 The EQCF must 

evaluate ‘‘the significant judgments 

made and the related conclusions 

reached by the firm when evaluating 

and reporting on the effectiveness of the 

QC system.’’ 120 Notably, the EQCF’s 

responsibility does not extend to all of 

the firm’s QC-related judgments and 

conclusions, but only to significant ones 

made in connection with the firm’s 

annual QC-system evaluation and 

reporting.121 Firms may, but are not 

required to, consider additional 

oversight functions for the EQCF, such 

as reviewing the firm’s remediation 

actions and monitoring plan, or 

identifying and monitoring emerging 

risks or trends that could potentially 

affect the firm’s QC system.122 Similar 

to the flexibility provided to audit firms 

in determining how the EQCF will 

perform its responsibilities, audit firms 

would have flexibility to consider, 

based on their individual firm needs, 

what other functions, if any, would be 

beneficial. Along these lines, one 

commenter noted that the PCAOB has 

pointed out the flexibility of its 

approach and how a firm implementing 

it can apply that flexibility. The 

commenter further stated that, based on 

the commenter’s experience with the 

auditing profession, the commenter 

believes that the PCAOB is correct and 

that the approach the PCAOB took with 

respect to the EQCF ‘‘should, and will 

ultimately, allay the concerns of audit 

firm commenters.’’ 123 Below we discuss 

the views of commenters with respect to 

specific aspects of QC 1000’s EQCF 

requirement, as well as the 

Commission’s findings regarding those 

matters. 

Notice and Comment 

Several commenters expressed the 

view that the EQCF requirement was not 

included in the Proposing Release and 

therefore was not properly exposed for 

public comment before being adopted 

by the Board.124 One commenter stated 

that the change from requiring an 

‘‘oversight function for the audit 

practice’’ in the Proposing Release to 

requiring an ‘‘oversight function for the 

QC system’’ in the Adopting Release 

represents a significant change that 

‘‘effectively deprives us of an 

opportunity for public input into the 

revised requirement.’’ 125 Another 

commenter stated that the requirement 

for the EQCF to evaluate all ‘‘significant 

judgments’’ introduces ‘‘prescriptive 

elements not included in the original 

proposal.’’ 126 Conversely, one 

commenter stated that ‘‘[c]learly anyone 

who read and responded to the Concept 

Release and exposure draft were aware 

that the PCAOB was moving to adopt 

such a function in its final rule.’’ 127

As a threshold matter, we find that 

the public had a meaningful 

opportunity to comment on the 

Amendments both as they were being 

developed by the PCAOB and after they 

were filed with the Commission for 

approval. The PCAOB received and 

considered comments in connection 

with both the 2019 Concept Release and 

2022 Proposing Release. The comment 

period for the Proposing Release was 

open for 75 days, but the PCAOB 

continued to accept comments up until 

its adoption of the Amendments. The 

PCAOB considered all comments it 

received. After the Amendments were 

filed with the Commission for approval, 

the Commission published a notice to 

solicit comment on the Amendments 

with comments due 21 days after the 

Notice of Filing of Proposed Rules was 

published in the Federal Register. To 

provide additional time for 

consideration of the Amendments and 

the issues raised therein, the 

Commission twice extended the date by 

which it must act on the Amendments. 

During this time, the Commission 

received additional input from both the 

Board and public commenters. We have 

considered all of these comments in 

deciding to approve the Amendments. 

The Commission finds that the 

Board’s process for approving the 

Amendments complied with all 

applicable requirements. Although the 

Board is not ‘‘an agency or 

establishment of the United States 

Government,’’ 128 for statutory purposes 

and therefore is not subject to the 

requirements of the Administrative 

Procedure Act (‘‘APA’’),129 the Board as 


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States’’); id. § 551(5) (defining ‘‘rule making’’ as 

‘‘agency process for formulating, amending, or 

repealing a rule’’); id. § 553 (setting forth the 

requirements for agency rule making). 

130See PCAOB Staff Guidance on Economic 

Analysis in PCAOB Standard Setting (2014), 

available at https://pcaobus.org/oversight/ 

standards/economic-analysis/05152014_guidance. 

131See PCAOB response letter at 3–5. 

132 Id. 

133 Id. (noting that the Concept Release included 

a request for comment asking, ‘‘Should a future 

PCAOB QC standard incorporate mechanisms for 

independent oversight over firms’ QC systems (e.g., 

boards with independent directors or 

equivalent)?’’). 

134 Id. (stating that in response to the Proposing 

Release ‘‘[m]any commenters called for more clarity 

and specificity about the role of the oversight 

function’’). 

135See Concept Release, supra note 10 (‘‘We are 

considering whether a future PCAOB QC standard 

should address mechanisms for independent 

oversight over firms’ QC systems.’’) (emphasis 

added). 

136See Proposing Release, supra note 11, at 97 

(‘‘[T]he firm’s governance structure should 

incorporate an oversight function for the audit 

practice that includes at least one person who is not 

a partner, shareholder, member, other principal, or 

employee of the firm and does not otherwise have 

a commercial, familial, or other relationship with 

the firm that would interfere with the exercise of 

independent judgment with regard to matters 

related to the QC system.’’). 

137 Id. at 97 (‘‘If the firm issued audit reports with 

respect to more than 100 issuers during the prior 

calendar year, the firm’s governance structure 

should incorporate an oversight function for the 

audit practice that includes at least one person who 

is not a partner, shareholder, member, other 

principal, or employee of the firm and does not 

otherwise have a commercial, familial, or other 

relationship with the firm that would interfere with 

the exercise of independent judgment with regard 

to matters related to the QC system.’’). 

138 Id. 139See Adopting Release, supra note 9, at 119– 

20 (citing relevant commenter feedback on the 

Proposing Release). 

140 Id. at 118. 

141See letter from PWC. 

142See Proposing Release, supra note 11, at 97. 

143See letters from CAQ and Chamber. 

144See Adopting Release, supra note 9, at 118– 

20. 

145Compare Proposing Release, supra note 11, at 

97 (‘‘. . . includes at least one person who is not 

a partner, shareholder, member, other principal, or 

employee of the firm and does not otherwise have 

a commercial, familial, or other relationship with 

the firm. . .’’) and Adopting Release, supra note 9, 

at 118 (‘‘. . .composed of one or more persons who 

are not partners, shareholders, members, other 

principals, or employees of the firm and do not 

otherwise have a commercial, familial, or other 

relationship with the firm. . .’’). 

146See PCAOB response letter at 6. 

a matter of policy has adopted a noticeand-comment process to inform its 

decision-making.130 The Board followed 

that process here. The PCAOB response 

letter details the standard-setting history 

relating to the EQCF requirement, 

beginning with the 2008 

recommendations from ACAP and 

including the Concept Release, 

Proposing Release, consideration of 

comments received to each, and 

Adopting Release.131 The Board 

describes the outreach it performed and 

the input it received from a variety of 

stakeholders over the course of that 

multi-year process.132 The Board’s 

analysis demonstrates that the core 

tenets of ‘‘independent oversight over 

firm’s QC systems’’ were introduced in 

the Concept Release,133 and were 

refined through the Board’s stakeholder 

engagement, including in response to 

comments received on their Concept 

Release and Proposing Release.134

Accordingly, we find the Board’s 

process for approving the Amendments 

reasonable and appropriate. 

As proposed, consistent with the 

Concept Release,135 the PCAOB 

contemplated an independent QC 

oversight function within the 

governance structure of an audit firm.136

Specifically, the PCAOB proposed to 

require an ‘‘oversight function for the 

audit practice’’ writ large that included 

at least one individual who was not a 

principal or employee of the firm and 

who did not have a relationship with 

the firm ‘‘that would interfere with the 

exercise of independent judgment with 

regard to matters related to the QC 

system’’ (emphasis added).137 The 

PCAOB explained in the Proposing 

Release that the proposed requirements 

‘‘would not specify how the firm would 

establish its governance structure or 

assign authority, other than having one 

person in an oversight role who would 

be in a position to exercise independent 

judgment with regard to QC matters’’ 

(emphasis added).138 The proposed 

oversight function, coupled with the 

general requirement relating to the 

‘‘exercise of independent judgment with 

regard to matters related to the QC 

system,’’ reasonably could have been 

read to include, for example, oversight 

over all aspects of the QC system 

including design, sufficiency, judgment, 

and overall effectiveness. 

In response to the Proposing Release, 

commenters requested specificity 

regarding the function and scope of the 

responsibilities such an independent 

QC governance role would entail.139

After taking such comments into 

consideration, the Board adopted an 

amended QC standard that clarified the 

EQCF’s status and role. Specifically, the 

PCAOB narrowed the focus of the role 

from the proposal which, as explained 

above, would have required an 

‘‘oversight function for the audit 

practice’’ to require an ‘‘oversight 

function for the QC system’’ and 

specified a single responsibility for the 

EQCF: ‘‘evaluating the significant 

judgments made and the related 

conclusions reached by the firm when 

evaluating and reporting on the 

effectiveness of the QC system.’’ 140

One commenter specifically stated 

that the change from an ‘‘oversight 

function for the audit practice’’ to an 

‘‘oversight function for the QC system’’ 

was a significant change that was not 

adequately explained or proposed for 

public comment.141 We disagree with 

this commenter. The QC system is the 

process by which a firm manages and 

improves its audit practice and therefore 

is an integral and significant part of the 

audit practice, so that a role overseeing 

the audit practice would necessarily 

also oversee the QC system in addition 

to other aspects of a firm’s audit 

operations. Therefore, an ‘‘oversight 

function for the QC system’’ is a 

subcomponent of an ‘‘oversight function 

for the audit practice’’ (e.g., a narrower 

version of what was proposed). 

Moreover, the EQCF role was proposed 

in the context of the PCAOB’s new 

quality control standard and both the 

PCAOB’s proposed and adopted 

formulations of the oversight 

requirement required that the individual 

or individuals who fill the role not have 

any relationships with the firm ‘‘that 

could interfere with the exercise of 

independent judgment with regard to 

matters related to the QC system’’ 

(emphasis added).142 In our view, these 

explicit references to the individual’s 

responsibilities as they relate to the ‘‘QC 

system’’ weigh against commenters’ 

claims that the EQCF role could not 

have been anticipated from the 

proposal.143

Moreover, many aspects of the 

Amendments related to the EQCF role 

remain unchanged from the proposal. 

For example, the EQCF requirement 

only applies to firms that issue audit 

reports with respect to more than 100 

issuers during the prior calendar 

year.144 The requirement for 

independence remained the same with 

the exception of changing the 

terminology from the singular to plural 

form (i.e., a grammatical change).145

Although the Amendments describe the 

EQCF role as an ‘‘external oversight 

function,’’ the PCAOB response letter 

explains that it used the phrase 

‘‘external’’ to ‘‘underscore that the 

function is to be carried out by one or 

more persons who are independent and, 

necessarily, external to the firm’’ rather 

than imposing a separate 

requirement.146 The proposal required 

the EQCF role to be composed of ‘‘at 

least one person’’ while the 

Amendments require the EQCF role to 

be composed of ‘‘one or more persons.’’ 

In either case, only one individual is 

required but a firm can choose to assign 


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147See Adopting Release, supra note 9, at 118– 

20. 

148 Id. at 120. Both the PCAOB’s proposed and 

adopted versions of QC 1000.12 stated, ‘‘[t]he firm 

must assign other roles and responsibilities with 

respect to the QC system to firm personnel who 

have the experience, competence, authority, and 

time to enable them to carry out their 

responsibilities.’’ See Proposing Release, supra note 

11, at 68; Adopting Release, supra note 9, at 82. The 

EQCF is a role with respect to the QC system, which 

is further clarified through the conforming change 

described above. 

149QC 1000.28 (‘‘Responsibilities of the EQCF 

should include, at a minimum, evaluating the 

significant judgments made and the related 

conclusions reached by the firm when evaluating 

and reporting on the effectiveness of the firm’s QC 

system.’’). 

150See PCAOB response letter at 6. 

151See Chamber letter. 152See, e.g., letters from BDO; CAQ; Consumer 

Federation of America; Chamber; EY; Forvis 

Mazars; Moss Adams; PICPA; PWC; and L. Turner. 153See letter from L. Turner. 

154 Id. 

155See Adopting Release, supra note 9, at 121. 

156See PCAOB response letter at 24–25. 

157See 15 U.S.C. 7214(g)(2); 15 U.S.C. 

7215(b)(5)(A). 

158See, e.g., letters from BDO; CAQ; Chamber; 

Forvis Mazars; PICPA; and PWC. 

159See letter from Chamber. The CAQ 

Supplemental Letter stated that the PCAOB 

response letter provided clarity on whether the 

EQCF would be considered an associated person. 

160 Id. See also letter from PWC (stating that the 

‘‘adopting release raises the possibility that 

individuals filling this role could be subject to 

liability under Section 105(c)(6) of SOX’’). 

