99968 Federal Register / Vol. 89, No. 238 / Wednesday, December 11, 2024 / Notices 

1 vSee 17 CFR 240.12b–2 (‘‘Rule 12b–2’’). 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–101724; File No. PCAOB– 

2024–06] 

Public Company Accounting Oversight 

Board; Notice of Filing of Proposed 

Rules on Firm and Engagement 

Metrics and Related Amendments to 

PCAOB Standards 

November 25, 2024. 

Pursuant to Section 107(b) of the 

Sarbanes-Oxley Act of 2002 (the ‘‘Act’’), 

notice is hereby given that on November 

22, 2024, the Public Company 

Accounting Oversight Board (the 

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

Securities and Exchange Commission 

(the ‘‘Commission’’) the proposed rules 

described in items I and II below, which 

items have been prepared by the Board. 

The Commission is publishing this 

notice to solicit comments on the 

proposed rules from interested persons. 

I. Board’s Statement of the Terms of 

Substance of the Proposed Rules 

On November 21, 2024, the Board 

adopted Firm and Engagement Metrics 

and related amendments to its rules and 

forms (collectively, the ‘‘proposed 

rules’’). The text of the proposed rules 

appears in Exhibit A to the SEC Filing 

Form 19b–4 and is available on the 

Boards website at https://pcaobus.org/ 

about/rules-rulemaking/rulemakingdockets/docket-041, and at the 

Commission’s Public Reference Room. 

II. Board’s Statement of the Purpose of, 

and Statutory Basis for, the Proposed 

Rules 

In its filing with the Commission, the 

Board included statements concerning 

the purpose of, and basis for, the 

proposed rules and discussed any 

comments it received on the proposed 

rules. The text of these statements may 

be examined at the places specified in 

Item IV below. The Board has prepared 

summaries, set forth in sections A, B, 

and C below, of the most significant 

aspects of such statements. In addition, 

the Board is requesting that the 

Commission approve the proposed 

rules, pursuant to Section 103(a)(3)(C) of 

the Sarbanes-Oxley Act, for application 

to audits of emerging growth companies 

(‘‘EGCs’’), as that term is defined in 

Section 3(a)(80) of the Securities 

Exchange Act of 1934 (‘‘Exchange Act’’). 

The Board’s request is set forth in 

section D. 

A. Board’s Statement of the Purpose of, 

and Statutory Basis for, the Proposed 

Rules 

(a) Purpose 

The Board has adopted a set of firmand engagement-level metrics (the ‘‘final 

rules’’ or ‘‘final metrics’’) that certain 

registered public accounting firms 

(‘‘firms’’ or ‘‘audit firms’’) will be 

required to publicly report relating to 

their audit practices and the audits they 

lead. The Board believes these metrics 

will provide valuable additional 

information, context, and perspective on 

auditors and audit engagements, which 

can be used by investors, audit 

committees, and other stakeholders, and 

which will further the Board’s oversight 

activities. The Board believes this will 

advance investor protection and 

promote the public interest by enabling 

stakeholders to make better-informed 

decisions, promoting auditor 

accountability, and ultimately 

enhancing capital allocation and 

confidence in our capital markets. The 

new reporting requirements will apply 

to firms that audit at least one company 

that is an ‘‘accelerated filer’’ or ‘‘large 

accelerated filer’’ (as those terms are 

defined in SEC rules).1

Lack of Consistent, Comparable Data 

About Audits and Auditors 

Investors and audit committees 

cannot easily observe the services 

performed by auditors. This can limit 

investors’ ability to make informed 

decisions about investing their capital, 

ratifying the selection of auditors, and 

voting for members of the board of 

directors, including directors who serve 

on the audit committee, and audit 

committees’ ability to choose among 

and monitor the performance of 

auditors. At the same time, there is a 

lack of incentive for firms, acting on 

their own or collectively, to provide 

accurate, standardized, and decisionrelevant information about their firms 

and the engagements they perform. In 

response to these challenges, the Board 

has studied ways to measure audit firm 

and audit engagement performance, 

primarily with a view to providing 

information useful to investors in their 

investment and proxy voting decisions, 

but also recognizing that metrics could 

potentially be informative to other 

stakeholders. In addition, the Board 

itself would benefit from having 

additional tools to use in its oversight 

activities, including its inspections 

program, standard-setting initiatives, 

and research activities. 

The Board has observed that many of 

the firms that issue audit reports for 

more than 100 issuers annually and 

audit companies that account for the 

majority of U.S. public company market 

capitalization already publicly disclose 

certain firm-level metrics through audit 

quality reports, transparency reports, or 

similar documents. However, these 

disclosures generally do not contain 

engagement-level information, which 

investors have indicated would be the 

most useful to them, and are 

inconsistent across firms and year to 

year, with no common definitions or 

calculations that would allow for 

meaningful comparisons. Moreover, 

most of the disclosures are voluntary, so 

firms are free to revise or discontinue 

such reporting at any time. 

In the Board’s view, the current 

voluntary reporting regime cannot 

provide consistent, comparable 

information that stakeholders can rely 

on to inform their decisions over time. 

And it would appear that firms’ 

attempts at voluntary reporting have 

not, in fact, satisfactorily addressed 

investor desire for additional 

information about audits and auditors. 

On the contrary, support from investors 

and investor-related groups for this 

rulemaking initiative has been 

consistent throughout its history, even 

as the practice of firm voluntary 

reporting has evolved and spread. 

Metrics at Firm and Engagement Level 

The final rules require reporting of 

metrics at both the firm and the 

engagement levels. Firm-level metrics 

relate to aspects of the firm’s audit 

practice (e.g., average experience at a 

public accounting firm of the firm’s 

partners) and engagement-level metrics 

relate to individual audit engagements 

(e.g., experience at a public accounting 

firm of the engagement partner and the 

engagement quality reviewer (‘‘EQR’’) 

and average experience of certain other 

engagement team members). The Board 

is requiring firm-level metrics because it 

believes information relevant to the firm 

will be beneficial in providing context 

for engagement-level metrics and in 

evaluating the firm’s audit practice and 

its related system of quality control. The 

Board is requiring engagement-level 

metrics because it believes that 

information will be useful in gaining a 

richer understanding of a particular 

audit and because investors have 

stressed the importance to them of 

engagement-level information to assist 

them in evaluating the performance of 

the auditor and the audit committee. 

Most metrics will be reported at both 

firm- and engagement-level. However, 

the final rules require reporting at only 


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the firm level in cases where the Board 

believes engagement-level data would 

not be meaningful or would be 

disproportionally challenging to collect 

in relation to the incremental benefit. 

Final Metrics 

The Board adopted metrics in the 

following eight areas: 

Partner and Manager Involvement. 

Hours worked by senior professionals 

relative to more junior staff across the 

firm’s large accelerated and accelerated 

filer engagements and on the specific 

engagement. 

Workload. Average weekly hours 

worked on a quarterly basis by senior 

professionals who incurred hours on 

large accelerated and accelerated filer 

engagements, including time 

attributable to engagements, 

administrative duties, and all other 

matters, both firm-wide and on the core 

engagement team. 

Training Hours for Audit Personnel. 

Average annual training hours for 

partners, managers, and staff of the firm, 

combined, both firm-wide and on the 

core engagement team. 

Experience of Audit Personnel. 

Average number of years worked at a 

public accounting firm (whether or not 

PCAOB-registered) by senior 

professionals across the firm and on the 

engagement. 

Industry Experience. Average years of 

career experience of senior professionals 

in key industries audited by the firm at 

the firm level and the audited 

company’s primary industry at the 

engagement level. 

Retention of Audit Personnel (firmlevel only). Continuity of senior 

professionals (through departures, 

reassignments, etc.) across the firm. 

Allocation of Audit Hours. Percentage 

of hours incurred prior to and following 

an issuer’s year end across the firm’s 

large accelerated and accelerated filer 

engagements and on the specific 

engagement. 

Restatement History (firm-level only). 

Restatements of financial statements 

and management reports on internal 

control over financial reporting 

(‘‘ICFR’’) that were audited by the firm 

over the past three years. 

Firms are permitted, but not required, 

to accompany the metrics with narrative 

disclosure to provide additional context. 

The final suite of metrics focuses 

primarily on information about audit 

personnel. The Board believes these 

metrics will provide new insights into 

how engagements are staffed, including 

the extent of involvement of senior 

personnel; auditors’ overall workload; 

retention of personnel across the firm; 

and levels of training, audit experience, 

and industry-specific expertise. The 

final metrics will also provide 

information about the extent of audit 

work completed prior to the issuer’s 

year-end, an aspect of the audit process 

that the Board believes is associated 

with improved audit outcomes, and 

about the firm’s history of restatements, 

a key measure of audit outcomes. 

This new information will allow users 

to draw inferences about audits and 

audit forms that are not possible today. 

Some may relate to specific metrics. For 

example, a heavy workload for a 

particular engagement team relative to 

the firm average or compared to peer 

firms may raise questions about the 

quality of the work performed. 

Conversely, a relatively high level of 

industry experience, particularly for an 

engagement in an industry that benefits 

from specific accounting and auditing 

expertise, would be a positive signal. 

Other inferences may relate to 

combinations of metrics. For example, 

the personnel-related metrics, taken 

together, give an overall sense of how an 

engagement is staffed that can be 

compared to firm averages and to 

engagements for similar issuers. It is 

possible that the precise numerical 

values of metrics may be important in 

some cases but, in general, the Board 

believes the metrics will be more useful 

to convey a sense of whether a 

particular engagement or firm appears 

fairly typical or is an outlier in one or 

more respects. This should provide a 

richer context for understanding the 

work of the auditor than the current 

environment of almost no publicly 

available information. 