161See CAQ Supplemental Letter. 

more than one individual to the role.147

As discussed in greater detail below, the 

individual or individuals who fill the 

EQCF role will be ‘‘associated persons 

of a registered public accounting firm,’’ 

and the same would have been true 

under the proposal. Finally, the 

Amendments state that the ‘‘EQCF 

should have the experience, 

competence, authority, and time 

necessary to enable them to carry out 

the responsibilities assigned to the 

EQCF by the firm.’’ The PCAOB 

explained in the Adopting Release that 

this change was made to ‘‘conform[ ] the 

provision to the descriptions in QC 

1000.12 of other specified QC system 

roles’’ that require the same 

qualifications to perform their 

responsibilities.148

Therefore, having considered the 

standard-setting process preceding the 

EQCF requirement, we find that the 

public had considerable opportunity to 

comment on the function and 

responsibilities of the EQCF role 

included in the Amendments as well as 

on the similar, but more broadly 

focused, independent oversight function 

in the Proposing Release, on which the 

EQCF is based. Moreover, we find the 

changes made to that role in the 

Adopting Release to be responsive to 

comments received by the PCAOB from 

a variety of stakeholders. We also agree 

with the Board that the only 

prescriptive requirement of the 

function—the requirement to evaluate 

the significant judgments made and the 

related conclusions reached by the firm 

when evaluating and reporting on the 

effectiveness of the firm’s QC 

system 149—is both responsive to 

requests for greater clarity and 

specificity and would benefit investors 

by enhancing the discipline with which 

a firm carries out its own QC system 

evaluation.150 Overall, we believe the 

changes described above addressed 

feedback on the role that the Board 

received on the Concept Release and 

Proposing Release, including that the 

role did not go far enough; that the 

role’s undefined authority made it likely 

to be ineffective; and that more 

specificity and prescription was needed 

to avoid overly broad interpretations of 

the requirements; while maintaining a 

principles-based approach to allow 

firms to design the EQCF as appropriate 

for their audit practice. 

In addition, the public had the 

opportunity to provide comments to the 

Commission on the Amendments 

adopted by the PCAOB. One commenter 

stated that the ‘‘time-period for 

providing comments to the SEC’’ was 

‘‘constrained.’’ 151 As discussed above, 

however, the Commission provided an 

initial comment period of 21 days, 

followed by an extension of 14 days. 

The Commission also extended its 

period to consider the Amendments two 

times, for a total of a 90-day period. 

Over the course of the 90 total days 

during which the Amendments were 

under consideration by the Commission, 

the public was able to continue to 

submit comment letters. The 

Commission received over 20 letters in 

total, several of which addressed the 

EQCF role in particular.152 The 

Commission has considered the 

concerns raised by commenters and 

addresses them below. 

Alternatives to the EQCF Role 

One commenter stated that it was 

concerned that the EQCF may not 

achieve the effectiveness and 

accountability that is necessary because 

of the flexibility provided to firms, and 

questioned whether a single person 

would be able to fulfill the EQCF’s 

responsibilities inside the largest 

accounting firms.153 The commenter 

believed that a preferable approach 

would be to require the creation of an 

independent board as proposed by the 

ACAP and used by the FRC and the 

Japan Financial Services Agency.154 As 

the PCAOB states in the Adopting 

Release, the EQCF role may be carried 

out by ‘‘one or more persons’’ and 

therefore larger firms will be able to 

determine whether it would be 

appropriate to assign more than one 

person to the role given their size and 

complexity.155 We note that the firms 

that will be subject to the Amendments 

are of varying sizes and complexities 

and we therefore agree with the PCAOB 

that a ‘‘one size fits all’’ approach is 

unwarranted. Furthermore, we note that 

the PCAOB has stated that it intends to 

monitor the implementation of QC 1000 

through its inspections program and 

outreach activities and ‘‘will remain 

vigilant’’ for any information regarding 

the standard’s effectiveness or 

implementation challenges.156 With 

respect to the commenter’s preferred 

approach of creating an independent 

board, although we agree with the 

commenter that experience has 

indicated that independent boards of 

issuers can be very effective, such a 

requirement is not part of the 

Amendments and therefore it is beyond 

the scope of this Order. In addition, we 

believe that consideration would need 

to be given to how an independent 

board requirement would interact with 

any applicable corporate governance 

laws, particularly for those registered 

public accounting firms located outside 

of the United States. 

Disclosure, Confidentiality and Liability 

Several commenters stated that the 

EQCF requirement conflicts with SOX 

Sections 104(g)(2) or 105(b)(5)(A) 157

because it would compel audit firms to 

share non-public QC criticisms with the 

EQCF, who is external to the firm.158

One commenter stated that the EQCF (or 

members of the EQCF) would not be an 

associated person, given the definition 

of associated persons in PCAOB Rule 

1001(p)(i), and considering that the 

EQCF consists of one or more 

independent third-parties.159 This 

commenter further stated that 

discussions in the Adopting Release 

‘‘cloud this issue,’’ including the 

discussion of whether the EQCF would 

be subject to supervisory liability under 

SOX Section 105(c)(6).160 One 

commenter responded to the PCAOB 

response letter stating that their 

‘‘objection is in the PCAOB requiring 

disclosure to individuals a firm is not 

otherwise even required to employ or 

contract.’’ 161

SOX Section 104(g)(2) provides that 

‘‘no portions of [a PCAOB] inspection 

report that deal with criticisms of or 

potential defects in the quality control 

systems of the firm under inspection 


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162 15 U.S.C. 7214(g)(2). 

163 15 U.S.C. 7215(b)(5)(A). 

164We note that the external oversight role as 

described in the Proposing Release similarly would 

have met the definition of associated person of a 

public accounting firm. 

165 15 U.S.C. 7201(a)(9). PCAOB Rule 1001(p)(i) 

provides a substantially similar definition of 

‘‘person associated with a public accounting firm.’’ 

166PCAOB response letter at 10. 

167One commenter suggested that its concerns 

about the disclosure of confidential and privileged 

information to the EQCF stem from the fact the 

PCAOB is ‘‘requiring disclosure to individuals a 

firm is not otherwise even required to employ or 

contract.’’ See CAQ Supplemental Letter. However, 

the Amendments require the largest firms to 

establish and maintain an EQCF. As explained 

above, we believe that such individual or 

individuals serving in the EQCF would be 

associated persons—likely independent 

contractors—and therefore, we expect that firms 

will enter into contracts to set forth the terms and 

conditions of the role, including non-disclosure 

agreements, just as with their other independent 

contractors. 

168 15 U.S.C. 7212(b)(3); 15 U.S.C. 7215(b)(5)(A). 

169See PCAOB response letter at 13 n.55 (citing 

In re Bieter Co., 16 F.3d 929, 940 (8th Cir. 1994) 

(addressing the waiver of attorney-client privilege 

in the context of disclosure to an independent 

contractor); In re Flonase Antitrust Litig., 879 F. 

Supp. 2d 454, 459 (E.D. Pa. 2012) (same); In re 

Copper Mkt. Antitrust Litig., 200 FRD. 213, 219 

(S.D.N.Y. 2001) (same); Am. S.S. Owners Mut. 

Protection & Indem. Ass’n v. Alcoa S.S. Co., 232 

FRD. 191, 198 (S.D.N.Y. 2005) (addressing the 

waiver of attorney-client privilege in the context of 

disclosure to corporate directors); Strougo v. BEA 

Assocs., 199 FRD. 515, 525 (S.D.N.Y. 2001) (same, 

with respect to outside directors)); see also letter 

from L. Turner (stating that the legislative history 

of the SOX Section 104(g)(2) indicates that it was 

intended to prohibit the PCAOB from disclosing 

information it obtained regarding quality control 

deficiencies but that the firms could disclose that 

information to their audit committee if they chose 

to). 

170See PCAOB response letter at 12 (citing the 

2023 Audit Quality Report of BDO, which states 

that its audit advisory council addresses matters 

related to its QC system, including inspection 

results and remediation efforts, and the 2022 Audit 

Quality and Transparency Report of Grant 

Thornton, which states that it grants its audit 

quality advisory council full access to firm 

information to help them fully understand the 

system of quality control). We note that BDO states 

in its 2023 Audit Quality Report that two members 

of its audit advisory council are independent and 

Grant Thornton states in its 2022 Audit Quality and 

Transparency Report that two members of its audit 

quality advisory council are independent. 

171See PCAOB response letter at 13–14. 

172 15 U.S.C. 7215(c)(6). 

173Section 105(c)(6) addresses supervision in 

terms that are ‘‘similar to those that apply to brokerdealers under section 15(b)(4) of the Securities 

Exchange Act of 1934.’’ S. Rep. No. 107–205 at 11, 

49. Exchange Act Sections 15(b)(4)(E) and 15(b)(6) 

provide a theory of liability for broker-dealers and 

their associated persons that have failed reasonably 

to supervise, with a view to preventing violations 

of the federal securities laws and the rules 

thereunder, another person who commits such a 

violation, if such other person is subject to the 

shall be made public if those criticisms 

or defects are addressed by the firm, to 

the satisfaction of the Board, not later 

than 12 months after the date of the 

inspection report.’’ 162 SOX Section 

105(b)(5)(A) provides that, with certain 

exceptions, ‘‘all documents and 

information prepared or received by or 

specifically for the Board, and 

deliberations of the Board and its 

employees and agents, in connection 

with an inspection . . . or with an 

investigation . . . shall be confidential 

and privileged as an evidentiary matter 

. . . in any proceeding in any Federal 

or State court or administrative agency, 

and shall be exempt from disclosure 

. . . under the Freedom of Information 

Act . . . or otherwise.’’ 163

The Commission finds that the 

disclosure of information to the EQCF 

would not be a public disclosure under 

Section 104(g)(2) or inconsistent with 

the confidentiality protections provided 

by Section 105(b)(5)(A) because those 

serving in the EQCF role would be 

associated persons and therefore subject 

to the same confidentiality requirements 

as the firm’s partners, employees, and 

other associated persons.164 Under SOX 

Section 2(a)(9), an ‘‘associated person of 

a public accounting firm’’ includes any 

‘‘independent contractor’’ who, ‘‘in 

connection with the preparation or 

issuance of any audit report,’’ receives 

compensation from the firm or 

‘‘participates as agent or otherwise on 

behalf of’’ the firm ‘‘in any activity of 

that firm.’’ 165 For reasons the PCAOB 

explained, because individuals serving 

in an EQCF role cannot be partners, 

shareholders, members, other 

principals, or employees of the firm, 

they are likely to be engaged as 

independent contractors.166 And those 

independent contractors would meet the 

definition of an ‘‘associated person’’ 

under SOX Section 2(a)(9) because they 

are likely to be compensated for their 

work and, in any event, would 

participate in the firm’s activities—at 

least the firm’s evaluation and reporting 

process—on behalf of the firm.167

Like all associated persons, such 

independent contractors are part of the 

PCAOB inspection or investigation 

process, not strangers to it. They must 

cooperate with PCAOB inspections and 

investigations, comply with related 

PCAOB requests, and prepare 

inspection- or investigation-related 

documents for the PCAOB.168

Accordingly, such independent 

contractors are not part of the public, 

and their involvement in Board 

inspections and investigations and 

awareness of information related thereto 

would not vitiate confidentiality 

protections.169 Indeed, as the PCAOB 

observed, some firms currently share 

confidential information with external 

advisors, including those serving in 

audit quality advisory roles.170

QC 1000 does not specify what 

information affected firms must share 

with the EQCF, giving firms flexibility 

in determining the responsibilities of 

the EQCF and what information is 

needed for the EQCF to fulfill its role, 

as long as the EQCF complies with the 

minimum requirement to evaluate all 

significant judgments made by the firm 

with respect to its QC system. Also, 

firms may enter other types of 

independent-contractor arrangements, 

including with individuals at an 

affiliated firm within a global network 

or personnel at shared services centers 

outside of the firm.171 A determination 

that the EQCF is not an associated 

person would have significant 

consequences for those arrangements. 

Finally, a firm would be free to impose 

confidentiality or non-disclosure 

requirements on the EQCF to the same 

extent a firm is able to impose such 

requirements on its other independent 

contractors. 

Although their status as associated 

persons could result in potential 

personal liability for individuals that 

take on the EQCF role, we believe this 

is appropriate given that the EQCF, like 

any other associated person, should 

exercise due professional care when 

fulfilling their responsibilities— 

responsibilities that, as we have 

explained above, serve an important 

investor protection role. We note that 

the significant flexibility afforded to 

firms under the Amendments to design 

procedures for the EQCF that work best 

for their individual firm governance 

structure may help to mitigate concerns 

that the attendant personal liability 

could discourage qualified individuals 

from taking on such a role. 

Commenters also raised concerns 

about the potential liability exposure of 

the EQCF if the individual serving in 

that role was considered not only an 

associated person of the firm, but also 

a supervisory person. Under SOX 

Section 105(c)(6), the Board may impose 

sanctions on a ‘‘supervisory person’’ 

who ‘‘fail[s] reasonably to supervise an 

associated person’’ and ‘‘such associated 

person commits a violation’’ of a 

relevant law, rule, or standard.172 The 

Commission agrees with the PCAOB 

that the minimum requirements of the 

EQCF would not, on their own, make 

the individual or individuals 

‘‘supervisory persons,’’ and that the 

assessment of whether any particular 

individual serving in the EQCF role is 

a supervisory person would need to 

consider any additional responsibilities 

or authorities the audit firm assigned to 

them.173 Again, however, the flexibility 


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broker-dealer or associated person’s supervision. 15 

U.S.C. 78o(b)(4)(E) and (b)(6). In that context, the 

Commission has explained that ‘‘determining if a 

particular person is a ‘supervisor’ depends on 

whether, under the facts and circumstances of a 

particular case, that person has a requisite degree 

of responsibility, ability or authority to affect the 

conduct of the employee whose behavior is at 

issue.’’ John H. Gutfreund, Rel. No. 34–31554, 51 

SEC 93, 113 (Dec. 3, 1992) (settled order and 

Exchange Act 21(a) Report). See also, e.g., SEC v. 

Yu, 231 F.Supp.2d 16 (D.D.C. 2002) (court found 

individual violated supervisory bar by retaining 

involvement in hiring and firing, and supervising 

compliance staff); Steven E. Muth, Rel. No. 34– 

52551, 2005 WL 2428336 (Oct. 3, 2005) 

(Commission opinion) (individual had requisite 

degree of control where he participated in decision 

to hire and later to suspend registered 

representative). 

174See, e.g., letters from BDO; CAQ; and PWC. 

175See PCAOB response letter at 17–21. See also 

supra note 30 (only 14 of the approximately 1,600 

PCAOB-registered firms issued audit reports to 

more than 100 issuers as of 2023 but one of those 

firms has since filed an application for withdrawal 

from registration). 

176See letter from Moss Adams (stating ‘‘[f]rom 

the standpoint of a firm that is subject to annual 

inspection and marginally exceeds the 100-issuer 

threshold, the disparity in scale, operational scope, 

and complexity when compared to other firms 

under similar scrutiny is substantial. Thus, we 

encourage the Board conduct a more in-depth 

economic analysis of the EQCF role, along with 

qualitative analysis of the proposed impact to audit 

quality and the interplay with the PCAOB’s annual 

inspection of firms’ systems of quality.’’). 

177See Adopting Release, supra note 9, at 362; 

PCAOB response letter at 17 n. 72. 

178See Adopting Release, supra note 9, at 67; 

letter from Consumer Federation of America. See 

also,15 U.S.C. 7214(b)(1)(A). 

179See 15 U.S.C. 7214(b)(1)(A). 

180See, e.g., letters from EY; CAQ Supplemental 

Letter; and PWC. 

181See letter from PWC. 

182See Adopting Release, supra note 9, at 121. 

183 Id.; PCAOB response letter at 7. 

184See letter from EY. 

185 Id. 

186 Id. We addressed the liability concerns related 

to the EQCF role earlier in this Order. 

afforded to firms under the 

Amendments to determine what 

additional functions, if any, would be 

performed by EQCF should serve to 

mitigate concerns. 

Relatedly, several commenters raised 

concerns that potential liability under 

Section 105(c)(6) of SOX for the person 

or persons fulfilling the EQCF role 

could limit the pool of candidates for 

this role.174 However, we do not believe 

that any potential liability will 

significantly impact the pool of 

candidates, given the flexibility afforded 

to firms in the structuring of the role 

and the impact of such flexibility on 

liability considerations, as well as the 

fact that the requirement only applies, 

as the PCAOB observed, to the small 

number of firms meeting the 100-issuer 

threshold 175 and that several of those 

firms already have independent 

members of their firm governance or 

audit quality structure whose 

responsibilities, in some cases, may 

already meet the requirements of the 

EQCF, or who otherwise may be willing 

to expand such responsibilities. 

Other 

One commenter stated that firms that 

are close to or just above the annual 

100-issuer audit report threshold may 

feel compelled to consider reducing 

their issuer count below this threshold 

to avoid the EQCF requirement and that 

such exits would undermine 

competition.176 However, we believe 

such an effect is unlikely to be 

significant given that, as the Board 

observed in the Adopting Release and in 

the PCAOB response letter, very few 

firms are close to the 100-issuer 

threshold. Specifically, PCAOB staff 

analysis of audit reports included in 

Commission filings during the 2022 

calendar year indicated that two 

registered public accounting firms 

audited between 80 and 100 issuers and 

two registered public accounting firms 

audited between 100 and 120 issuers.177

In addition, we expect that the 

minimum requirements for the EQCF 

role and the flexibility provided to firms 

to implement the role would reduce the 

likelihood that firms would be 

motivated to stay below the 100-issuer 

threshold to avoid the requirement. 

Furthermore, we agree that using the 

100-issuer threshold is a reasonable 

approach because, as the PCAOB noted 

in the Adopting Release, firms are 

already familiar with this statutory 

threshold in the PCAOB inspection 

context and because we agree with the 

commenter who stated that the 100- 

issuer threshold was appropriate ‘‘given 

such firms’ greater involvement in the 

U.S. capital markets and their impact on 

investors.’’ 178 SOX provides that firms 

that provide audit reports for more than 

100 issuers are subject to annual 

inspection by the PCAOB and firms that 

provide audit reports for 100 issuers or 

fewer are subject to inspection 

triennially.179 Therefore, not only are 

firms familiar with the threshold, we 

believe firms monitor the size of their 

issuer practice for purposes of 

monitoring their inspection 

requirements and using the same 

threshold would avoid requiring the 

small number of firms that are close to 

or above the 100-issuer threshold to 

track a different threshold for purposes 

of compliance with QC 1000. 

Some commenters raised questions 

about the Board’s analogy of the EQCF 

to the Engagement Quality Reviewer 

(‘‘EQR’’).180 One commenter stated that 

the analogy the PCAOB made between 

the EQCF and the EQR was ‘‘not well 

analogized’’ because the EQR is required 

to perform a review under specific 

requirements that are the subject of an 

auditing standard while the PCAOB has 

not provided such specific requirements 

for the performance of the EQCF’s 

evaluation.181

The analogy the PCAOB drew 

between the EQCF and the EQR in the 

Adopting Release noted certain 

similarities between the two roles, but 

also identified important differences 

between the requirements for the roles, 

including that the EQCF is not required 

to provide concurring approval, as is 

required of an EQR.182 The EQR’s 

concurrence instills responsibility and 

authority over the activities of the audit 

engagement team and places the EQR in 

a supervisory position in an audit 

engagement. On the other hand, as the 

PCAOB has made clear, the EQCF is not 

required to approve the firm’s 

conclusions regarding its significant 

judgments for the firm to make a 

conclusion on the effectiveness of the 

QC system.183 As explained above, the 

requirement to evaluate the significant 

judgments and conclusions reached 

does not, by itself, impose supervisory 

responsibilities on the EQCF nor is the 

EQCF’s concurrence with the firm’s 

conclusions required. The EQCF’s 

evaluation is an input into the firm’s 

assessment of its QC system and while 

it may inform the actions of individuals, 

it does not direct such actions. 

Another commenter who addressed 

the PCAOB’s comparison of the EQCF 

and EQR roles stated that, unlike the 

EQR who is governed by the 

requirements in the PCAOB’s 

engagement quality review standard, the 

Amendments do not prescribe certain 

details regarding the EQCF’s role and 

responsibilities.184 Specifically, the 

commenter stated that the final standard 

does not, among other things: (1) specify 

the procedures the EQCF should 

perform to evaluate the significant 

judgments made and related 

conclusions reached; (2) address the 

nature, timing, and extent of the EQCF’s 

review; or (3) address how differing 

judgments made by the EQCF and the 

firm should be resolved or 

documented.185 This commenter stated 

that this creates uncertainty regarding 

the application of the responsibilities 

specified in the standard and raises 

questions about the potential liability of 

the EQCF.186 We disagree with the 

views expressed by the commenters 

discussed above. The PCAOB 

adequately explained this comparison 

in the Adopting Release, noting 


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187See Adopting Release, supra note 9, at 121. 

188 Id. at 122; PCAOB response letter at 7. 

189PCAOB response letter at 28. 

190See letters from PWC and Chamber. 

191See Adopting Release, supra note 9, at 5 (‘‘We 

are adopting an integrated, risk-based standard, QC 

1000, A Firm’s System of Quality Control, that 

mandates quality objectives and key processes for 

all firms’ QC systems, with a focus on 

accountability and continuous improvement.). 192See, e.g., letters from CAQ; Forvis Mazars; and 

GT. See also letter from EY (stating ‘‘it is unclear 

how firms will understand and document the 

EQCF’s identification of and conclusion about the 

firm’s significant judgments’’). 193See PCAOB response letter at 14–15. 194 Id. at 14. 195 Id. at 15 (stating ‘‘QC 1000 imposes a 

documentation requirement regarding the EQCF’s 

operation on the firm, not on the individuals who 

comprise the EQCF—though the firm’s EQCF 

policies could provide guidance to those 

individuals about what they should or should not 

do to facilitate the firm’s retention of appropriate 

documentation about the EQCF’s operation’’ 

(emphasis added)) and 14 (stating that all of the 

firm’s documentation under QC 1000 must be 

documented ‘‘in sufficient detail to enable an 

experienced auditor who understands QC systems 

but has no experience with the firm’s QC system 

to understand how the EQCF is designed’’). 

196 Id. at 28. One commenter stated that 

subsequent PCAOB staff guidance is an insufficient 

alternative to or remedy for the lack of notice and 

comment for the EQCF requirement. See letter from 

Chamber. However, as explained above, the Board 

followed its own notice-and-comment process and 

the EQCF requirement included in the 

Amendments was the result of changes made in 

light of commenter feedback on the PCAOB’s 

proposed external oversight function. 

197See, e.g., letters from BDO; Chamber; PICPA; 

and PWC. 

198See letter from Chamber. 

199See letter from L. Turner (citing Public 

Company Accounting Oversight Board, Staff White 

Paper, The Impact of Quality Control System 

Remediation on Audit Performance and Financial 

Reporting Quality (Nov. 2022), available at https:// 

assets.pcaobus.org/pcaob-dev/docs/default-source/ 

rulemaking/docket046/qc-staff-white-papernovember-2022.pdf?sfvrsn=ddb22504_4). 

200 Id. 

201See PCAOB response letter at 21–22. 

202 Id. 

203 Id. 

similarities between the two roles, but 

also explaining important differences, 

which we have highlighted, above.187 In 

our view, the referenced discussion 

sought to clarify aspects of the EQCF 

without imposing any new requirements 

on registered public accounting firms or 

changing the requirements for the EQCF 

as set forth in the Amendments. 

With respect to the commenter’s 

concerns about the lack of 

prescriptiveness of the EQCF 

requirement, the PCAOB explained its 

decision to provide firms with 

flexibility to design the EQCF role to fit 

their particular circumstances and firm 

governance structure in both the 

Adopting Release and the response 

letter.188 As discussed above, we find 

that the Board’s approach to the EQCF 

requirement in QC 1000 appropriately 

balances enhancing the effectiveness of 

audit firm QC systems with flexibility 

that allows for effective scaling and 

customization for firms of varying sizes, 

structures, and risk profiles, as well as 

minimizing cost and disruption. 

Regarding the question on resolution of 

differences, the Amendments provide 

audit firms with broad flexibility with 

respect to the implementation of the 

EQCF role, including applicable internal 

procedures. As the Amendments do not 

require that the EQCF have any specific 

decision-making responsibility or other 

authority, firms are generally free to 

determine an approach to any such 

differing judgments between the EQCF 

and the firm in the manner that they 

deem most appropriate for their firm. 

To the extent that firms have 

questions about the implementation of 

the EQCF role, the PCAOB stated that it 

anticipates that, consistent with its 

historical practice, its staff will issue 

implementation guidance and will 

engage in other activities to support 

firms’ implementation efforts.189 We 

encourage the PCAOB to provide this 

implementation guidance and other 

support, which could be useful to firms, 

with respect to the Amendments 

generally and in particular for the EQCF 

role. 

Two commenters suggested that the 

EQCF is unnecessary because a firm’s 

annual self-evaluation of its QC system, 

coupled with the PCAOB’s annual 

inspections of that QC system, should 

suffice.190 We are persuaded, however, 

that the EQCF requirement will provide 

meaningful additional safeguards 

beyond those realized from selfevaluations and inspections. The 

EQCF’s evaluation should provide the 

firm with real time, independent 

feedback, enabling the firm to enhance 

its quality control system on an ongoing 

basis whereas any response it receives 

from the PCAOB during its inspections 

process occurs at a later point in time. 