The Board also believes that gathering 

data and calculating the final metrics, 

given the subjects they address, will not 

be overly costly, time-consuming, or 

burdensome. Based on the Board’s 

oversight activities, it appears that the 

largest firms are already tracking data in 

many of these areas. Many of the 

metrics are based on data that firms 

already track or will be required to track 

for purposes of other PCAOB 

requirements. For example, Partner and 

Manager Involvement and Allocation of 

Audit Hours are based on the same time 

reporting required for Form AP 

purposes. Training hours will reflect the 

same information that firms track to 

ensure proper licensing of their 

personnel. Restatement data, to the 

extent firms are not already tracking it, 

is required to be tracked under QC 1000. 

In addition to required data, many firms 

track the experience of their personnel, 

as well as industry experience, for use 

in marketing materials and for inclusion 

in requests for proposals, and some 

firms already track staff retention and 

turnover metrics as part of their human 

capital management. Firms should be 

able to generate other data required by 

the final metrics, such as Workload, 

from their existing timekeeping systems 

with minimal additional effort. 

Responding to Commenter Concerns 

After considering commenter input, 

the Board has made a number of 

changes from the proposal. The final 

rules eliminate four proposed metrics 

areas (Audit Resources—Use of 

Specialists and Shared Service Centers, 

Audit Hours and Risk Areas, Quality 

Performance Ratings and Compensation, 

and Audit Firms’ Internal Monitoring) 

and add one new metric area (Training 

Hours for Audit Personnel). In addition, 

only firm-level reporting will be 

required for one area (Retention of 

Audit Personnel) that was proposed to 

be reported at both the firm and 

engagement level. The Board has also 

made revisions to simplify and clarify 

some of the other metrics and exempted 

firms with a small issuer practice from 

reporting on their industry experience. 

In addition, the Board has expanded the 

optional narrative disclosure from 500 

to 1,000 characters and has provided 

additional direction that the narrative 

should be concise and focused on the 

reported metrics, with a view to 

facilitating the reader’s understanding of 

the metrics. The Board believes that 

these changes will address commenter 

concerns about challenges of data 

collection, potential sensitivity of data, 

and potential ambiguity of the metrics, 

and that the final suite of metrics will 

provide consistent, comparable 

information on auditors and audit 

engagements, giving investors, audit 

committees, and other stakeholders 

valuable new context and perspective. 

The Board considered comments 

questioning the value of metrics, 

whether they will be used by investors 

and other stakeholders or would 

represent only a ‘‘check the box’’ 

compliance exercise, and whether they 

might contribute to information 

overload or have other negative 

consequences. Based on the other 

stakeholder input received, the Board 

does not share those views. In 

comments provided in the Board’s 

rulemaking process and surveys 

conducted by a firm-related group, 

investors and investor-related groups 

have repeatedly indicated that the 

metrics will be useful. As one investorrelated group noted: 

Auditors say they want to be seen or 

evaluated as something other than a 

commodity business evaluated based upon 

price. For this to happen, auditors need to 

provide investors with information such that 


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2Letter from CFA Institute, August 30, 2024, at 

17. 

3 In 2023, there were over 333,000 unique 

searches performed on AuditorSearch and the Form 

AP data set was downloaded over 2,000 times. 

Information related to usage statistics can be found 

on the PCAOB’s website (https://pcaobus.org/ 

resources/auditorsearch). 

4The Center for Audit (‘‘CAQ’’) Quality Critical 

Audit Matters Survey (July 2024) at 9. 

5See Firm Reporting, PCAOB Rel. No. 2024–013 

(Nov. 21, 2024) (adopting amendments to reporting 

requirements for Form 2, Annual Report Form, and 

Form 3, Special Reporting Form). 

they can value the work of the auditor—just 

as they evaluate and value the business and 

the work of management.2

The Board also notes that similar 

objections—that the new information 

would not be used or would be 

confusing or misleading—were raised 

by many of the same commenters in 

connection with its last two 

rulemakings requiring disclosure of 

additional information about audits and 

auditors: Form AP reporting of the name 

of the engagement partner and 

information about other firms 

participating in the audit, and auditor 

communication of critical audit matters 

(‘‘CAMs’’). In both cases, these 

commenter concerns appear 

unsubstantiated. The Form AP data set 

is now one of the most frequently 

visited areas of the PCAOB’s website.3

As for CAMs, while academic studies 

have shown mixed results about the 

impact of CAMs, in a recent investor 

survey conducted by a firm-related 

group, over 90% of the respondents 

indicated that CAMs play an important 

role in their investment decisionmaking.4 In addition, data aggregators, 

such as Audit Analytics, compile and 

make available data on CAMs, which 

suggests market demand for that 

information. The Board’s experience 

therefore suggests that, contrary to 

concerns about irrelevance and 

information overload, stakeholders seek 

out additional information about 

auditors and audit engagements when it 

is available. 

Filing Requirements 

Under the Board’s final rules, firmlevel reporting is required of every firm 

that audits at least one ‘‘accelerated 

filer’’ or ‘‘large accelerated filer’’ under 

SEC rules during the reporting period. 

Engagement-level reporting will be 

required for every audit of an 

accelerated or large accelerated filer. 

The thresholds will apply to the audits, 

and auditors, of companies that account 

for the majority of U.S. public company 

market capitalization, and the Board 

believes they will capture the situations 

where investment and proxy voting 

decisions will be most likely to benefit 

from additional information about the 

audit and the auditor. 

The final rules: 

• Require reporting of firm-level 

metrics annually on a new Form FM, 

Firm Metrics, pursuant to a new Rule 

2203C, Firm Metrics, for firms that 

issued an audit report with respect to at 

least one accelerated filer or large 

accelerated filer during the reporting 

period; 

• Require reporting of engagementlevel metrics for audits of accelerated 

filers and large accelerated filers on a 

revised Form AP, renamed ‘‘Audit 

Participants and Metrics’’; and 

• Allow, but not require, limited 

narrative disclosures on both Form FM 

and Form AP to provide context and 

explanation for the required metrics. 

Background 

The final rules build on other actions 

the Board has taken to provide 

stakeholders with additional 

information about registered firms and 

the audits they perform, including 

information about firms available 

through its registration and reporting 

forms, information about auditors and 

engagements on Form AP, and 

communication of critical audit matters 

and auditor tenure in the auditor’s 

report. The Board concurrently adopted 

other changes to firm reporting 

requirements.5 The Board believes the 

final rules will complement these efforts 

by providing investors, audit 

committees, and other stakeholders with 

additional information in a consistent 

format and compiled with sufficient 

rigor to assist them in making decisions. 

For example, the metrics could inform 

investors’ decision-making regarding 

whether to ratify the audit committee’s 

selection of an auditor or to vote for 

members of the board of directors, 

including directors who serve on the 

audit committee, as well as potentially 

assisting in audit committee oversight, 

supporting continuous improvement of 

firms’ quality control systems, and 

facilitating the Board’s own oversight 

and rulemaking efforts. The Board 

further believes that the value of these 

metrics will likely increase over time as 

firm reporting practices develop and 

trends become observable. 

As in its proposal, the Board uses the 

term ‘‘firm and engagement metrics’’ 

rather than ‘‘audit quality indicators’’ 

(‘‘AQIs’’) to describe the metrics that it 

adopted. The Board believes this avoids 

the potential misimpression that any set 

of metrics can comprehensively 

measure audit quality and emphasizes 

the Board’s goal of promoting informed 

decision-making through robust 

disclosure requirements. Some 

commenters were critical of that change 

in terminology, suggesting that it 

evidenced that the Board is no longer 

focused on audit quality. It is simply a 

clarification. Because some of the most 

important elements of a high-quality 

audit, such as application of due care 

and professional skepticism, cannot be 

measured and quantified directly, the 

metrics employ proxies, such as years of 

experience, auditor workloads, and 

percentage of audit hours attributable to 

more senior members of the engagement 

team, which can only partially capture 

these concepts. Even though these 

proxies cannot provide a complete 

picture of audit quality, the Board 

believes they will nevertheless convey 

important information about auditors 

and the engagements they lead that 

stakeholders will find relevant and 

useful. The Board believes that 

consideration of the metrics in 

combination, together with any 

additional context a firm may choose to 

provide, will help users interpret the 

data, and that the metrics, analyzed 

across firms and over time, will yield 

important, currently unavailable 

information that will assist investors, 

audit committees, and other 

stakeholders in their decision-making, 

oversight, and evaluation related to 

audits. 

The Board developed the proposal 

after considering input from numerous 

sources, including the recommendations 

of the U.S. Department of Treasury’s 

Advisory Committee on the Auditing 

Profession (‘‘ACAP’’), including the 

October 6, 2008 Final Report of the 

Advisory Committee on the Auditing 

Profession to the U.S. Department of the 

Treasury (‘‘ACAP Final Report’’); the 

Concept Release on Audit Quality 

Indicators, PCAOB Rel. No. 2015–005 

(July 1, 2015) (‘‘Concept Release’’), and 

the comments received; the voluntary 

practices of firms; recommendations 

from the PCAOB’s Investor Advisory 

Group (‘‘IAG’’); and the initiatives of 

international regulators. The Board has 

carefully considered this input and 

believes that the final amendments 

strike an appropriate balance between 

the expected benefits of the new 

reporting requirements and the 

associated costs of implementation and 

compliance. 

Effective Dates 

If the Commission approves the final 

rules and final metrics, both firm-level 

and engagement-level reporting will be 

required for periods beginning October 

1, 2027. The Board also adopted a 

phased implementation period for both 


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Federal Register / Vol. 89, No. 238 / Wednesday, December 11, 2024 / Notices 99971 

6See Section 101(a) of Sarbanes-Oxley, 15 U.S.C. 