In this way, the EQCF role is consistent 

with the objective of a quality control 

standard that fosters continuous 

improvement—one of the PCAOB’s 

express aims in adopting QC 1000.191

Some commenters stated the 

requirements for the EQCF are unclear 

(e.g., requirements around 

documentation of EQCF’s 

evaluation).192 The PCAOB response 

letter addresses the documentation 

requirements as they relate to the 

EQCF.193 The PCAOB response letter 

states that, under QC 1000, it is the firm 

that bears responsibility for complying 

with documentation requirements 

related to the EQCF role not the 

individual or individuals who comprise 

the EQCF.194 Indeed, the EQCF could 

provide its evaluation orally because 

there is no requirement in QC 1000 that 

the EQCF must document or provide its 

evaluation in writing.195 Further, QC 

1000 does not prescribe to whom the 

EQCF must report, giving firms 

flexibility to develop the form of 

reporting and the line of reporting by 

the EQCF. We note, moreover, that it is 

typical for implementation questions to 

arise around new accounting or auditing 

requirements. To the extent additional 

clarity on specific requirements related 

to EQCF is necessary, we believe 

PCAOB staff implementation or other 

guidance would sufficiently assist firms 

with interpreting the requirement. As 

noted above, the PCAOB stated that it 

anticipates that, consistent with its 

historical practice, its staff will issue 

implementation guidance and will 

engage in other activities to support 

firms’ implementation efforts.196

C. Economic Implications of the 

Amendments 

Commenters expressed concerns that 

the costs arising from QC 1000 and 

certain of its requirements are not 

appropriately described and that a more 

rigorous economic analysis is necessary 

before the Amendments can be 

approved.197 One commenter stated that 

the economic analysis conducted by the 

PCAOB in the Adopting Release was 

deficient because it did not discuss any 

plans for post-implementation review or 

details on how such a review will be 

conducted.198 By contrast, another 

commenter observed that the PCAOB 

issued a staff white paper in November 

2022 identifying research that suggests 

the PCAOB’s proposed QC standard 

could lead to greater compliance with 

professional standards and improve 

financial reporting quality.199 This 

commenter also stated that the ‘‘costs of 

deficient failed audits, can and have 

been significant and even catastrophic 

to investors, employees, and the U.S. 

economy.’’ 200

The PCAOB response letter addresses 

commenter feedback on its economic 

analysis.201 The Board stated that, 

where possible, quantitative data was 

used and that, when this data was not 

available, the Board used qualitative 

factors in its analysis.202 The Board also 

stated that available data and methods 

do not permit them to fully quantify all 

of the benefits and costs of QC 1000 and 

that commenters on this topic did not 

provide studies or data that permitted 

complete quantification of the benefits 

or costs of QC 1000.203 When 

commenters did suggest relevant data or 

research, the Board stated that it 


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204 Id. 205One commenter stated that Exchange Act 

Section 3(f), 15 U.S.C. 78c(f), requires the 

Commission to consider the economic implications 

of the Amendments before approving or 

disapproving them. See letter from Chamber. 

Regardless of whether Section 3(f) applies in 

Commission review of PCAOB rules, because the 

PCAOB addressed the economic implications of the 

Amendments and commenters have raised concerns 

about that analysis, the Commission has likewise 

considered the economic implications of the 

Amendments and addresses those implications 

here. See Bloomberg, L.P. v. SEC, 45 F.4th 462, 476 

(D.C. Cir. 2022) (APA requires the Commission to 

‘‘respond adequately’’ to ‘‘relevant concerns about 

the direct and indirect costs of’’ a proposal raised 

by commenters, regardless of what Section 3(f) 

requires). 

206See Adopting Release, supra note 9, at 341– 

43. 

207 Id. at 358–66; see also letter from BDO (‘‘There 

should be further consideration of the potential 

impacts of this standard on the competitive 

landscape of firms outside the U.S. where 

possible.’’). 

208See PCAOB response letter at 24. 

209See SEC Staff, Current Guidance on Economic 

Analysis in SEC Rulemaking (Mar. 16, 2012), 

available at https://www.sec.gov/divisions/riskfin/ 

rsfi_guidance_econ_analy_secrulemaking.pdf; 

PCAOB Staff, Staff Guidance on Economic Analysis 

in PCAOB Standard-Setting (Feb. 14, 2014), 

available at https://pcaobus.org/oversight/ 

standards/economic-analysis/05152014_guidance. 

210See Adopting Release, supra note 9, at 54. The 

six global networks that contain the largest number 

of registered, non-U.S. firms as reported on Form 

2s filed in 2023 are: BDO International Limited, 

Deloitte Touche Tohmatsu Limited, Ernst & Young 

Global Limited, Grant Thornton International 

Limited, KPMG International Cooperative, and 

PricewaterhouseCoopers International Limited (the 

member firms of these networks are collectively 

referred to herein as ‘‘GNFs’’). The non-affiliated 

firms (‘‘NAFs’’) include registered public 

accounting firms that are not members of global 

network firms. 

211See Adopting Release, supra note 9, at 318– 

23. 

212 Id. at 331. 

213 Id. at 351–60. 

214Based on Commission staff analysis. Data on 

firms registered with the PCAOB come from the 

PCAOB’s website: Registered Firms, PCAOB, 

https://pcaobus.org/oversight/registration/ 

registered-firms. We identify whether an audit firm 

has performed an engagement under PCAOB 

standards for an issuer or registered broker-dealer 

using the ‘‘Audit Report Activity’’ filter. Staff 

identified U.S. and non-U.S. firms by using the 

country variable in the PCAOB data. U.S. firms 

include those in the United States and Puerto Rico. 

To identify firms that participate in the AICPA peer 

review program, staff extracted a list of 

participating firms from the following website: 

Public File Search, AICPA Peer Review Web 

Program, https://peerreview.aicpa.org/public_file_

search.html. Staff manually matched those firms by 

auditor name and, if necessary, city and state to the 

PCAOB data. Staff identified non-U.S. firms that 

were part of the GNF by collecting data listed at 

Global Network Firms, PCAOB, https://

pcaobus.org/oversight/registration/global-networkfirms, and matching it to the PCAOB data by auditor 

name, city, state, and manually reviewing the firm 

summaries to compare Firm IDs. Finally, for nonContinued 

considered it and incorporated that data 

or research into its economic analysis as 

appropriate.204

As part of our assessment of the 

Amendments, we have considered the 

economic analysis conducted by the 

PCAOB in the Adopting Release as well 

as the comments received on this point 

and the additional information provided 

in the PCAOB response letter. Below we 

evaluate the PCAOB’s analysis in order 

to reach our own conclusion about the 

economic implications of the 

Amendments. On many points, we find 

the PCAOB’s analysis reasonable; 

however, where appropriate, we have 

expanded upon that analysis. Moreover, 

we have considered the specific 

concerns raised by commenters about 

the unintended consequences of the 

Amendments and, as discussed in more 

detail below, have concluded that the 

Amendments are unlikely to have a 

significant adverse effect on efficiency 

and competition within the market for 

audit services.205

The PCAOB’s economic analysis 

addresses the benefits and costs 

associated with the Amendments, 

including, but not limited to, the design 

requirement, which applies to all 

registered firms, and the EQCF 

requirement, which applies to a small 

number of firms. The PCAOB’s analysis 

explains the expected benefits to 

investors and other financial statement 

users that will be realized by improving 

compliance with applicable professional 

and legal requirements and thereby 

improving financial reporting quality.206

In addition, the PCAOB’s analysis 

addresses unintended consequences of 

the Amendments, such as potential 

effects on human capital, competition 

concerns, including the concern raised 

by some commenters that the 

requirements could diminish the 

availability of global network resources 

and that smaller firms around the world 

could decline to assist U.S. firms with 

global audits, and the potential negative 

consequences related to increased 

accountability or liability.207 Finally, 

the Board stated in the PCAOB response 

letter that it intends to follow its normal 

practice under which staff in its Office 

of Economic and Risk Analysis will 

conduct an analysis and make a 

recommendation to the Board as to 

whether to conduct a postimplementation review of the 

Amendments.208 We encourage the 

Board to conduct such a postimplementation review. 

Below we examine the individual 

elements of the Board’s economic 

analysis, including its consideration of 

the effects on efficiency, competition, 

and capital formation. 

Consistent with best practice when 

conducting an economic analysis,209 the 

Board includes a baseline assessment of 

existing audit requirements and 

practices against which the potential 

effects of the Amendments can be 

considered. The Board presents analyses 

of quantitative proxies for the level of 

compliance with existing professional 

standards, including information on 

Part I.A deficiencies, QC deficiencies 

related to audit performance, and 

broker-dealer engagement deficiencies, 

from the audits or engagements 

inspected by the PCAOB. Overall, these 

analyses suggest that some firms’ QC 

systems may not be providing the 

required reasonable assurance. The 

Board’s analysis indicates that brokerdealer engagements and issuer audits 

performed by firms other than the U.S. 

global network firms (‘‘GNFs’’) 210

appear to have more room for 

improvement on average based on the 

period examined. The Board also 

presents research that it conducted on 

existing policies and procedures at U.S 

GNFs. This research finds that U.S. 

GNFs are already devoting extensive 

resources to the design, implementation, 

and operation of QC policies and 

procedures related to the ISQM 1 

requirements.211 Further, the Board 

observes that commenters on the 

Proposing Release indicated that nonGNFs have been devoting resources to 

the design, implementation, and 

operation of QC policies and procedures 

related to ISQM 1 and/or SQMS 1 

requirements, though some of these 

firms may have more narrowly focused 

their resources on the design component 

and may not yet be spending resources 

to operate QC policies in line with 

SQMS 1. Lastly, the Board’s baseline 

assessment provides information on the 

evolution of firms’ QC policies and 

procedures and discusses academic 

research on behaviors that suggest 

certain weaknesses in QC systems in 

practice. 

Several commenters on the Proposing 

Release suggested that some firms have 

already designed and implemented, or 

are in the process of designing and 

implementing, QC policies and 

procedures consistent with the 

requirements of Other QC Standards.212

The Board supported that view, but 

many commenters on the Proposing 

Release disagreed with this 

characterization of the baseline and 

stated that QC 1000 will impose 

significant costs.213 The Commission 

staff independently examined the 

number of PCAOB-registered audit firms 

that will be affected by QC 1000, 

including the extent to which they may 

be affected. 

There are 1554 audit firms registered 

with the PCAOB as of August 2024.214


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US firms that were non-GNF, staff determined 

whether they were members of or affiliated with 

some other network, arrangement, alliance, 

partnership, or association using Form 2 (i.e., any 

audit firm that answered ‘‘Yes’’ for either Item 

5.2a.1 or Item 5.2a.2 has an ‘‘audit-related 

membership, affiliation, or similar arrangement’’). 

215For example, each of the following 

transparency reports state that global network 

policies require compliance with ISQM 1. See, e.g., 

EY Global Audit Quality Report (June 2024), 

available at https://www.ey.com/content/dam/eyunified-site/ey-com/en-gl/insights/assurance/ 

documents/ey-global-audit-quality-report-06- 

2024.pdf; BDO Transparency Report (June 2023), 

available at https://www.bdo.global/en-gb/about/ 

global-network/transparency-report-2023; Crowe 

Global Transparency Report (2024), available at 

https://www.crowe.com/global/-/media/crowe/ 

international/files/about-us/crowe_global_

transparency_report.pdf?rev=015641ea64c9491983

ed47106226ddcf&hash=492F11006140712

E365E07C80FF9CD5E. 

216Lastly, 50 of the 1554 firms have not yet filed 

a Form 2; thus, staff could not determine which of 

these firms had an audit report or played a 

substantial role for the audit of at least one issuer 

or registered broker-dealer. Staff were also unable 

to determine how many of these 50 firms will 

already be subject to quality control requirements 

that share a basic structure with the requirements 

in QC 1000. 

217See letter from Chamber. 

218See, e.g., 17 CFR 275.206(4)–2 (custody of 

funds or securities of clients by investment 

advisers); 17 CFR 240.13n–11 (chief compliance 

officer of security-based swap data repository; 

compliance reports and financial reports); 17 CFR 

240.17ad–22 (standards for clearing agencies); 17 

CFR 240.15c3–1g (conditions for ultimate holding 

companies of certain brokers or dealers, Appendix 

G to 17 CFR 240.15c3–1); and 17 CFR 240.18a–1 

(net capital requirements for security-based swap 

dealers for which there is not a prudential 

regulator). 

219See 17 CFR 275.206(4)–2. 

220See Adopting Release, supra note 9, at 335. 

221 Id. at 333. 

222 Id. 

223 Id. at 334. 

Among these, 659 firms performed an 

engagement under PCAOB standards for 

an issuer or registered broker-dealer. 

These firms will have to fully 

implement QC 1000. Out of these 659 

firms, 323 are U.S. firms that issued 

opinions under AICPA standards and, 

should they continue to do so, will have 

to implement SQMS 1; 199 are non-U.S. 

firms that are GNFs and are therefore 

likely to implement ISQM 1; and 

another 60 are non-U.S. firms that have 

an audit-related membership, affiliation, 

or similar arrangement. We believe that 

non-U.S. firms that have an auditrelated membership, affiliation, or 

similar arrangement, especially GNFs, 

are likely to have implemented ISQM 1 

due either to their own issuance of audit 

reports under International Auditing 

Standards, or as a recommendation or 

requirement due to its audit-related 

membership, affiliation, or similar 

arrangement.215 Hence, in total, we 

believe that 582 of the 659 firms (i.e., 

88%), by the effective date of QC 1000, 

will already be subject to quality control 

requirements that share a basic structure 

with the requirements in QC 1000. This 

overlap significantly reduces the cost 

and benefits of the Amendments, to the 

extent that these firms in fact comply 

with the Other QC Standards. 

Recognizing that the Amendments are 

likely to increase compliance with these 

shared quality control requirements 

(i.e., as a result of PCAOB inspections 

and enforcement of QC 1000), firms may 

incur costs relative to the baseline, and 

there may be corresponding benefits to 

investors stemming from audit quality 

improvement. 

Another 845 firms of the 1,554 firms 

registered with the PCAOB have not 

performed an engagement under PCAOB 

standards for an issuer or registered 

broker-dealer within the past year and 

thus would only be subject to the 

design-only requirement.216 Out of these 

845 firms, 259 are U.S. firms that issued 

opinions under AICPA standards and, 

should they continue to do so, will have 

to implement SQMS 1; 98 are non-U.S. 

firms that are GNFs and are therefore 

likely to implement ISQM 1; and 

another 255 are non-U.S. firms that have 

an audit-related membership, affiliation, 

or similar arrangement. As discussed 

above, we believe having an auditrelated membership, affiliation, or 

similar arrangement indicates these 

firms will likely have implemented 

ISQM 1. Hence, in total, we believe that 

612 of the 845 firms that have not 

performed an engagement under PCAOB 

standards for an issuer or registered 

broker-dealer within the past year (i.e., 

72%), by the effective date of QC 1000, 

will already be subject to quality control 

requirements that share a basic structure 

with the design-only requirements in 

QC 1000. This significantly reduces 

both the costs and benefits of the 

Amendments to these firms, as 

discussed above. Taken together, 1,194 

of the 1,554 (i.e., 77%) firms registered 

with the PCAOB are unlikely to incur 

significant incremental costs under QC 

1000. 

One commenter stated that the Board 

did not adequately consider the extent 

to which the Amendments could impact 

entities other than issuers and registered 

broker-dealers in its assessment of the 

Amendments’ economic effects.217 We 

agree that QC 1000 will indirectly affect 

parties other than issuers and registered 

broker-dealers, as the Commission has 

promulgated rules requiring the use of 

PCAOB-registered or PCAOB-registered 

and inspected audit firms by other 

entities, including, but not limited to, 

certain investment advisers, pooled 

investment vehicles, security-based 

swap data repositories, and clearing 

agencies.218 For example, Rule 206(4)– 

2 under the Investment Advisers Act of 

1940 requires that (1) advisers using a 

related person as custodian must obtain 

their surprise examination and internal 

control report from a PCAOB-registered 

and inspected auditor, and (2) advisers 

relying on the audit exception from the 

surprise examination requirement with 

respect to a pooled investment vehicle 

must have the pooled investment 

vehicle audited by a PCAOB-registered 

and inspected auditor.219 Below we 

discuss some of the potential effects of 

the Amendments on these other 

regulated entities. 

One commenter on the Proposing 

Release asserted that audit firms’ 

financial incentives to operate too lean 

undermine audit quality.220 The Board 

agreed and, more generally, identified 

market failures and thus a need for 

regulatory action. As a general matter, 

the Board explained that there are 

information asymmetries between 

auditors and investors and other 

financial statement users regarding the 

services performed by auditors.221 Also 

there are positive externalities in the 

audit market. Specifically, while the 

services of an auditor provide benefits 

to a variety of investors and financial 

statement users, auditors do not bargain 

with all of these parties, but, rather, are 

appointed, compensated, and retained 

by the audit committee.222 The Board 

stated that some beneficiaries of the 

auditor’s work (e.g., the investing public 

generally, who benefit from overall 

confidence in the quality of financial 

information provided to the market) 

may have no influence on the auditor at 

all.223

We agree that the information 

submitted by the PCAOB demonstrates 

that these market failures exist in the 

market for audit services. Information 

asymmetries could create a risk that 

auditors may under-perform and gather 

insufficient audit evidence to support 

their opinion or may otherwise depart 

from applicable requirements 

unbeknownst to market participants 

who rely on financial statements. This 

risk could be exacerbated as auditors 

directly contract with issuers (through 

the audit committee), not investors and 

financial statement users. The principalagent relationship between audit firms 

and issuers could exacerbate the risk 

that auditors may not be incentivized to 

gather sufficient audit evidence to 

support their opinion or otherwise 

depart from applicable requirements, 

potentially harming financial statement 

users or market participants generally. 


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224 Id. at 336–37. 

225 Id. at 338. 

226 Id. at 341–43. 

227See id. at 343. 

228See id. at 343–45. 

229See id. at 344. 

230See id. at 44. 

231See id. at 66. 

232See id. at 58. 

233See, e.g., letters from BDO; Chamber; PIPCA; 

and PWC. 

234See letter from Chamber. 

235See letter from PICPA. See also, e.g., letters 

from BDO and Chamber. 

236See letter from PWC. 

237This count does not account for the 50 firms 

out of 1,554 that have not yet filed a Form 2, as 

Commission staff could not determine which of 

these 50 firms issued an audit report or played a 

substantial role for the audit of at least one issuer 

or registered broker-dealer. See supra note 216. The 

PCAOB made similar findings in 2023. See 

Adopting Release, supra note 9, at 345 (stating that, 

based on Form 2 reporting as of June 30, 2023, 

approximately 60% of registered firms reported that 

they had not issued an audit report for an audit of 

an issuer or broker-dealer or played a substantial 

role in such an engagement during the preceding 12 

months). 

As a result, we agree with the Board that 

the audit market may not provide 

sufficient economic incentives for all 

firms to design, implement, and operate 

QC systems that provide reasonable 

assurance. Additionally, the Board 

explains that current PCAOB QC 

standards do not directly address recent 

QC developments, so that the current 

regulatory baseline is not rigorous 

enough to sufficiently support the 

Board’s ability to address audit 

performance deficiencies through 

PCAOB inspection and enforcement 

activities related to firms’ QC 

systems.224

Having established the regulatory 

baseline and need for regulatory action, 

the PCAOB’s analysis then discusses the 

anticipated economic benefits of the 

Amendments. With respect to benefits, 

the Board states that the QC 1000 

requirements provide substantial 

additional direction to firms regarding 

the design, implementation, and 

operation of their QC systems. The 

Board identifies three overarching 

beneficial features of these 

requirements. The first feature pertains 

to the mandate for a more integrated, 

proactive, and risk-based QC system. 

The second pertains to the 

enhancements to accountability within 

the firm to achieve the reasonable 

assurance objective. The third pertains 

to more precise language and more 

prescriptive requirements in several key 

areas.225

We agree with the Board that the QC 

1000 requirements will benefit investors 

and other financial statement users by 

improving compliance, including 

through PCAOB inspections and 

enforcement, with applicable 

professional and legal requirements via 

a more risk-based, accountable, and 

detailed QC standard.226 Such a QC 

standard will help improve audit 

quality resulting in more accurate and 

more reliable financial statements 

regarding the financial position and 

operating results of companies.227

Investors may, in turn, use this 

information to improve the efficiency of 

their capital allocation decisions (e.g., 

investors may more accurately identify 

companies with the strongest prospects 

for generating future risk-adjusted 

returns and allocate their capital 

accordingly), thereby also improving 

market efficiency.228 Investors may also 

perceive reduced risk in capital markets 

generally, promoting capital 

formation.229 The magnitude of these 

effects will depend on the degree to 

which auditors improve their QC 

systems and the degree to which the 

incremental improvements lead to 

higher audit quality. 

The PCAOB’s analysis also discusses 

the anticipated economic costs of the 

Amendments. The Board stated that it 

expects the QC 1000 requirements will 

result in direct and indirect costs to 

auditors and, potentially, indirect costs 

to the companies that they audit. The 

Board also noted that the extent of these 

costs will depend on the degree to 

which firms otherwise have QC systems 

in place designed to comply with Other 

QC Standards and the specific policies 

and procedures adopted by the firm. We 

agree that audit firms will incur 

compliance costs, both one-time 

implementation costs and ongoing 

operating costs (at the firm level and at 

the engagement level), associated with 

the QC 1000 requirements. To the extent 

that audit firms pass on these cost 

increases to their clients, these clients 

would incur indirect costs such as in 

the form of higher audit fees. 

As the Adopting Release 

acknowledges, the Board received a 

number of comments stating there will 

be costs and challenges to implement 

and operate features of QC 1000 that are 

incremental to the systems firms have 

established to comply with Other QC 

Standards.230 Several commenters also 

asserted that firms that audit between 

100 and 500 issuers will be significantly 

impacted by costs associated with some 

or all of QC 1000’s incremental 

requirements for firms that issue audit 

reports for more than 100 issuers, and 

some of the commenters noted resource 

differences between GNFs and annuallyinspected NAFs.231 Other commenters 

stated that smaller firms may be 

especially affected by the new QC 

requirements, including requirements 

incremental or alternative to ISQM 1 

and SQMS 1 standards.232

Similarly, the Commission received a 

number of comments about the potential 

costs of the Amendments.233 One 

commenter stated that the requirements 

mean that PCAOB-registered, but not 

inspected, audit firms must comply 

with the design-only requirement, 

although these firms do not render audit 

reports on issuer or broker-dealer 

engagements or play a substantial role 

in such engagements.234 The same 

commenter stated that firms that are 

registered, but not inspected, are smaller 

audit firms that serve market segments 

for entities that become smaller issuers 

and broker-dealers, including emerging 

growth companies. Another commenter 

similarly stated the adopting release’s 

design-only requirement for firms that 

do not issue audit reports for issuers 

imposes undue burdens on competition 

that will hurt smaller issuers (including 

emerging growth companies), investors, 

and the competitiveness of the audit 

marketplace.235 One commenter 

expressed concerns over the significant 

costs of designing a system of QC in 

accordance with QC 1000 on a 

hypothetical basis, also stating that even 

for firms that are performing a small 

number of engagements under PCAOB 

standards, the requirement to comply 

with two standards (i.e., either ISQM 1 

or SQMS 1 and QC 1000) with two 

different sets of deficiency definitions 

and conclusion frameworks could 

present similar cost constraints.236 The 

same commenter requested that the 

effective date of QC 1000 

implementation for these firms be 

deferred until such time as they 

determine they intend to perform 

engagements in accordance with 

PCAOB standards and consider whether 

explicit guidance could be developed 

that would explain that a registered 

accounting firm is essentially prohibited 

from undertaking PCAOB engagements 

until a system of QC that complies with 

QC 1000 is in place. 

We agree with the Board’s assessment 

that there are costs to designing and 

implementing a QC system. As 

discussed above, as of August 2024, 845 

firms of the 1,554 firms (i.e., 54%) 

registered with the PCAOB have not 

performed an engagement under PCAOB 

standards for an issuer or registered 

broker-dealer within the past year and 

would therefore not bear the costs to 

implement and operate the QC 

system.237 QC systems are resourceVerDate Sep<11>2014 20:43 Sep 11, 2024 Jkt 262001 PO 00000 Frm 00142 Fmt 4703 Sfmt 4703 E:\FR\FM\12SEN1.SGM 12SEN1

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238See supra note 218. 

239See Adopting Release, supra note 9, at 354; see 

also PCAOB response letter at 23. 

240As discussed in Section III above, Commission 

staff compared QC 1000 with the requirements of 

ISQM 1 and SQMS 1 and similarly concluded that 

there is significant overlap. 

241See, e.g., letters from BDO; Chamber; PICPA; 

and PWC. 

242See letter from BDO. 

243See letter from PWC; see also, e.g., letters from 

BDO and PICPA. 

244See Adopting Release, supra note 9, at 356– 

57. 

245See PCAOB response letter at 19–20. 

246See supra note 30. 

intensive, and audit firms could incur 

significant costs to respond to certain 

provisions in QC 1000 or to otherwise 

adapt the QC system to the auditing 

environment for issuers and registered 

broker-dealers. Furthermore, as noted 

above, these costs would extend to 

PCAOB-registered firms providing 

audits to entities other than issuers and 

broker-dealers pursuant to SEC rules 

(including, but not limited to, certain 

investment advisers, pooled investment 

vehicles, security-based swap data 

repositories, and clearing agencies), 

which may have an indirect impact on 

such other entities.238

The Board also acknowledges that the 

Amendments could disproportionately 

affect smaller firms and cause some 

firms to exit the public company audit 

market or deter other firms from future 

entry. Entry deterrence could be 

exacerbated by the fact that being 

registered with the PCAOB will subject 

firms to certain QC requirements even if 

they do not perform engagements. 

Nevertheless, the Board states that it 

does not expect the effects on smaller 

firms to be significant.239 The Board 

expressed the view that QC 1000 shares 

a basic structure and approach with 

ISQM 1 and SQMS 1,240 so designing for 

the incremental features unique to QC 

1000 should not be unduly burdensome 

for firms that are subject to either or 

both of those Other QC standards. 