7211(a); Senate Report No. 107–205, at 5–6 (July 3, 

2002). 

7See Securities Exchange Act of 1934, Section 

10A(m)(2), 15 U.S.C. 78j–1(m)(2). 

8See ACAP Final Report, at IV:1. 

9See ACAP’s Fact Sheet: Final Report of the 

Advisory Committee on the Auditing Profession, 

available at https://home.treasury.gov/news/pressreleases/hp1158#:∼:text=The%20U.S.%20

Treasury%20Department%20%27s%20

Advisory%20Committee%20on,into%20three

%20sections%20by%20principal%20areas%20of

%20focus. 

10See ACAP Final Report, at VIII:14. 

11See Oct. 2013 IAG meeting and presentations, 

Report from the Working Group: Audit Quality 

Indicators, available at IAG Meeting Archive, 

https://pcaobus.org/news-events/events/eventdetails/pcaob-investor-advisory-group-meeting_758. 

12See Oct. 2017 IAG meeting and presentation, 

available at IAG Meeting Archive, https://

pcaobus.org/news-events/events/event-details/ 

pcaob-investor-advisory-group-meeting_1085. 

firm- and engagement-level reporting, 

where firms that issue audit reports for 

more than 100 issuers will begin 

reporting in the first year that reporting 

is required and other firms beginning 

one year later. 

(b) Statutory Basis 

The statutory basis for the proposed 

rules is Title I of the Act. 

B. Board’s Statement on Burden on 

Competition 

Not applicable. The Board’s 

consideration of the economic impacts 

of the proposed rules is discussed in 

section D below. 

C. Board’s Statement on Comments on 

the Proposed Rules Received From 

Members, Participants or Others 

The Board released the proposed rules 

for public comment in PCAOB Release 

No. 2024–002 on April 9, 2024. 

Previously, the Board issued a concept 

release for public comment in PCAOB 

Release No. 2015–055 on July 1, 2015. 

The Board received over 45 comment 

letters in response to the proposing 

release and 50 letters in response to the 

concept release. See Exhibits 2(a)(B) and 

2(a)(C). The Board has carefully 

considered all comments received. The 

Board’s response to the comments it 

received and the changes made to the 

rules in response to the comments 

received are discussed below. 

Background 

Project History 

1. Importance and Potential Benefits of 

Increased Information About Audit 

Firms and Engagements 

With the passage of the SarbanesOxley Act of 2002 (‘‘Sarbanes-Oxley’’) 

and the establishment of the PCAOB, 

Congress acknowledged and reemphasized the auditor’s important 

gatekeeping role.6 Reflecting that 

importance, the Board believes 

requiring audit firms to provide 

additional information about the firm 

and the engagements it performs will 

advance investor protection and 

promote the public interest by enabling 

investors to make better-informed 

decisions. As discussed in more detail 

below, the Board has also heard from 

investors and other stakeholders that 

they believe such information will be 

beneficial. 

Sarbanes-Oxley also mandated new 

exchange requirements regarding the 

responsibilities of audit committees of 

listed companies, including requiring 

that audit committees be charged with 

responsibility for the appointment, 

compensation, and oversight of the 

auditor.7 The Board believes that 

making information available to audit 

committees regarding both the specific 

audit and auditor they oversee and the 

audits and auditors of their peer 

companies will assist them in carrying 

out this statutory mandate. 

Over the years, the Board has received 

significant input on the importance and 

potential benefits to stakeholders of 

additional information about audits and 

auditors. The key elements of that input 

are summarized below. 

i. ACAP Recommendations 

In 2007, the U.S. Treasury constituted 

the ACAP to consider and develop 

recommendations relating to the 

sustainability of the auditing 

profession.8 On October 6, 2008, ACAP 

published a report detailing 

recommendations intended to enhance 

the sustainability of a strong and vibrant 

public company auditing profession.9

One of the ACAP recommendations was 

that the PCAOB, in consultation with 

auditors, investors, public companies, 

audit committees, boards of directors, 

academics, and others, ‘‘determine the 

feasibility of developing key indicators 

of audit quality and effectiveness and 

requiring auditing firms to publicly 

disclose those indicators’’ 10 and, 

assuming that development and 

disclosure of indicators of audit quality 

are feasible, that the PCAOB be required 

to monitor these indicators. 

ii. 2013 and 2017 PCAOB Investor 

Advisory Group Recommendations 

At its October 2013 IAG Meeting,11

the IAG working group on AQIs made 

recommendations for the PCAOB to 

prescribe informative, forward-looking 

disclosures and indicators intended to 

measure the quality of audits and 

enhance auditor accountability. They 

emphasized that investors and audit 

committees generally care more about 

the quality and credibility of audit work 

on specific engagements—the 

companies in which they have invested 

or were considering investing, or the 

company on whose board of directors 

they served—rather than firms’ more 

general efforts to improve quality. 

Accordingly, in addition to disclosures 

and metrics to be reported at the firm 

level, they also recommended 

disclosures and metrics to be reported at 

the engagement level. 

At the October 2017 IAG meeting, an 

IAG working group discussed three 

topics: (i) why audit quality and AQIs 

matter to investors, (ii) the PCAOB’s 

authority and efforts to date to enact 

AQIs, and (iii) audit quality initiatives 

in other jurisdictions.12 The 2017 

working group also endorsed the 2013 

AQI working group’s recommendations. 

The recommendations provided by 

the 2013 and 2017 IAG working groups 

are reflected in many of the metrics the 

Board adopted. 

2. PCAOB Initiatives 

This section provides further 

background and expands on the history 

of PCAOB activities related to providing 

additional information about audit firms 

and audits, including firm and 

engagement metrics. 

i. 2015 AQI Concept Release 

In July 2015, the PCAOB issued the 

Concept Release and sought comment 

on 28 potential indicators. The 

indicators were organized into three 

groups: 

• Audit professionals—Measures 

dealing with the availability, 

competence, and focus of those 

performing the audit. 

• Audit process—Measures related to 

an audit firm’s tone at the top and 

leadership, incentives, independence, 

attention to infrastructure, and record of 

monitoring and remediation. 

• Audit results—Financial 

statements, internal control, going 

concern, communications between 

auditors and audit committees, and 

enforcement and litigation. 

The Concept Release discussed (i) the 

nature of the potential indicators and 

potential calculations, (ii) the usefulness 

of the indicators, (iii) suggestions for 

other indicators, (iv) potential users of 

the indicators, and (v) the approach to 

implementation. In response to the 

Concept Release, the PCAOB received 

50 comment letters. 

Most commenters expressed support 

for the general idea that AQIs may be 


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13See Nov. 2015 Standing Advisory Group (SAG) 

Briefing Paper available at SAG Meeting Archive, 

https://pcaobus.org/news-events/events/eventdetails/standing-advisory-group-meeting_910. 14See PCAOB Rule 3211. 

15See ACAP Final Report, at VII:19. 

16See below. 17See AS 3101.11–.16. 18See ACAP Final Report, at VII:13. 19See Concept Release on Possible Revisions to 

PCAOB Standards Related to Reports on Audited 

Financial Statements and Related Amendments to 

PCAOB Standards; Notice of Roundtable (June. 21, 

2011), available at https://pcaobus.org/newsevents/news-releases/news-release-detail/pcaobissues-concept-release-on-auditor’s-reportingmodel_337. 

20See Nov. 2022 SEIAG meeting, available at 

https://pcaobus.org/news-events/events/eventdetails/pcaob-standards-and-emerging-issuesadvisory-group-meeting-2022. See Oct. 2022 IAG 

meeting, available at https://pcaobus.org/newsevents/events/event-details/pcaob-investoradvisory-group-meeting and Oct. 2023 IAG meeting, 

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

events/event-details/pcaob-investor-advisory-groupmeeting-october-2023. 

21See comments on 2022–2026 Strategic Plan 

Documents, available at https://pcaobus.org/about/ 

strategic-plan-budget/comments-on-pcaob-draftstrategic-plan-2022-2026. 

22See A Firm’s System of Quality Control and 

Other Proposed Amendments to PCAOB Standards, 

Rules, and Forms, PCAOB Rel. No. 2022–006 (Nov. 

18, 2022). The comment letters received in response 

to the proposal are available on the Board’s website 

in Docket 046. See comment letter from members 

of the IAG, available at https://assets.pcaobus.org/ 

pcaob-dev/docs/defaultsource/rulemaking/ 

docket046/4_iag.pdf?sfvrsn=1941e7c0_4. 

23See A Firm’s System of Quality Control and 

Other Amendments to PCAOB Standards, Rules, 

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

2024) (‘‘QC Adopting Release’’). 

useful.13 However, commenter views 

varied widely. Comments from firms 

and firm-related groups suggested that 

no standard group of indicators could 

advance a person’s understanding of 

audit quality. These commenters 

suggested that AQIs should be 

voluntary, should be reported to audit 

committees through two-way 

discussions to provide context for the 

indicators, or should be required only at 

the firm level. Investors and investorrelated groups recommended that 

indicators should be made public as 

they could be used to stimulate 

competition based on quality among 

audit firms, remedy the deficiency of 

information about audits, and give 

shareholders meaningful information to 

help them in voting on auditor 

selection. Some commenters suggested 

that engagement-level metrics are more 

useful than firm-level metrics. One 

commenter suggested that promoting 

competition around an implied 

variability in audit quality may not 

always be appropriate and in the public 

interest because audit quality should be 

nonnegotiable and a fundamental goal 

for all audits. Another commenter 

suggested that it was critical to define 

what AQIs do and do not represent so 

that they are used appropriately. 

ii. PCAOB Rulemakings To Increase 

Audit Transparency: Identification of 

the Engagement Partner and Other 

Audit Participants on Form AP and 

Auditor Communication of Critical 

Audit Matters 

In 2015, the PCAOB adopted rules 

requiring information on Form AP, 

Auditor Reporting of Certain Audit 

Participants, regarding the engagement 

partner and other accounting firms that 

participate in audits of issuers.14 The 

rulemaking was initially in response to 

the ACAP recommendation that the 

engagement partner should be required 

to sign the audit report.15 As the 

rulemaking evolved, it also took account 

of stakeholder input, including IAG 

recommendations to identify the 

engagement partner and the firms, other 

than the firm signing the audit report, 

that participate in audits. 

The Board’s intention was to make 

available information about the 

engagement partner and other firms that 

participated in the audit, saying that 

such information, even if not useful in 

every instance or meaningful to every 

investor, would make an overall 

contribution to the information 

available to investors in making voting 

and investment decisions. The Board 

also asserted that increased 

transparency should promote increased 

accountability in the audit process. The 

Form AP reporting requirements became 

effective in 2017, and the data gathered 

via Form AP has many users; the Form 

AP data set is frequently searched 

through AuditorSearch, the PCAOB’s 

online search tool, as well as 

downloaded by users performing more 

detailed analyses.16

In 2017, the PCAOB adopted AS 3101, 

The Auditor’s Report on an Audit of 

Financial Statements When the Auditor 

Expresses an Unqualified Opinion, 

which includes requirements regarding 

the disclosure of auditor tenure and 

auditor determination and 

communication of ‘‘critical audit 

matters.’’ 17 This project was also 

initiated in response to ACAP’s 

recommendation that the PCAOB 

undertake a standard-setting initiative to 

consider improvements to the auditor’s 

standard reporting model.18 The 

rulemaking explored potential ways to 

increase the transparency and relevance 

of the auditor’s report, including by 

requiring expanded auditor reporting 

regarding the audit and the company’s 

financial statements.19 In the adopting 

release, the Board noted ACAP’s 

statement that the complexity of 

financial reporting supports improving 

the content of the auditor’s report 

beyond the then-current pass/fail model 

to include a more relevant discussion 

about the audit of the financial 

statements. 

After multiple rounds of Board 

releases and stakeholder input, the 

requirements took effect in 2019 and 

2020. 

iii. Recent PCAOB Standard-Setting and 

Rulemaking Activities 

At the November 2022 Standards and 

Emerging Issues Advisory Group 

(SEIAG) and the October 2022 and 2023 

IAG meetings, several members 

continued to urge the Board to take 

action on firm and engagement metrics. 

Other members stated that some firms 

already publish similar metrics through 

transparency reports and audit quality 

reports. Some members of the IAG and 

SEIAG have requested increased 

information at the firm and engagement 

levels through easily accessible and 

quantified metrics, potentially with 

accompanying context provided by the 

auditors.20

In response to the Board’s request for 

comment on the draft 2022–2026 

Strategic Plan, some commenters 

encouraged the Board to continue to 

consider this topic.21 Additionally, in a 

January 2023 comment letter on the 

PCAOB’s proposed quality control 

standard, members of the IAG advocated 

for ‘‘a minimum requirement of eight 

indicators.’’ 22 These eight indicators 

were (i) staffing leverage; (ii) partner 

workload; (iii) manager and staff 

workload; (iv) audit hours and risk 

areas; (v) quality ratings and 

compensation; (vi) audit fees, effort, and 

client risk; (vii) audit firm’s internal 

quality review results; and (viii) PCAOB 

inspection results. 

a. QC 1000: Requirements 

The Board adopted a new quality 

control standard for firms, QC 1000, A 

Firm’s System of Quality Control (‘‘QC 

1000’’),23 which contains provisions 

that are relevant to firm reporting of 

firm- and engagement-level metrics. QC 

1000 will become effective in December 

2025. 

(1) Public Communication of Firm-Level 

or Engagement-Level Information 

QC 1000 includes a quality objective 

that, if a firm communicates firm-level 

or engagement-level information with 

respect to the firm’s audit practice, firm 

personnel, or engagements, such as firm 

or engagement metrics, to external 

parties, such information is accurate 

and not misleading and, with respect to 

any such metrics that are communicated 


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24QC 1000.53e. 

25QC 1000.65c. 

26See PCAOB Rel. No. 2024–013. 

27The comment letters received on the proposal 

are available at https://pcaobus.org/about/rulesrulemaking/rulemaking-dockets/docket-041/ 

comment-letters. 

28See also below for consideration of the 2015 

AQI Concept Release (including comments 

received) and the PCAOB IAG recommendations. 

29PCAOB Rule 2200, Annual Report; PCAOB 

Rule 2201, Time for Filing of Annual Report; 

PCAOB Rule 2203, Special Reports; Instructions to 

Form 2, available at https://pcaobus.org/about/ 

rules-rulemaking/rules/form_2; Instructions to 

Form 3, available at https://pcaobus.org/about/ 

rules-rulemaking/rules/form_3. Information 

reported on Forms 2 and 3 is publicly available 

unless a firm requests confidential treatment. 

30PCAOB Rule 2201; General Instructions 3–4 to 

Form 2 (registered public accounting firm that has 

its application for registration approved by the 

Board in the period between and including April 

1 and June 30 of any year not required to file an 

annual report in that year). 

31 Instructions to Form 2, Item 1.1. 

32 Id., Item 3.1. The Board’s release uses the terms 

‘‘issuer,’’ ‘‘broker,’’ and ‘‘dealer’’ as those terms are 

defined under Sections 2(a)(7) and 110(3)–(4) of 

Sarbanes-Oxley. 15 U.S.C. 7201(a)(7), 7220(3)–(4). 

See also paragraphs (b)(iii), (d)(iii), and (i)(iii) of 

PCAOB Rule 1001, Definitions of Terms Employed 

in Rules. Entities that are brokers or dealers or both 

are sometimes referred to as ‘‘broker-dealers.’’ 

33 Instructions to Form 2, Item 3.2. 

in writing, the communication explains 

in reasonable detail how the metrics 

were determined and, if applicable, how 

the method of determining them 

changed since the metrics were last 

communicated.24 (With respect to 

metrics reported on Form FM and Form 

AP, the form itself provides the required 

explanation.) The final firm and 

engagement metrics include reporting 

elements that focus on the firm’s 

responsibility to produce and report 

information that is accurate and not 

misleading, for example, an optional 

narrative to accompany the metrics. 

This element is discussed further below. 

(2) Use of Metrics in Monitoring the 

Firm’s QC System 

Under QC 1000, in determining the 

nature, timing, and extent of QC systemlevel monitoring activities, the firm is 

required to take into account any 

metrics that the firm may use in its QC 

system.25 QC 1000 does not require the 

use of any specific metrics; firms have 

the ability both to develop metrics on 

their own and to use any or all of the 

metrics required to be reported under 

Rule 2203C and Rule 3211 in their QC 

system, but that is not required. The 

Board believes these metrics would 

provide information that could be used 

in the firm’s system of quality control. 

However, not all firms may find all 

metrics useful in operating or 

monitoring their QC system, and the 

Board is not mandating their use in 

connection with monitoring a firm’s QC 

system at this time. 

b. Firm Reporting 

Concurrently with this rulemaking, 

the Board adopted certain updates to its 

annual and special reporting 

requirements to facilitate the disclosure 

of more complete, standardized, and 

timely information regarding audit 

firms. Among other new requirements, 

the updates will (i) require firms to 

disclose additional information on Form 

2 about their fees, leadership and 

governance structure, and network 

arrangements; (ii) require, in connection 

with QC 1000, a one-time update to the 

statement on a firm’s quality control 

policies and procedures on a new Form 

QCPP; and (iii) expand the scope of 

special reporting to include events that 

pose a material risk, or represent a 

material change, to the firm’s 

organization, operations, liquidity or 

financial resources, in such a manner 

that it will affect the provision of audit 

services, as well as new cybersecurity 

reporting requirements.26

c. Proposed Firm and Engagement 

Metrics 

In April 2024, the Board proposed 

amendments to the PCAOB’s rules and 

reporting forms to require the reporting 

of specified firm-level metrics on new 

Form FM, Firm Metrics, and specified 

engagement-level metrics on an 

amended and renamed Form AP, Audit 

Participants and Metrics. In the Board’s 

proposal, it proposed a set of firm-level 

and engagement-level metrics across 11 

areas to be publicly reported for the 

firms that serve as lead auditor for at 

least one accelerated filer or large 

accelerated filer. 

The Board received over 45 comment 

letters on the proposal.27 Commenters 

included investor-related groups, firms, 

firm-related groups, academics, and 

others. 

Some commenters expressed concerns 

about the speed of rulemaking by the 

Board. Some commenters asked the 

PCAOB for more than 60 days to 

respond to the proposal, citing 

overlapping comment proposal periods, 

the duration of comment periods, the 

length and complexity of various 

proposals, and overlapping SEC 19b–4 

filing comment periods. On the other 

hand, a commenter urged the Board not 

to delay this rulemaking because 

investors need a relatively standardized 

data set to analyze and compare over 

time and across companies. The Board 

believes that 60 days was a sufficient 

period for commenting on the proposal. 

Despite that, the Board considered 

comment letters that were submitted 

after the 60-day period closed. The 

Board received robust comments on the 

proposal, which informed the final 

metrics or final rules.28 These comments 

are addressed throughout this Exhibit 1 

and in the Board’s adopting release 

(Exhibit 3). 