We agree that implementation costs 

could be disproportionately greater for 

smaller audit firms than for larger audit 

firms. The cost of implementing QC 

1000 depends in significant part on the 

degree to which auditors’ existing QC 

systems already comply with QC 1000 

requirements. PCAOB-registered, but 

not inspected, audit firms that decide to 

comply with the design portions of QC 

1000 will incur the design costs. This 

could, as discussed above in Section 

III.A, place these firms in a better 

position to compete for work 

participating in audits of issuers or 

registered broker-dealers at a level 

below that of a ‘‘substantial role.’’ This 

could also position these firms to 

expand their business into audits of 

SEC-registered issuers and brokerdealers, but these firms would incur 

additional implementation and 

operation costs to do so. Alternatively, 

these firms could choose to avoid the 

design costs by withdrawing from 

PCAOB registration given that they are 

not required to be registered with the 

PCAOB; however, we note that this 

withdrawal would not impact these 

firms’ eligibility to compete for work 

participating in audits of issuers or 

registered broker-dealers at a level 

below that of a ‘‘substantial role.’’ The 

impact of QC 1000 implementation and 

operation costs on an audit firm will 

also depend on the audit firm’s ability 

to absorb those costs or pass them onto 

their clients (i.e., higher audit fees). 

Smaller audit firms may be 

disproportionally vulnerable to 

implementation costs, because smaller 

firms will distribute their fixed 

implementation costs over a smaller 

number of engagements, thus resulting 

in a higher average implementation cost 

per engagement. By contrast, larger 

PCAOB audit firms, especially those 

that already have extensive QC systems 

in place, may benefit from economies of 

scale or scope when incorporating the 

new requirements into their existing 

systems, which would in turn reduce 

their cost of implementing and 

operating QC 1000 per engagement. 

Conversely, larger audit firms are likely 

to have more complex clients and more 

diverse client portfolios, which could 

require higher implementation costs for 

an effective QC system. 

The Commission also received several 

comments expressing concern that the 

EQCF requirement, in particular, would 

be costly or difficult to fulfill, especially 

for firms that audit between 100 and 500 

issuers.241 One commenter stated that 

the proposed EQCF role is ‘‘vastly 

different’’ from the role that the PCAOB 

proposed in 2022 and asserted that the 

economic analysis in the Adopting 

Release ‘‘does not provide substantive 

analysis to justify the costs, benefits and 

unintended consequences.’’ 242 Another 

commenter stated the EQCF 

requirement would involve ‘‘significant 

additional internal and external costs 

arising from (1) entering into a new 

arrangements [sic] with the same or 

other individuals who are determined to 

have sufficient competence for the 

specific role and who satisfy the rule as 

adopted, (2) sufficiently compensating 

individuals fulfilling the EQCF role for 

their time and potential liability, and (3) 

the additional resources needed for the 

firm to enable the EQCF to perform the 

required duties.’’ 243 This commenter 

added that these costs would be passed 

on to issuers (and ultimately investors). 

The PCAOB’s economic analysis 

considered the economic implications 

of the EQCF requirement. The Board 

states that all U.S. GNFs indicate, as of 

the 2020 inspection cycle, they already 

have a governance structure that 

includes a non-employee, suggesting 

that, in contrast to commenters’ 

assertions, the costs (as well as the 

benefits) of this requirement could be 

attenuated.244 In addition, in response 

to comments critiquing the Board’s 

analysis of the EQCF requirement, the 

Board provided in the PCAOB response 

letter additional data from the U.K., as 

the independent non-executive (‘‘INE’’) 

role for audit firms in the U.K. is 

partially analogous to the EQCF. The 

Board reports that, according to 

transparency reports from six large U.K. 

audit firms, total per firm compensation 

for individual INEs ranged from roughly 

$80,000 to $400,000 in 2023.245

The Board has scaled the EQCF 

requirement to apply to only 13 of the 

PCAOB-registered firms, namely those 

that issued audit reports for more than 

100 issuers as of 2023.246 Scaling the 

EQCF requirement in this way, while 

reducing the benefits, significantly 

mitigates concerns regarding 

competition in the audit market. 

Further, the incremental demand for 

qualified individuals would be 

relatively small compared to the 

available supply, further limiting 

potential costs to compensate 

individuals performing the EQCF role. 

In addition, as discussed in Section 

III.B above, the Amendments provide 

firms with significant flexibility to 

implement the EQCF requirement in a 

manner that suits their particular needs 

and circumstances. For example, the 

Amendments do not prescribe specific 

qualifications for the EQCF. Aside from 

the responsibility of evaluating the 

significant judgments made and the 

related conclusions reached by the firm 

on the effectiveness of its QC system, 

firms can determine the appropriate 

scope, responsibilities, and 

qualifications for the EQCF based on 

their existing governance structures and 

the complexity of their QC systems. 

This flexibility will allow firms to 

integrate the EQCF into their current 

practices without the need for 

significant restructuring or additional 

resources, thereby minimizing the 

financial and operational burden of 

compliance. In addition, the flexibility 

of the QC 1000 standard will allow 

firms to focus on addressing their 


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247See, e.g., letter from Moss Adams. 

248See Adopting Release, supra note 9, at 361– 

62. 

249 Id. at 258. 

250 Id. 

251See letter from BDO. 

252 Id. 

253See 15 U.S.C. 7212(e); PCAOB Rule 2300(b). 

We understand that firms are accustomed to 

requesting and receiving confidential treatment 

from the Board. 

254See PCAOB Rule 2203A(c) as adopted. 

255See Adopting Release, supra note 9, at 263– 

64. 

256 Id. at 245. 

257 Id. at 246. 

unique risks and challenges, reducing 

the potential for duplicative efforts or 

unnecessary expenditures. 

Relatedly, some commenters noted 

that, because certain provisions of the 

Amendments, such as the EQCF 

requirement, have a 100-issuer 

threshold, this threshold could deter 

triennially inspected firms from 

accepting new public company audit 

engagements or cause firms to feel 

compelled to consider reducing their 

issuer count to avoid crossing the 100- 

issuer threshold.247 We acknowledge 

this possibility, but for the reasons 

discussed below, we believe its 

economic effect is likely modest, as 

there is a limited number of firms near 

the 100-issuer threshold. PCAOB staff 

analysis of audit reports included in 

SEC filings identified that, during the 

2022 calendar year, only two NAFs 

audited between 80 and 100 issuers and 

only two NAFs audited between 100 

and 120 issuers. In addition, as 

discussed above, the Amendments 

provide firms with significant flexibility 

to implement the EQCF requirement, 

which should help to mitigate costs 

associated with this requirement and 

thus any potential incentives for firms 

near the 100-issuer threshold to alter 

their audit engagement practices. 

Several commenters on the Proposing 

Release expressed the concern that 

competition in the audit market will be 

adversely impacted by the 

requirements.248 One commenter stated 

that the incremental requirements of QC 

1000 relative to Other QC Standards 

could lead smaller high-quality firms to 

exit the market. One commenter said 

that the certification requirement would 

be an especially significant driver of 

exit, particularly for smaller firms. Some 

commenters suggested that the designonly requirement could lead those firms 

to deregister with the PCAOB or create 

a barrier to entry. One commenter added 

that the design-only requirement could 

impact audit markets beyond the United 

States by creating a disincentive for 

foreign firms to serve specific audit 

markets. One commenter also noted that 

QC 1000 requirements may serve as an 

impediment to audit firm mergers and 

acquisitions and otherwise perturb 

market activity. 

We agree that the compliance costs 

associated with the QC 1000 

requirements could lead some firms to 

exit the public company audit market, 

thereby lessening competition in that 

market. However, as discussed above, 

many firms already are, or will be, 

subject to comparable standards and are 

unlikely to incur costs so substantial 

that they exit the public company audit 

market. Moreover, as also described 

above, the Amendments are targeted so 

that the largest firms, which would be 

less likely to exit the market, are the 

ones likely to incur the most significant 

costs. These factors considerably lessen 

the potential adverse impact on 

competition in the audit market. 

D. Form QC Confidentiality 

QC 1000 provides that a firm must 

report annually to the PCAOB on 

nonpublic Form QC, in accordance with 

the instructions to that form, the results 

of the evaluation of its QC system.249

The PCAOB explained in the Adopting 

Release that, although it recognized the 

desire of investors and other 

stakeholders for information related to 

audit quality and the effectiveness of QC 

systems, the Board’s ability to require 

firms to publicly disclose their QC 

deficiencies is subject to certain legal 

constraints imposed by SOX as 

discussed in greater detail below.250

One commenter stated that they are 

concerned that the confidentiality 

protections of Section 105(b)(5)(A) of 

SOX related to information provided to 

the PCAOB through inspection does not 

appear to apply to information reported 

through Form QC and stated that the 

PCAOB’s response to this issue in the 

Adopting Release appears to 

acknowledge that it cannot guarantee 

the confidentiality it promised under 

the proposed rule.251 This commenter 

also suggested that any information 

required by QC 1000 should be 

submitted by firms to the PCAOB only 

through the inspections process to 

ensure that it would receive confidential 

treatment under SOX Section 

105(b)(5)(A).252

We believe these concerns are largely 

misplaced. Certain information 

contained within a Form QC may be 

subject to the protections of SOX 

Section 105(b)(5)(A), which addresses 

documents and information prepared or 

received by or specifically for the Board 

in connection with an inspection or 

investigation. Furthermore, in certain 

circumstances, remedial actions 

reported in Form QC may be subject to 

laws relating to the confidentiality of 

proprietary, personal, or other 

information, and in such a scenario, the 

Board, in accordance with SOX Section 

102(e) would need to honor a firm’s 

properly substantiated request for 

confidential treatment of such 

information.253 The PCAOB also 

adopted Rule 2203A(c), which provides 

that Form QC will be non-public, in 

light of the confidentiality provision 

that applies to quality control criticisms 

and potential defects identified during a 

PCAOB inspection in SOX Section 

104(g)(2).254 To the extent that certain 

information contained within a Form 

QC meets the requirements of the 

statutory confidentiality protections 

described above, such protections 

would apply to that information to the 

same extent as any other information 

submitted to the PCAOB. We find such 

an approach to be appropriate in that it 

aligns the extent of the confidentiality of 

information in Form QC with the 

broader statutory framework created by 

Congress in SOX. 

In response to this commenter’s 

suggestion that any information 

required by QC 1000 should be 

submitted by firms to the PCAOB only 

through the inspections process, we 

believe that the information provided by 

Form QC, which in some cases would 

be provided more frequently than firms 

are inspected, would provide important 

information that could inform 

improvements in the PCAOB’s standardsetting, economic and risk analysis, and 

registration program—separate and 

apart from the benefits of the PCAOB’s 

inspection program which is focused on 

audit engagements.255 These 

improvements, in our view, would have 

concomitant benefits to audit quality 

and investors. 

E. Evaluation Date 

The Amendments require firms to 

evaluate their QC system annually as of 

September 30 and conclude whether 

any unremediated QC deficiencies exist 

as of that date.256 The PCAOB stated it 

believed an evaluation date of 

September 30 would provide firms with 

enough time to identify and potentially 

remediate any QC deficiencies 

identified from the most recent calendar 

year-end engagements, which might not 

be possible if an earlier date were 

selected.257 In addition, the PCAOB 

adjusted the specified evaluation date 

from the initially proposed date of 

November 30th to September 30th to 

address commenter concerns that the 

November 30th date would have caused 


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258 Id. 

259See, e.g., letters from BDO; Forvis Mazars; GT; 

Moss Adams; PICPA; and RSM. 

260See letter from BDO. 

261See Adopting Release, supra note 9, at 378. 

262 Id. 

263See, e.g., letters from Forvis Mazars; Johnson 

Global; Moss Adams; and PICPA. 

264See letter from Moss Adams. 

265See letter from Chamber. 

266See PCAOB response letter at 21–22. 

267 Id. at 27–28. 

268See PCAOB response letter at 27–28. 

269See Adopting Release, supra note 9, at 378. 