3. Overview of Existing Requirements 

Under current PCAOB rules and 

standards, certain information about 

PCAOB-registered firms is already made 

available to investors, audit committees, 

and other stakeholders. The disclosure 

of firm- and engagement-level metrics 

would supplement this information. 

This section discusses the key PCAOB 

standards and rules that require certain 

firm- and engagement-level information 

to be provided to various stakeholders. 

i. Available Information Related to 

Firms 

PCAOB rules require firms to file 

Form 2 (Annual Report Form) to report 

basic information about the firm and its 

audit practice and Form 3 (Special 

Reporting Form) after the occurrence of 

certain events.29 In addition, the PCAOB 

makes portions of inspection reports 

publicly available for firms that are 

subject to annual or triennial PCAOB 

inspections. 

a. Form 2 and Form 3 

As required by Section 102(d) of 

Sarbanes-Oxley and PCAOB Rule 2200, 

each year registered firms must file an 

annual report with the Board. Under 

PCAOB rules, firms must do so by filing 

Form 2. The annual reporting period 

runs from April 1 to March 31, and the 

due date for filing is June 30.30 In 

addition to basic identifying 

information about the firm,31 firms 

report on Form 2 general information 

about their audit practices and other 

business relationships. Information 

required to be provided on Form 2 

includes: 

• Whether the firm issued audit 

reports for issuers, brokers, or dealers or 

played a substantial role in issuer or 

broker-dealer audits; 32

• Percentage of total fees billed to 

issuers for audit services, other 

accounting services, tax services, and 

non-audit services; 33

• For each issuer or broker-dealer for 

which the firm issued an audit report, 

the issuer’s or broker-dealer’s name, its 

Central Index Key (CIK) number and 

Central Registration Depository (CRD) 

number (if any), and the date of the 

audit report, as well as the total number 


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34 Id., Items 4.1, 4.3. 

35 Id., Item 5.1. 

36 Id., Item 5.2. 

37 Id., Item 6.1. 

38 Id., Items 7.1, 7.2. 

39 Id., Item 8.1 

40 General Instruction 3 to Form 3; Instructions to 

Form 3, Items 2.17, 2.1, 2.1–C, 3.1, 3.2. 

41See QC Adopting Release at 54. 

42See https://pcaobus.org/oversight/inspections 

for inspection reports, basics of inspections, and 

inspection procedures. Sarbanes-Oxley provides 

that no portions of an inspection report that deal 

with criticisms of or potential defects in the quality 

control systems of the firm shall be made public if 

those criticisms or defects are addressed by the 

firm, to the satisfaction of the Board, no later than 

12 months after the issuance of the inspection 

report. See Sarbanes-Oxley Section 104(g)(2). Full 

(expanded) inspection reports are publicly available 

on the PCAOB’s website when a firm fails to 

satisfactorily remediate within 12 months. 

43See https://pcaobus.org/news-events/newsreleases/news-release-detail/pcaob-launches-newonline-tools-to-help-users-find-and-compareinspection-report-data for a summary of the 

enhancements, including six new search filters, 

including Part I.A deficiency rate, to help users 

analyze and compare more than 3,700 inspection 

reports. 

44See Auditing Standard No. 16, 

Communications with Audit Committees; Related 

Amendments to PCAOB Standards; and 

Transitional Amendments to AU Sec. 380, PCAOB 

Rel. No. 2012–004 (Aug. 15, 2012), at 2, available 

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

default-source/rulemaking/docket030/release_2012- 

004.pdf?sfvrsn=7872effb_0. 

45 Id. (‘‘Communications with the audit 

committee provide auditors with a forum separate 

from management to discuss matters about the audit 

and the company’s financial reporting process.’’). 

46See AS 1301.09. 

47See AS 1301.12 

48See AS 1301.13. 

49See AS 1301.24. 

50See Appendix B of AS 1301 (listing other 

PCAOB standards and rules requiring audit 

committee communications); see also 17 CFR 

210.2–07; PCAOB Rule 3526, Communication with 

Audit Committees Concerning Independence. 

51See AS 2415.12. 

52See Instructions to Form AP. Form AP requires 

different disclosures regarding other accounting 

of firm personnel who exercised 

authority to sign the firm’s name to an 

audit report for an issuer or brokerdealer during the reporting period; 34

• Physical address (and, if different, 

mailing address) of each firm office; 35

• Whether the firm has any 

memberships, affiliations, or similar 

arrangements involving certain 

activities related to audit or accounting 

services (including use of name in 

connection with audit services, 

marketing of audit services, and 

employment or lease of personnel to 

perform audit services), and the entities 

with which the firm has those 

relationships; 36

• Total number of accountants, 

certified public accountants, and 

personnel; 37

• Relationships with certain 

individuals and entities with 

disciplinary or other histories (if not 

previously identified); 38 and 

• Acquisitions of another public 

accounting firm or a substantial portion 

of another firm’s personnel.39

In addition to annual reporting on 

Form 2, firms are required to file Form 

3 within 30 days after the occurrence of 

certain events, such as when the firm’s 

legal name has changed while otherwise 

remaining the same legal entity, the firm 

has withdrawn an audit report on the 

financial statements of an issuer or has 

resigned, declined to stand for reappointment, or been dismissed from an 

audit engagement as principal auditor, 

and the issuer has failed to comply with 

applicable Form 8–K reporting 

requirements for such events.40

b. Firm Inspection Reports 

Sarbanes-Oxley authorizes the 

PCAOB to inspect firms for the purpose 

of assessing compliance with certain 

laws, rules, and professional standards 

in connection with a firm’s audit work 

for issuers, brokers, and dealers. Firms 

that issue audit reports for more than 

100 issuers per year are inspected 

annually. Firms that issue 100 or fewer 

audit reports per year for issuers are 

generally inspected at least once every 

three years. The Board also inspects 

firms that play a substantial role in 

audits of issuers. Many firms registered 

with the Board perform no audit work 

for issuers or broker-dealers,41 or only 

participate in audits below the level of 

a substantial role, and the Board has not 

historically inspected those firms. The 

PCAOB provides each inspected firm 

with a report summarizing any 

deficiencies identified through the 

inspections process. Portions of these 

inspection reports are publicly available 

on the PCAOB’s website.42 Recently the 

PCAOB introduced enhanced search 

tools that enable investors and others to 

better access and understand data from 

PCAOB inspection reports.43

ii. Available Information Related to 

Issuer Engagements 

a. Auditor’s Communications With 

Audit Committees 

Investors and other financial 

statement users are the beneficiaries of 

the audit. Audit committees protect the 

interests of investors by assisting the 

board of directors in fulfilling its 

responsibility to oversee the integrity of 

the company’s accounting and financial 

reporting processes, including the audit 

of the company’s financial statements— 

and in carrying out that duty, they also 

benefit other financial statement users. 

To support the audit committee in this 

crucial role, PCAOB standards and rules 

and SEC rules require auditors to 

provide certain firm- and engagementlevel information to audit committees.44

AS 1301, Communications with Audit 

Committees, requires various 

communications to facilitate the audit 

committee’s financial reporting 

oversight.45 Among other things, AS 

1301 requires the auditor to 

communicate: (i) significant risks; 46 (ii) 

critical accounting policies and 

practices, critical accounting estimates, 

and significant unusual transactions; 47

(iii) the auditor’s evaluation of the 

quality of the company’s financial 

reporting; 48 and (iv) other matters that 

are significant to the oversight of the 

company’s financial reporting process.49

In addition, other PCAOB standards and 

rules and SEC rules independently 

require certain audit committee 

communications.50

b. Auditor’s Public Communications of 

Certain Information 

AS 3101 and Rule 3211 require firms 

to publicly disclose certain engagementspecific information in the auditor’s 

report and on Form AP. In addition to 

specifying the requirements for an 

unqualified opinion on the financial 

statements, AS 3101 requires the 

auditor’s report to describe (i) critical 

audit matters, which inform investors 

and other financial statement users of 

matters arising from the audit that 

required especially challenging, 

subjective, or complex auditor 

judgment; and (ii) how the auditor 

addressed those matters. AS 3101 

further requires the auditor’s report to 

include a statement disclosing the year 

in which the auditor began serving 

consecutively as the company’s auditor. 

Other standards require additional 

information to be included in the 

auditor’s report, including AS 2415, 

Consideration of an Entity’s Ability to 

Continue as a Going Concern, which 

requires an explanatory paragraph when 

the auditor concludes that there is 

substantial doubt about the entity’s 

ability to continue as a going concern 

for a reasonable period of time.51

PCAOB Rule 3211 requires auditors to 

file Form AP, which, among other 

things, provides information to 

investors and other financial statement 

users about the engagement partner and 

other accounting firms participating in 

the audit of issuers. Disclosures on 

Form AP provide increased 

transparency about certain audit 

participants. The key provisions include 

annual disclosures of (a) the name of the 

engagement partner and (b) the name 

and extent of participation of other 

accounting firms in the audit.52


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firms that participate in an audit depending on their 

level of participation. For other accounting firms 

with individually 5% or greater participation in the 

audit, the Form AP filer must disclose the legal 

name of the other accounting firm, the city and state 

(or, if outside the United States, the city and 

country) of that firm’s headquarters, and the 

percentage of total audit hours (either as a single 

number or within a range provided on the form) 

attributable to each other accounting firm. For other 

accounting firms with individually less than 5% 

participation, the filer must disclose the total 

number of such other accounting firms and the 

aggregate percentage (either as a single number or 

within a range provided on the form) of total audit 

hours for all such firms. 

53See AuditorSearch, available at https://

pcaobus.org/resources/auditorsearch. 54CAQ, Audit Quality Disclosure Framework 

(Update) (June 2023). The framework provides that 

metrics ‘‘may provide those overseeing the audit 

and other stakeholders with information and 

additional transparency into the firm’s systems and 

processes that impact audit quality. However, the 

CAQ believes that a combination of metrics—taken 

as a whole and supplemented with robust 

discussion—may provide those overseeing the audit 

and other stakeholders with information and 

additional transparency into the firm’’s systems and 

processes that impact audit quality.’’ Id. at 4. 

55See CAQ Audit Quality Reports Analysis: A 

Year in Review (Mar. 2023), available at https://

www.thecaq.org/aqr-analysis-yir (‘‘CAQ Report’’). 

The eight firms on the CAQ’s governing board are 

BDO USA, LLP, Crowe LLP, Deloitte & Touche LLP, 

Ernst & Young LLP, Grant Thornton LLP, KPMG 

LLP, PricewaterhouseCoopers LLP, and RSM US 

LLP. 

56 In connection with the Nov. 2022 SEIAG 

meeting, the Board staff researched various reports 

issued during the prior three years by the top 20 

accounting firms (by 2022 revenue) and identified 

nine firms that disclosed firm-level metrics. See 

Firm and Engagement Performance Metrics Briefing 

Paper and Related Attachments from Nov. 2022 

SEIAG meeting, available at https://pcaobus.org/ 

news-events/events/event-details/pcaob-standardsand-emerging-issues-advisory-group-meeting-2022. 

For each firm-level metric reported by those nine 

firms, the PCAOB staff included examples of how 

firms calculated the metric as well as the number 

of firms reporting that metric. 

57See Accountancy Europe, Factsheet, Audit 

Quality Indicators—A Global Overview of Initiatives 

(May 2022), available at https://www.accountancy

europe.eu/wp-content/uploads/220401-FactsheetAudit-Quality-Indicators.pdf (‘‘Accountancy Europe 

Report’’). 

58 Id. Other oversight bodies in the Accountancy 

Europe Report include the Federal Audit Oversight 

Authority (FAOA) in Switzerland and the 

Accounting and Corporate Regulatory Authority 

(ACRA) in Singapore. 

59 Id. Professional organizations in the 

Accountancy Europe Report include the Institute of 

Public Auditors (IDW), Germany and The Institute 

of Chartered Accountants (ICAI), India. 

60 Id. Quartermasters, Netherlands. 

61See FRC, Consultation Document: Firm-level 

Audit Quality Indicators (June 2022), available at 

https://media.frc.org.uk/documents/FRC_AQI_

Consultation.pdf. See FRC, Feedback Statement: 

Firm-level Audit Quality Indicators Consultation 

(Dec. 2022), available at https://www.frc.org.uk/ 

Continued 

The PCAOB makes the Form AP data 

set available on AuditorSearch, by 

which users can conduct live searches 

or download the entire data set in a 

searchable, machine-readable format.53

Using this data, a user can determine, 

for example, the changes in engagement 

partner for any given issuer or obtain a 

list of all issuers for which an 

engagement partner is responsible. After 

identifying an engagement partner, a 

user can then compile information from 

other sources, including information 

about whether the partner is associated 

with restatements of financial 

statements, has been subject to public 

disciplinary proceedings, or has 

experience as an engagement partner for 

issuers of a particular size or in a 

particular industry. Similarly, starting 

from the Form AP data set, users may 

perform further research on the other 

accounting firms that participate in an 

audit, such as whether those firms are 

registered with the PCAOB, whether 

they have any publicly available 

disciplinary history, whether they have 

been inspected, and, if so, the results of 

those inspections. 

4. Voluntary Firm Reporting 

Since the Concept Release, many of 

the audit firms that issue audit reports 

for more than 100 issuers and audit the 

majority of the market capitalization for 

issuers have been publicly disclosing 

certain firm-level information discussed 

in the Concept Release through their 

audit quality reports, transparency 

reports, or other published reports. A 

firm-related group has published a 

framework to assist its members in these 

efforts.’’ 54 Many firms may also be 

developing and monitoring certain firm 

and engagement metrics to be used 

internally by the firm. In 2023, the same 

firm-related group published a summary 

analysis of the most recent audit quality 

reports issued by the eight firms 

represented on the group’s governing 

board.55 The report indicated that firms 

were reporting similar firm-level 

quantitative metrics related to several 

areas, including audit firm inspections; 

training; use of auditor’s specialists; 

audit report reissuances and financial 

statement restatements; measures of 

experience, such as tenure with the 

firm; and personnel turnover. The report 

further noted that some firms disclosed 

qualitative as well as quantitative 

information, including information 

relating to audit methodology and 

execution, people and firm culture, 

quality management and inspections, 

and technology and innovation. 

The Board has observed the firms that 

report firm-level metrics generally do 

not report engagement-level metrics.56

Where firm-level metrics are reported, 

the firms report different metrics, 

calculated in different ways, and using 

different definitions, thereby preventing 

users from making comparisons across 

firms. 

One commenter on the Concept 

Release stated that many firms are using 

the 28 AQIs identified in the Concept 

Release at some level to (i) manage the 

firm and (ii) manage the quality of 

audits at the office level and at the 

engagement level. Another commenter 

specifically indicated that its audit 

committee reviewed the engagementlevel AQIs identified in the Concept 

Release that were provided by their 

auditor. 

One commenter on the proposal 

asserted that the voluntary reporting 

firms already do through transparency 

and audit quality reports includes firmlevel metrics, as well as explanations of 

how they are calculated, including 

changes in the calculation that could 

affect comparability, as well as context 

necessary for understanding the metrics, 

and would be preferable to the 

mandatory metrics that the Board 

proposed. On the other hand, an 

investor-related group presented an 

analysis of firm transparency and audit 

quality reports, finding that the 

measures used in transparency reports 

and audit quality reports by different 

firms are not consistent or comparable 

across firms in their computations, 

presentation and inclusion, and are not 

provided at the engagement level, which 

the commenter believes is the level at 

which they would be most useful. This 

commenter stated that having both firmand engagement-level metrics enhances 

the metrics’ usefulness because it 

provides broader context for 

understanding at both levels. 

Actions in Other Jurisdictions 

Some jurisdictions outside the United 

States have moved forward with 

mandatory or voluntary initiatives 

related to the monitoring and disclosure 

of metrics. In May 2022, Accountancy 

Europe published a factsheet about 

recent related initiatives in Europe and 

elsewhere.57 The Accountancy Europe 

Report described initiatives conducted 

in 10 countries (including the United 

Kingdom (U.K.), South Africa and 

Canada) by various organizations, 

including audit oversight bodies 

(including the U.K.’s Financial 

Reporting Council (FRC), Portugal’s 

Securities Market Commission (CMVM), 

South Africa’s Independent Regulatory 

Board for Auditors (IRBA), and the 

Canadian Public Accountability Board 

(CPAB)),58 professional organizations,59

a group of independent experts,60 and 

the CAQ. Additionally, the FRC in the 

U.K. issued a consultation document 

and a feedback statement in 2022 on 

publishing AQIs for the largest U.K. 

audit firms,61 the IRBA in South Africa 


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getattachment/afbf3bc4-cf15-468a-85daafb8e5af222a/Feedback-Statement_-2022.pdf (‘‘FRC 

Feedback Statement’’). 62See IRBA 2021 Survey Report Audit Quality 

Indicators, available at https://www.irba.co.za/ 

upload/IRBA%20AQI%20Report%202021.pdf and 

IRBA 2022 Survey Report Audit Quality Indicators, 

available at https://www.irba.co.za/upload/ 

2022%20AQI%20Report.pdf. 63See CPAB Audit Quality Indicators Final 

Report, available at https://cpab-ccrc.ca/docs/ 

default-source/thought-leadership-publications/ 

2018-aqi-final-report-en.pdf?sfvrsn=5af68dba_

12&sfvrsn=af68dba_12 (‘‘CPAB Final Report’’). See 

also CPAB Audit Quality Indicators: How to put 

them to work, available at https://cpab-ccrc.ca/ 

docs/default-source/thought-leadershippublications/2019-aqi-put-to-worken.pdf?sfvrsn=246de787_10. 

64See Accountancy Europe Report (public 

reporting encouraged or anticipated by ACRA, 

CAQ, FRC, IDW, and Quartermasters). 

65See Accountancy Europe, Position Paper, Key 

Factors to Develop and Use Audit Quality 

Indicators (Jan. 2023), available at https://

accountancyeurope.eu/wp-content/uploads/ 

221206-AQIs-Position-Paper_FINAL.pdf. 

66See https://www.frc.org.uk/consultations/aqisconsultation. In June 2025, the FRC is requiring 

firms that audit 20 or more public interest entities 

to publicly report ten firm-level metrics across five 

areas. These areas include (i) Performance 

monitoring and remediation, (ii) Quality 

monitoring, (iii) Resource planning and people 

management, (iv) Information and communication, 

and (v) Governance and leadership. 

requested firms auditing listed 

companies to submit AQI-related 

information to the IRBA,62 and the 

CPAB launched an exploratory pilot 

project to solicit feedback on AQIs’ 

usefulness in support of broader 

national and international 

discussions.63 The primary users of the 

metrics from these initiatives were audit 

committees, oversight bodies, and 

professional organizations. Although 

many of the metrics in these initiatives 

were nonpublic, public reporting was 

encouraged or anticipated in the future 

for half of the initiatives.64 The 

Accountancy Europe Report suggested 

that several factors should be 

considered when selecting, evaluating, 

and reporting metrics and 

recommended that a combination of 

metrics would provide ‘‘profound 

insight into audit quality.’’ 