270For example, implementation efforts are 

expected to be largely completed for recently 

adopted PCAOB standards relating to the 

Supervision of Audits Involving Other Auditors and 

Dividing Responsibility for the Audit with Another 

Accounting Firm (effective for audits of financial 

statements for fiscal years ending on or after 

December 15, 2024), available at https://

www.sec.gov/files/rules/pcaob/2022/34-95488.pdf 

and Auditor’s Use of Confirmation (effective for 

audits of financial statements for fiscal years ending 

on or after June 15, 2025), available at https://

www.sec.gov/files/rules/pcaob/2023/34-99060.pdf, 

as the fiscal years for which the standards apply 

have already begun. Certain other recently adopted 

rules and standards, for example Auditing Standard 

1000, General Responsibilities of the Auditor in 

Conducting an Audit, available at https://

www.sec.gov/files/rules/pcaob/2024/34-100773.pdf 

and Amendment to PCAOB Rule 3502 Governing 

Contributory Liability, available at https://

www.sec.gov/files/rules/pcaob/2024/34-100772.pdf, 

are not expected to require significant 

implementation efforts due to minimal changes to 

performance requirements. 

potential resource limitations during the 

traditional busy period for many 

firms.258

Commenters raised concerns with the 

specified quality control evaluation date 

of September 30th, citing concerns 

including that a fixed evaluation date 

may misalign the assessment of quality 

with employee or partner compensation 

to the extent firms have established 

compensation cycles that do not align 

with the September 30th date, as well as 

concerns regarding the timing of the 

inspection cycle potentially limiting the 

firms’ ability to fully assess the impact 

of inspections in their QC evaluation.259

One commenter additionally raised a 

concern that a firm that already chose 

its evaluation date under ISQM 1 would 

be required to either change its ISQM 1 

evaluation date or perform two QC 

system evaluations per year.260

We agree with the PCAOB’s 

conclusion that an evaluation date of 

September 30th would provide the audit 

firm with sufficient time to identify and 

potentially remediate QC deficiencies 

identified from the most recent calendar 

year-end engagements before the 

evaluation date. Given the ongoing 

nature of audits, which are driven by 

issuers’ fiscal year-ends, firms’ 

inspections cycles, and remediation 

activities, any fixed evaluation date will 

necessarily result in certain activities 

being split between QC evaluation 

years. The PCAOB’s selected evaluation 

date of September 30 addressed the 

comments the PCAOB received on the 

proposal, as noted above, and we 

believe should provide time for a 

majority of inspections to be completed 

and considered in the same QC 

evaluation year. Moreover, including a 

specified evaluation date across firms 

provides for consistency and 

comparability of the firms’ quality 

control reporting, which enhances the 

PCAOB’s ability to assess and respond 

to firms’ QC evaluations and thereby 

increases investor protection. We do not 

believe that firms that have already 

selected an evaluation date under Other 

QC standards would be required to 

perform two evaluations. First, QC 1000 

allows firms to build on work already 

done, to the extent applicable, for the 

purpose of complying with the 

requirements of Other QC Standards. 

Second, firms are permitted to change 

their evaluation date under Other QC 

Standards so that the evaluation dates 

coincide. 

F. Effective Date 

As stated in the PCAOB’s Adopting 

Release, QC 1000 and related 

amendments to auditing standards, 

rules, and forms will take effect on 

December 15, 2025.261 The PCAOB 

stated that it believes an effective date 

of December 15, 2025 strikes an 

appropriate balance between the 

benefits to investors of having QC 1000 

take effect as promptly as practicable, 

and allowing sufficient time for firms to 

design and implement robust, QC 1000- 

compliant QC systems.262

General 

Commenters expressed concerns that 

the effective date would not provide 

firms with sufficient time to implement 

the new standard,263 with one 

commenter suggesting the Commission 

require the PCAOB to extend the 

implementation deadline.264 Another 

commenter stated that the PCAOB 

should have reopened the comment 

period for the Amendments to allow for 

additional comments on a reasonable 

effective date in light of the PCAOB’s 

other recently proposed or adopted 

standards and rules.265

The PCAOB response letter reaffirms 

the Board’s view stated above that the 

effective date of December 31, 2025 

strikes a reasonable balance between 

providing firms with sufficient time and 

promptly delivering the benefits to 

investors.266 The PCAOB acknowledged 

that, subject to adoption by the PCAOB 

and approval by the Commission, 

several PCAOB standards and rules 

could come into effect over the next few 

years, and that the relevant audit labor 

market may be relatively inelastic in the 

short run. However, the PCAOB 

explained that implementing multiple 

PCAOB standards and rules in quick 

succession could potentially reduce the 

incremental costs attributable to each 

change in requirements, if, for example, 

firms were able to more efficiently 

implement certain systems or training 

on an integrated basis, addressing 

multiple new requirements 

simultaneously.267 We understand that 

the PCAOB took into consideration its 

full standard-setting and rulemaking 

agenda when selecting the effective 

date.268

In our view, December 15, 2025, is a 

reasonable effective date for the 

Amendments. Commenters on the 

Proposing Release, which specified an 

effective date of December 31, 2024, 

suggested a variety of alternatives, 

including several that suggested 

December 31, 2025 or 12 to 18 months 

after SEC approval. The PCAOB took 

this feedback into consideration when it 

revised the effective date to December 

15, 2025. Significantly, this date aligns 

with the implementation date of the 

AICPA’s SQMS 1 QC standard, which 

will be required for all U.S. audit firms 

that issue reports under AICPA 

standards, and which shares a basic 

structure with QC 1000. As a 

consequence, aligning the effective date 

of QC 1000 with SQMS 1 may reduce 

implementation costs for U.S. firms that 

are required to implement both. With 

respect to the commenter’s concerns 

about the effective date as it relates to 

the EQCF requirement, we note that the 

PCAOB considered the implementation 

requirements of the EQCF in 

determining the appropriate effective 

date for QC 1000.269 Finally, with 

respect to the commenter’s concerns 

about sufficient time being provided for 

the general implementation of other 

recently proposed and effective PCAOB 

standards, we acknowledge there are 

instances where more than one standard 

becomes effective within a six-month 

period; however, we think the effective 

dates are sufficiently staggered such that 

audit firms will have either already 

implemented, or largely implemented, 

some of the standards referenced by the 

commenter or will have sufficient time 

to do so before compliance with the 

Amendments is required.270


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271See letter from Moss Adams. 

272See letter from Chamber. 

273See, e.g., letters from CAQ and PWC. 

274See, e.g., letters from CII; Consumer 

Federation of America; L. Turner (stating that the 

SEC should instruct the PCAOB to conduct a postimplementation review); and Members of the IAG. 

275See letters from GT and RSM. 

276See PCAOB response letter at 28. 

277The Proposing Release was issued on 

November 18, 2022, and it requested comments by 

February 1, 2023. See supra note 11. The comment 

file includes comments that were submitted 

through March 6, 2023, and the PCAOB stated in 

the Adopting Release that it considered all fortytwo (42) comments it received. See Adopting 

Release, supra note 9, at 35. 278See letter from BDO. 279See letter from PICPA (recommending that the 

standard instead include more specified quality 

objectives, which would reduce barriers to entry by 

promoting scalability). 

280See letter from Forvis Mazars. 

281See letters from Johnson Global and PICPA. 

282See letter from Johnson Global. 

283See, e.g., Adopting Release, supra note 9, at 

83, 42, 63–64, 246, 295, 60, and A1–43. 

284See PWC, 2023 Audit Quality Report at 49, 

available at https://www.pwc.com/us/en/services/ 

trust-solutions/library/pdfs/pwc-2023-audit-qualityreport.pdf. 

285See CAQ Supplemental Letter. 

286See letter from PICPA. 

287See letter from Johnson Global. 

288See letter from PICPA (stating that it disagrees 

that all engagement deficiencies are QC deficiencies 

and that a root cause analysis is required for a firm 

to assess whether a simple mistake is in fact a 

quality control deficiency). 

289See letter from Forvis Mazars. 

290 Id. 

EQCF Considerations 

One commenter raised concerns with 

the effective date specific to the EQCF 

requirement, stating that the 

approximately 18-month time period 

would not provide sufficient time to 

identify, vet, contract and onboard an 

EQCF.271

The external oversight requirement 

was included in the standard that the 

PCAOB proposed for comment. While 

the PCAOB made some changes to the 

proposed requirement in response to 

commenters, such as providing 

additional specificity and clarity about 

the role, the changes made did not 

impact many of the fundamental 

requirements for the role such as the 

requirement for the individual or 

individuals filling the role to be able to 

exercise independent judgment with 

regard to matters related to the QC 

system, the requirement for one or more 

individuals to fill the role, and the 

significant flexibility provided to audit 

firms to design procedures that work 

best for their individual firm governance 

structure and requirements. We believe 

such changes should not have a 

significant impact on the timeline for 

firms to complete the hiring process for 

an EQCF, such that an extended 

effective date would be necessary (nor 

does the commenter explain why this 

would be so). We thus conclude the 

effective date as adopted is appropriate. 

G. Other Comments 

One commenter stated that the 

PCAOB’s comment period for the 

Amendments was inadequate, or should 

have been reopened, in light of other 

Board proposals.272 A few commenters 

stated that if the Amendments are 

approved, PCAOB engagement with 

firms during the implementation period 

is necessary.273 Several commenters 

encouraged the PCAOB to undertake a 

post-implementation review of the 

Amendments 274 or provide 

implementation guidance.275

We acknowledge the importance of 

monitoring the implementation of the 

Amendments, prior and subsequent to 

their effective date. The PCAOB 

response letter states that the Board 

anticipates its staff will issue 

implementation guidance and will 

engage in other activities to support 

firms’ implementation efforts.276

Further, the Commission staff works 

closely with the PCAOB as part of our 

general oversight mandate. As part of 

that oversight, Commission staff will 

keep apprised of the PCAOB’s activities 

for monitoring the implementation of 

the Amendments, prior and subsequent 

to the effective date, and update the 

Commission, as necessary and 

appropriate. Finally, as discussed above 

regarding notice and comment 

considerations around the EQCF 

requirement, we believe 75 days was an 

appropriate period for commenters to 

provide feedback on the Proposing 

Release and note that, consistent with 

typical practice, the Board did not limit 

its consideration of comments to those 

received during its designated comment 

period but effectively provided for a 

longer comment period by considering 

all comments it received prior to the 

date of adoption.277

Some commenters reiterated 

comments made on the Concept Release 

and Proposing Release, including: 

concerns regarding the requirement that 

only one person be assigned operational 

responsibility for the firm’s compliance 

with ethics and independence 

requirements; 278 a belief that the 

Amendments are too prescriptive, 

especially in regards to the specified 

quality responses; 279 disagreement that 

all engagement deficiencies require 

remediation; 280 concerns that the 

Amendments differ from Other QC 

Standards and will require firms to have 

multiple QC systems; 281 and a request 

that smaller firms (e.g., triennially 

inspected firms that issue 100 or fewer 

issuer audit reports) be provided with 

the option to comply with ISQM 1 or 

SQMS 1 as an acceptable alternative to 

QC 1000.282

We acknowledge commenters 

concerns with these specific aspects of 

the Amendments and note that the 

PCAOB considered and addressed all of 

these matters in the Adopting 

Release.283 On balance, we find that the 

Amendments strike an appropriate 

balance between specified mandates to 

enhance the effectiveness of its QC 

systems and to ensure they are designed 

and operated with an appropriate level 

of rigor, and providing appropriate 

flexibility to tailor such systems to the 

specific risks associated with the firm’s 

practice or organizational structure. 

Further, we do not believe that the 

Amendments will require firms to 

maintain multiple systems of quality 

control. We find that QC 1000 shares the 

same basic structure as and is consistent 

with Other QC Standards and firms are 

able to build upon the work performed 

for Other QC Standards to implement 

incremental requirements from QC 

1000. Neither we nor any commenters 

identified anything in QC 1000 that is 

incompatible with ISQM 1 or SQMS1. 

At least one registered public 

accounting firm has recently noted that 

the evolution of its system of quality 

management and its implementation of 

ISQM 1 has positioned the firm well to 

adapt to future regulatory 

developments, such as the quality 

control standard proposed by the 

PCAOB in November 2022.284

One commenter stated that the 

PCAOB response letter ‘‘addresses and 

provides additional clarity’’ on several 

of the questions it raised in the 

comment letter it submitted to the 

Commission, and the commenter asked 

the Commission to clarify whether the 

PCAOB response letter ‘‘can be viewed 

as equally authoritative as the Final 

Standard and Adopting Release.’’ 285 We 

view the statements in the PCAOB 

response letter as being on par with 

statements made by the Board in the 

Adopting Release about the scope and 

application of the QC 1000 

requirements. 

Additionally, there were requests for 

clarification regarding the definitions of 

‘‘applicable professional and legal 

requirements,’’ 286 ‘‘other 

participants,’’ 287 ‘‘QC deficiency,’’ 288

and ‘‘firm personnel’’ 289 and how 

various requirements of the 

Amendments apply to non-employee 

professionals and organizations.290

These definitions and the question 

about non-employee professionals and 

organizations were addressed in the 


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291See, e.g., Adopting Release, supra note 9, at 

A1–43, A1–42, A1–43, A1–42, and 47–48. 

292See PCAOB response letter at 28. 

293See Notice of Filing of Proposed Rules, supra 

note 3. 

294 15 U.S.C. 7213(a)(3)(C). 

295 Id. 

296See Adopting Release, supra note 9, at 374– 

77. 

297See, e.g., letter received by the PCAOB on the 

Proposing Release from Ernst and Young, LLP (Feb. 

1, 2023) (stating ‘‘[w]e believe the proposal should 

apply to the audits of both emerging growth 

companies (EGCs) and non-EGC issuers.’’), available 

at https://assets.pcaobus.org/pcaob-dev/docs/ 

default-source/rulemaking/docket046/30_

ey.pdf?sfvrsn=34762808_4. 

298See Adopting Release, supra note 9, at 376. 