In January 2023, Accountancy Europe 

published a position paper.65 The 

position paper defined key concepts 

related to audit quality, presented 

considerations for developing AQIs, and 

explained what, in its view, can and 

cannot be achieved by reporting such 

indicators (for example, the paper 

pointed out that all metrics have 

limitations, that metrics are not a proxy 

for financial reporting quality, and that 

user expectations should be managed to 

make them aware that metrics do not 

provide definitive results). The paper 

stated as part of its conclusion that 

‘‘[AQIs] should not be considered as an 

end in themselves but could be a useful 

tool to drive audit quality’’ and 

reiterated that a combination of metrics 

would provide insight into audit 

quality. 

Some commenters noted that 

initiatives in other jurisdictions do not 

currently require public disclosure. 

Others suggested that the requirements 

that the Board proposed were more 

onerous than other jurisdictions and 

may cause reporting of different 

calculations for similar metrics in 

different jurisdictions. One commenter 

provided examples in other 

jurisdictions including providing 

optional guidance, allowing 

engagement-level metrics to be shared 

confidentially with audited entities, and 

allowing for voluntary adoption. 

Another commenter expressed its belief 

that the Board is attempting to justify 

individual metrics based on certain 

jurisdictions’ use but have not fully 

considered the context in how they are 

being used or the process that has been 

undertaken in those jurisdictions. An 

additional commenter stated that the 

comparability problem between 

jurisdictions could be solved by 

allowing firms to voluntarily disclose 

the metrics as defined. One commenter 

expressed the hope that audit regulators 

globally will seek to align requirements 

relating to the reporting of metrics. 

While other jurisdictions have not 

historically required public reporting, 

the U.K. FRC has announced that it will 

begin to require public reporting in 

2025.66

The Board considered the actions 

taken in other jurisdictions in 

developing the final metrics. While 

substantially all the final metrics are the 

same as, or similar to, metrics used in 

some other jurisdictions, the Board 

acknowledges that no other jurisdiction 

has embraced either the full set of 

metrics or the public reporting 

requirements the Board has adopted. 

However, the Board’s objective in 

understanding actions in other 

jurisdictions was not to conform to what 

they have done but rather to consider 

those actions in the context of the 

Board’s own rulemaking, which is 

addressed further below. The Board 

believes that its approach to evaluating 

and determining which metrics should 

be disclosed is appropriate in light of its 

statutory investor-protection mission. 

Discussion of the Final Rules 

Overview 

As noted above, the Board considered 

ways to measure audit firm and audit 

performance, primarily with a view to 

providing information that investors can 

use in making decisions regarding their 

investments, such as ratifying the 

selection of the auditor and voting for 

members of the board of directors, 

including directors who serve on the 

audit committee. The Board also 

believes that firm and engagement 

metrics will benefit other stakeholders. 

For audit committees, metrics will 

provide additional context, including 

consistent comparative information that 

is not currently available, that can be 

used when deciding whether to select or 

retain a firm and when overseeing the 

auditor’s performance. For audit firms, 

metrics will provide standardized 

information about themselves and their 

peers that can be used in designing, 

implementing, monitoring, and 

remediating their systems of quality 

control. The Board will also benefit 

from having additional tools to use in its 

inspections program and standardsetting initiatives. 

This rulemaking addresses the need 

for information by requiring consistent, 

comparable disclosures that the Board 

believes will provide insight into 

aspects of the firm and the engagement 

team conducting the audit, including 

information relating to workloads, 

retention, allocation of audit hours, 

experience, and restatements. 

1. Purpose of the Metrics 

Investors and other stakeholders lack 

information that is available to company 

management. The federal securities laws 

seek to reduce this information 

asymmetry through various disclosure, 

internal control, and other 

requirements, including requirements 

for public companies to prepare and 

disclose financial statements 

accompanied by audit reports issued by 

an independent public accounting firm. 

Investors and other stakeholders also 

lack information available to the auditor 

and cannot observe the auditor’s work 

or other aspects of a public company 

audit. Instead, they must rely on the 

audit committee, which is charged with 

overseeing the external auditor, and on 

other available public information, such 

as the reputation of the firm issuing the 

audit report or the name of the 

engagement partner. These difficulties 

in evaluating the audit and the auditor 

may lead to reduced accountability for 

auditors and an inefficient allocation of 

audit effort. Such allocations allow 

audit risk to remain insufficiently 

evaluated, ultimately risking suboptimal 

investment decisions, hampering the 

efficient functioning of the audit 

profession, and negatively affecting the 


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67There is a long stream of research regarding the 

effects that information asymmetry about product 

features, such as quality, and disclosure have on 

markets. See, e.g., George A. Akerlof, The Market 

for ‘‘Lemons’’: Quality Uncertainty and the Market 

Mechanism, 84 The Quarterly Journal of Economics 

488 passim (1970); and Robert E. Verrecchia, Essays 

on Disclosure, 32 Journal of Accounting and 

Economics 97 (2001). 

68See PCAOB Rel. No. 2024–013. 

69See PCAOB Rule 3211. 

70See AS 3101.10.b, .11–.16. 

71 In addition to disclosures on Form AP and in 

the audit report, the Board previously required 

information on periodic and special reports to be 

publicly available. See Rules on Periodic Reporting 

by Registered Public Accounting Firms, PCAOB Rel. 

No. 2008–004 (June 10, 2008), 28–32. 

72Under Section 102 of Sarbanes-Oxley, the 

Board may require registered public accounting 

firms to submit periodic and special reports 

containing financial or other information as is 

‘‘necessary or appropriate in the public interest or 

for the protection of investors.’’ 15 U.S.C. 7212(d). 

Section 103 of Sarbanes-Oxley tasks the Board with 

adopting quality control and other standards to be 

used by registered firms ‘‘in the preparation and 

issuance of audit reports . . . as may be necessary 

or appropriate in the public interest or for the 

protection of investors.’’ 15 U.S.C. 7213(a)(1). See 

also 15 U.S.C. 7211(a), (c)(5), 7213(a)(2)(B). The 

Board believes the proposed metrics would further 

the public interest and would protect investors in 

accordance with these provisions. 

capital markets.67 Furthermore, while 

the audit committee has more 

information regarding the specific 

auditor it oversees, it lacks insight into 

other audit engagements and other 

firms; such comparable information 

would assist the audit committee in 

more effectively selecting and 

monitoring the auditor. 

Investors and other stakeholders may 

seek to reduce these information 

disparities by gathering additional 

information about the firm responsible 

for the audit and the relevant audit 

engagement. As discussed above, the 

PCAOB has previously sought to 

facilitate those efforts through rules and 

standards requiring the disclosure of 

such information. From its inception, 

the Board’s registration and reporting 

program has yielded important 

information about registered firms. 

Annual updates on Form 2 include 

information such as the issuers audited 

by the firm, a breakdown of fees charged 

to issuers, and network affiliations, and 

current reporting on Form 3 discloses 

significant events such as the 

withdrawal of an audit report and 

certain legal actions involving the firm 

or its professionals. The Board 

concurrently adopted amendments to 

both of those reporting forms to 

mandate the disclosure of standardized 

and timely information by firms.68

Firms are required to disclose on Form 

AP the name of the engagement partner 

and certain audit participants.69 The 

Board also made the auditor’s report 

more relevant and informative by, 

among other things, requiring 

communication of critical audit matters 

and the tenure of the auditor.70 The 

Board intends the firm and engagement 

metrics to complement these other 

initiatives and to add to the mix of 

information available to investors and 

other stakeholders when evaluating the 

auditor and the audit.71

The Board’s oversight activities have 

revealed that there are identifiable 

performance differences across firms 

and among engagement teams within 

the same firm, including variations 

among firms belonging to global 

networks. The Board considered such 

differences when performing regulatory 

functions. For example, the Division of 

Registration and Inspections uses, 

among other factors, information about 

the firm and the engagement to identify 

audit engagements for risk-based 

selections in the Board’s inspections 

program. 

Mandating public disclosure of firmand engagement-level metrics will 

provide investors, audit committees, 

and other stakeholders with comparable 

information that is not currently 

available and will otherwise be difficult 

or impossible to obtain. These 

stakeholders will be able to learn about 

both specific engagements and specific 

firms and have a basis to compare them 

to other engagements and other firms. 

The firms themselves could also benefit 

from access to information about their 

peers, both in gaining new perspective 

on how their practices compare and in 

potentially gaining new opportunities 

for competition based on markers that 

users come to associate with quality. 

Required disclosures will facilitate 

development of standardized data for 

consistent comparison and analysis over 

time, which the Board believes will be 

more valuable than the ad hoc, 

individualized disclosures that some 

firms have made on a voluntary basis. 

Mandatory public disclosure will also 

ensure that the information will be 

accessible to all stakeholders, so that 

any decision-useful information can be 

readily evaluated. The Board believes 

this information will enable investors, 

audit committees, and other 

stakeholders to make better-informed 

decisions.72

The Board believes the metrics will 

also assist the PCAOB in a variety of 

ways. Metrics will help to inform the 

Board’s inspection activities, including 

in the selection of firms, engagements, 

and focus areas for review. For example, 

the final metrics could refine the 

selection models used to aid in 

predicting negative audit outcomes, 

enhancing the Board’s risk-based 

inspections. They could also enrich the 

discussions the Board has with audit 

committee chairs as part of the Board’s 

inspections process. Metrics may also 

inform future standard-setting activities 

by helping the Board to identify areas 

where regulatory action is needed and 

suggesting potential approaches. In 

addition, the Board expects metrics to 

enhance the PCAOB’s ability to produce 

impactful research and to provide 

valuable information sources for the 

public, including academic research, 

helping to create new insights into the 

audit. 

The Board’s discussion of the 

potential benefits of the final metrics in 

greater detail below. 