299 Id. 

300 Id. 

301 Id. at 376–77. Also, PCAOB staff gathered 

information on Part I.A deficiencies for the audits 

of EGCs between 2013 and 2022, analyzing the 

percentage of inspected EGC and non-EGC issuer 

audits having at least one Part I.A deficiency. These 

data suggest that Part I.A deficiencies are even more 

common among audits of EGCs, raising questions 

about whether QC systems of firms that audit EGCs 

are effective in preventing audit deficiencies for 

these types of audit engagements. Id. at 375. 

302 Id. at 377. 

Adopting Release,291 and to the extent 

additional clarity is needed, we note 

that the Board stated in the PCAOB 

response letter that it anticipates that its 

staff will issue implementation 

guidance and will engage in other 

activities to support firms’ 

implementation efforts.292

IV. Effect on Emerging Growth 

Companies 

In the Notice of Filing of Proposed 

Rules, the Board recommended that the 

Commission determine that the 

Amendments apply to audits of 

EGCs.293 Section 103(a)(3)(C) of SOX 

requires that any rules of the Board 

requiring mandatory audit firm rotation 

or a supplement to the auditor’s report 

in which the auditor would be required 

to provide additional information about 

the audit and the financial statements of 

the issuer (auditor discussion and 

analysis) shall not apply to an audit of 

an EGC.294 The provisions of the 

Amendments do not fall into these 

categories. 

Section 103(a)(3)(C) further provides 

that ‘‘[a]ny additional rules’’ adopted by 

the PCAOB after April 5, 2012 do not 

apply to audits of EGCs ‘‘unless the 

Commission determines that the 

application of such additional 

requirements is necessary or appropriate 

in the public interest, after considering 

the protection of investors and whether 

the action will promote efficiency, 

competition, and capital formation.’’ 295

The Amendments fall within this 

category. Having considered those 

statutory factors, we find that applying 

the Amendments to the audits of EGCs 

is necessary or appropriate in the public 

interest. 

With respect to the Commission’s 

determination of whether the 

Amendments will apply to audits of 

EGCs, the PCAOB provided data and 

analysis of EGCs identified by the 

Board’s staff from public sources that 

sets forth its views as to why the 

Amendments should apply to audits of 

EGCs.296

The Board states that the discussion 

of economic impacts of the QC 1000 

requirements is generally applicable to 

the audits of EGCs. The benefits to 

financial reporting quality, including 

improved efficiency of capital 

allocation, lower cost of capital, and 

enhanced capital formation, are also 

pertinent to EGCs. The Board states that 

EGCs tend to be smaller and have a 

shorter SEC financial reporting history 

than the broader population of issuers. 

The Board cites to academic research 

that suggests that, for several reasons, 

smaller issuers tend to exhibit greater 

information asymmetry between 

management and investors. Also, 

PCAOB staff gathered information on 

Part I.A deficiencies for the audits of 

EGCs between 2013 and 2022, and these 

data suggest that Part I.A deficiencies 

are more common among audits of 

EGCs, raising questions about whether 

QC systems of firms that audit EGCs are 

effective in preventing audit 

deficiencies for these types of audit 

engagements. We agree that the benefits 

of the QC 1000 requirements are also 

relevant to EGCs. 

The Board acknowledges that to the 

extent the compliance costs associated 

with the QC 1000 requirements lead 

some smaller audit firms, such as some 

NAFs, to exit the public company audit 

market, then EGCs could be adversely 

impacted. PCAOB staff analysis 

indicates that, compared to exchangelisted non-EGCs, exchange-listed EGCs 

are approximately 2.6 times as likely to 

be audited by an NAF. 

The Board presents evidence that a 

large number of audit firms, including 

smaller audit firms, serve EGCs. PCAOB 

staff analysis indicates that, as of 

November 15, 2022, there were 3,031 

companies that self-identified as EGCs 

and filed audited financial statements 

with the Commission between May 16, 

2021, and November 15, 2022. Of the 

263 registered firms that audited EGCs, 

227 firms (or 86%) performed audits for 

both EGC and non-EGC issuers. 

Approximately 98% of EGCs were 

audited by these 227 firms. These data 

suggest that the impact on EGCs of any 

exit by some smaller audit firms, as a 

result of the requirements, would likely 

be limited. For this reason, we expect 

that any potential adverse impact on 

EGCs and their ability to be competitive 

in their product markets will be modest. 

In addition, the Board sought public 

input on the application of the 

Amendments to the audits of EGCs. 

Those commenters that responded to 

the Board agreed the Amendments 

should apply to the audits of EGCs.297

In the Adopting Release, the Board 

explained that, in general, any new 

PCAOB standards and amendments to 

existing standards determined not to 

apply to the audits of EGCs would 

require auditors to address differing 

requirements within their 

methodologies or policies and 

procedures with respect to audits of 

EGCs and non-EGCs, which would 

create the potential for confusion.298

The Board further stated this may not be 

practical in the context of the QC 

standards because while some 

components of the QC system (such as 

engagement monitoring) may enable 

different approaches for audits of EGCs 

compared to audits of other companies, 

other elements (for example, resources 

and governance and leadership) are 

necessarily firm-wide and cannot easily 

be differentiated for different types of 

audits.299 The Board further stated that 

even where differentiation is possible, 

maintaining separate components for 

EGC and non-EGC audits may add cost 

or lead to confusion, and could run 

counter to the objective of integrating 

QC practices into a single continuous 

cycle of risk assessment, monitoring, 

and remediation.300

In addition, the Board stated that the 

benefits of the higher audit quality 

resulting from the Amendments may be 

more pertinent for EGCs than for nonEGCs, including improved efficiency of 

market capital allocation, lower cost of 

capital, and enhanced capital 

formation.301 The Amendments are 

expected to enhance audit quality and 

contribute to an increase in the 

credibility of financial reporting by 

EGCs, which are newer to the capital 

markets than typical non-EGCs.302

We agree with the Board’s analysis 

and further emphasize the benefits 

discussed by the PCAOB, including 

higher audit quality leading to improved 

efficiency of capital allocation, lower 

cost of capital, and enhanced capital 

formation with respect to EGCs. As 

noted above, these improvements in the 

quality of the audit may be more 

pronounced on the audits of EGCs. 

While improvements in audit quality 

benefit all investors, such improvements 

may particularly benefit investors in 


ddrumheller on DSK120RN23PROD with NOTICES1
Federal Register / Vol. 89, No. 177 / Thursday, September 12, 2024 / Notices 74347 

303See Alexander, C, S. Bauguess, G. Bernile, Y. 

A. Lee, and J. Marietta-Westberg (2013) ‘‘Economic 

Effect of SOX Section 404 Compliance: A Corporate 

Insider Perspective,’’ Journal of Accounting and 

Economics, at 56, 267–290. Based on a survey data, 

this paper shows the compliance costs of SOX 404 

weigh disproportionately on smaller firms. 

304See Adopting Release, supra note 9, at 375. 

305As noted above, during the Commission’s 

comment period, two commenters raised concerns 

that the design-only requirement would burden 

smaller firms, which could impact smaller issuers 

and broker-dealers, including emerging growth 

companies. See letters from Chamber and PICPA. 

Although these commenters mentioned EGCs in the 

context of commenting on the design-only 

requirement, neither suggested that firms should be 

required to apply different quality control standards 

to the audits of EGCs versus non-EGCs. For the 

reasons stated above, we agree with the Board that 

QC 1000 should apply to all registered public 

accounting firms, including with respect to the 

audits of EGCs, because of the firm-wide nature of 

QC systems. 

1 15 U.S.C. 78s(b)(1). 

2 15 U.S.C. 78a. 

3 17 CFR 240.19b–4. 

EGCs by increasing the credibility of 

their financial reporting given that they 

are typically newer to the capital 

markets and feature a higher degree of 

information asymmetry between 

management and investors. 

Improvements in audit quality provide 

investors with more accurate 

information, which helps them make 

more informed investment decisions. 

More accurate information in financial 

statements may also increase investors’ 

confidence and, in turn, facilitate 

capital formation. 

To the extent that an EGC’s auditor’s 

existing quality control standards do not 

meet the requirements under QC 1000 

and the changes that auditors make to 

their quality control system impact the 

performance of audit engagements, this 

could lead to a spillover externality 

effect whereby EGCs themselves may 

have to incur additional costs. For 

example, an EGC could have to allocate 

more resources to its own internal 

control systems or to additional requests 

for more extensive or additional 

evidence from audit firms.303 While this 

could be costly to the EGC, enhanced 

internal control over financial reporting 

at the EGC and audits that are 

performed in compliance with 

applicable professional standards are 

expected to also benefit investors. Audit 

firms may also raise audit fees for EGCs 

as a result of implementing QC 1000. 

Higher audit-related costs, in the form of 

EGCs’ costs to support the audit and/or 

in fees paid to auditors, would in turn 

raise EGCs’ overall costs and possibly 

adversely impact their ability to be 

competitive in the product markets that 

they operate. These potential costs to 

EGCs will be reduced to the extent EGC 

auditors will already be required to 

comply with the Other QC Standards or 

may choose not to pass on their 

incremental costs arising from the QC 

1000 requirements in the form of higher 

audit fees. As discussed above, 

Commission analysis shows that 

approximately 88% of registered firms 

performing PCAOB engagements will, 

by the effective date of QC 1000, already 

be subject to quality control 

requirements that share a basic structure 

with the requirements in QC 1000. 

PCAOB staff analysis also shows that 

approximately 98% of EGCs were 

audited by firms that performed audits 

for both EGC and non-EGC issuers.304

Therefore, for 98% of EGCs being 

audited, there likely would be minimal 

incremental costs for QC 1000 to apply 

to EGCs, either due to their auditor 

implementing QC 1000, as required to 

audit its other issuers, or implementing 

the Other QC Standards. 

Accordingly, after considering the 

protection of investors and whether the 

action will promote efficiency, 

competition, and capital formation, we 

believe there is a sufficient basis to 

determine that applying the 

Amendments to the audits of EGCs is 

necessary or appropriate in the public 

interest.305

V. Conclusion 

The Commission has reviewed and 

considered the Amendments, the 

information submitted therewith by the 

PCAOB, the comment letters received, 

and the recommendation of the 

Commission’s staff. The Commission 

concludes that the determinations made 

by the PCAOB as described in the 

Adopting Release are reasonable. 

Generally, the Amendments establish an 

integrated, risk-based quality control 

standard that can be applied by firms of 

varying sizes and complexities and that 

will lead registered public accounting 

firms to significantly improve their 

quality control systems, thereby 

improving audit quality and investor 

protection. Specifically, the 

Amendments make the following 

important changes, among others, to the 

existing quality control standards, 

which will advance the Board’s investor 

protection mandate under SOX: 

• Replace the current standards, 

which: (i) were developed by the 

AICPA, a professional organization for 

certified public accountants; (ii) were 

last updated in 1997; (iii) focus on 

evaluating firms’ compliance with their 

own policies; (iv) do not require 

evaluation or reporting; and (v) do not 

contain express obligations for firms to 

perform any specific monitoring; 

• Incorporate a risk-based approach 

to quality control, driving firms to 

proactively identify and manage the 

specific risks associated with their 

practices, along with a set of mandates, 

tailored to the size of the audit practice, 

which should assure that the quality 

control system is designed, 

implemented, and operated with an 

appropriate level of rigor; 

• Emphasize the importance of 

accountability and firm governance 

through requirements around roles and 

responsibilities, assigning operational 

responsibility to individuals for 

particular aspects of the QC system, and 

the introduction of a certification by 

certain responsible individuals; and 

• Create a framework for evaluation 

and reporting to the PCOAB which will 

be consistently applied across all firms 

operating a QC system under QC 1000. 

Therefore, in connection with the 

PCAOB’s filing and the Commission’s 

review, 

A. The Commission finds that the 

Amendments are consistent with the 

requirements of Title I of SOX and the 

rules and regulations thereunder and are 

necessary or appropriate in the public 

interest or for the protection of 

investors; and 

B. Separately, the Commission finds 

that the application of the Amendments 

to the audits of EGCs is necessary or 

appropriate in the public interest, after 

considering the protection of investors 

and whether the action will promote 

efficiency, competition, and capital 

formation. 

It is therefore ordered, pursuant to 

section 107 of SOX and section 19(b)(2) 

of the Exchange Act, that the 

Amendments (File No. PCAOB–2024– 

02) be and hereby are approved. 

By the Commission. 

Vanessa A. Countryman, 

Secretary. 

[FR Doc. 2024–20714 Filed 9–11–24; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–100964; File No. SR– 

NYSEAMER–2024–52] 

Self-Regulatory Organizations; NYSE 

American LLC; Notice of Filing and 

Immediate Effectiveness of Proposed 

Rule Change Amending the Existing 

Note in the Connectivity Fee Schedule 

September 6, 2024. 

Pursuant to Section 19(b)(1) 1 of the 

Securities Exchange Act of 1934 

(‘‘Act’’) 2 and Rule 19b–4 thereunder,3

notice is hereby given that on August 


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