2. Public Reporting of Metrics 

Many commenters on the proposal 

addressed the fundamental question of 

whether there was value in mandating 

a set of publicly reported metrics, 

expressing conflicting views. Investors 

and investor-related groups were 

generally supportive. Many other 

commenters, primarily firms and firmrelated groups criticized the proposal. 

These commenters either supported 

public reporting of some firm-level 

metrics but not others while generally 

opposing any public reporting of 

engagement-level metrics, or opposed 

all public reporting of metrics at both 

the firm and engagement levels. 

Among the commenters that 

supported the metrics proposal, several 

stressed the benefits of increased 

transparency for key stakeholders and 

the public overall. Several commenters 

generally agreed with the PCAOB’s 

rationale for the metrics, including 

increasing competition among audit 

firms, including on the basis of audit 

quality; promoting auditor 

accountability, which will lead to 

greater audit quality; and providing 

investors with decision-useful 

comparable information that will assist 

them in making decisions about auditrelated matters (e.g., ratifying the 

appointment of the auditor or voting for 

reelection of Board members that serve 

on the audit committee). Two of these 

commenters asserted that investors 

currently lack information to make an 

independent and informed decision 

regarding ratification of the 

appointment of the auditor and to hold 

audit committee members to account in 

the performance of their duties. In that 

context, one of these commenters 

pointed out that most failures to ratify 

the appointment of the auditor occur 

after a financial reporting failure, and 

argued that metrics would provide 

information allowing investors to make 


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73Commenters listed various types of contexts 

that in their view would be necessary for proper 

understanding of the engagement-level metrics, 

including variations across firms (e.g., differences 

in operations, structures, methodologies, and 

resources), the unique circumstances of each 

engagement (e.g., differences in risk areas, team 

compositions, and timelines), and the unique 

circumstances of each issuer (e.g., differences in 

policies and resources). 

an ex ante, rather than ex post, 

evaluation of the auditor’s work. 

Two commenters particularly favored 

engagement-level metrics. One said it 

would enable the compilation of 

engagement-level data for all public 

company audit engagements within a 

specific office to compare data for 

competing offices within the same 

geographic area. In this commenter’s 

view, metrics such as workload would 

provide great value to prospective 

employees and would improve the 

talent pipeline issue because firms’ 

workload need to be competitive in the 

eyes of prospective employees. Another 

argued that engagement-level metrics 

are most useful to investors, using firmlevel metrics to provide context. This 

commenter also emphasized the 

importance of firm-level metrics, which 

will provide context in evaluating 

engagement-level metrics and a firm’s 

audit practice and its related system of 

quality control. 

Several commenters said that the 

benefits of metrics would likely evolve 

over time, for example, as users are able 

to aggregate multiple data points, make 

comparisons, and observe trends. The 

Board agrees and believes that analyzing 

the metrics over time, across 

engagements and across firms, in the 

context of known good practices and 

indicators of audit failure, will enable 

the PCAOB, as well as academics and 

users of the metrics, to gain a new 

perspective on the audit and potentially 

deeper insights into some of the drivers 

of audit quality. 

Many larger firms generally supported 

certain firm-level metrics. These 

commenters generally agreed that firmlevel reporting could provide 

stakeholders with relevant information 

through consistent disclosure by all 

firms required to report. While some of 

the commenters raised concerns about 

the usefulness, comparability, and risk 

of misinterpretation of certain firm-level 

metrics; the risk that standardization of 

metrics limits their adaptability to 

change in the business and auditing 

environment; and more generally 

concerns that the costs may outweigh 

the benefits, commenters agreed that the 

proposed firm-level metrics are 

generally consistent with voluntary 

disclosures that some firms are already 

making in firm transparency and audit 

quality reports. A discussion of the 

comments made with regard to 

particular metrics is provided below. 

However, firms and firm-related 

groups generally opposed engagementlevel metrics. Some questioned whether 

investors would use the metrics. Others 

expressed concern that publicly 

available metrics could contribute to 

information overload. Many said that it 

would not be possible to provide 

sufficient context to enable users to 

understand the metrics, even with the 

firm-level metrics or narrative 

disclosures. Some commenters asserted 

that, because the underlying 

circumstances of engagement-level 

metrics are not homogeneous and users 

would not have necessary context, 

engagement-level metrics would not be 

comparable.73 Others focused on the 

significance of qualitative factors such 

as professional judgment and the duty 

to exercise due care, including 

professional skepticism, saying that 

metrics were inappropriately ‘‘one size 

fits all’’ or not decision-useful because 

they do not capture these key concepts. 

Many commenters expressed concern 

that users would not find metrics 

meaningful and may even 

misunderstand them and reach 

inappropriate conclusions. Absent 

providing substantial context and 

understanding how stakeholders would 

use the metrics, in one commenter’s 

view, investors may make capital 

allocation decisions based on a 

misinterpretation of a metric, resulting 

in a new element of volatility in the 

capital markets. Two commenters raised 

a concern that the proposal does not 

provide a tie between assessing audit 

quality and the proposed metrics. Some 

commenters went on to say that 

providing metrics in isolation without 

context and effective two-way 

communication would have very 

minimal, or even negative, impact on 

audit quality. Another commenter stated 

that most of the data points required as 

part of the proposal are currently 

available to the PCAOB. 

One commenter expressed concern 

that overemphasis on metrics could lead 

firms to focus on consistency of the 

metrics to avoid the implication of weak 

auditing or other potential 

misinterpretations, which in the 

commenter’s view could lead to 

commoditization of the audit and 

reduce incentives to innovate the audit 

approach. On the other hand, several 

other commenters argued that metrics 

would support more robust competition 

based on quality, making the audit less 

of a commodity. 

Some commenters said that the 

metrics seemed particularly focused on 

larger firms or would be especially 

burdensome for smaller firms. The 

Board believes the final metrics call for 

data that will be relevant to and 

obtainable by firms regardless of size. 

The potential differential cost impacts 

are discussed below. 

Some commenters questioned 

whether public reporting of metrics 

would undermine the authority of the 

audit committee. For example, one 

expressed concern that there would be 

public pressure on the audit committee 

to appoint auditors whose metrics were 

perceived to be within some acceptable 

range, even if the committee was 

satisfied with the work of the current 

auditor. Another commenter asserted 

that it is not investors’ responsibility to 

oversee the auditor, and raised a 

concern that public reporting of metrics 

could undermine confidence in audit 

committees and the PCAOB, both of 

which have responsibilities for direct 

oversight of audits and audit firms and 

have the context to properly understand 

these metrics. However, an investorrelated group specifically disagreed 

with this reasoning and asserted that 

this rulemaking exhibits commitment to 

faithfully executing the PCAOB’s 

responsibilities and working to improve 

audit quality and trust in the audit 

market. 

Several commenters opposed both 

firm- and engagement-level metrics. One 

asserted that the proposal did not 

provide sufficient evidence that public 

disclosure of the proposed metrics will 

have any meaningful impact on the 

quality of audit services. Another 

commenter said that the metrics were 

not grounded in or intended to have any 

nexus with audit quality, focusing 

instead on auditor accountability, and 

on that basis went beyond the PCAOB’s 

remit. The commenter asserted that the 

proposed metrics would overload audit 

committees and investors with a large 

set of complex data that was not sought, 

needed, meaningful, or obviously usable 

by them, suggesting that the current 

voluntary approach should be 

maintained instead. Another expressed 

concern that public disclosure of the 

information specified in the proposals 

could do more harm than good, 

particularly in relation to an increase in 

litigation and reputational risk and 

potentially furthering the talent crisis in 

the profession. That commenter 

particularly questioned the potential 

value of metrics for audit committees, 

saying that they already have access to 

most of the information that would be 

mandated and that annual reporting 

would be unhelpful since evaluation of 

the auditor is a continuous process. One 

commenter who advocated delay and 


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74This commenter provided several examples of 

inconsistencies in reporting metrics. For example, 

it stated while all Big 4 firms provide data on 

turnover or attrition, they are defined and 

calculated in different ways and any comparison 

among the firms is stymied. 

75See Schedule 14A. Information required in 

proxy statement, 17 CFR 240.14a–101. If action is 

to be taken at a shareholders’ meeting with respect 

to the election of directors, Item 7 of Schedule 14A 

requires the proxy statement to contain a report of 

the audit committee as specified in Item 407 of 

Regulation S–K, 17 CFR 229.407. 

further study before the Board takes 

further action on the metrics expressed 

skepticism that metrics would influence 

shareholder votes on ratification of the 

appointment of the auditor or benefit 

most investors, because metrics are only 

indirectly related to audit quality and 

there would not be sufficient incentive 

for users to engage with them. 

Most of the commenters who objected 

to public reporting of metrics 

recommended alternatives, including 

mandatory or voluntary communication 

with the audit committee, particularly 

for engagement-level metrics. Many 

commenters asserted that the audit 

committee is the appropriate party to 

whom engagement-level metrics should 

be communicated, because the audit 

committee has the statutory 

responsibility to appoint, compensate, 

and replace the external auditor and is 

sufficiently informed to understand the 

context of the company, the audit, and 

the auditor. Commenters said that audit 

committees could engage in dialog with 

the auditor, enabling them to 

understand the metrics in the context of 

the specific audit, promoting 

accountability in the performance of the 

audit on behalf of investors. Another 

commenter asserted that providing 

information to, and allowing the 

assessment by, audit committees would 

be more likely to provide greater 

benefits to investors and the capital 

markets than public reporting, while 

minimizing unintended consequences 

(such as users reaching inappropriate 

conclusions), and would be consistent 

with the PCAOB’s objective to improve 

audit quality. Another commenter, who 

questioned the value of metrics for most 

investors, said metrics had the potential 

to be quite useful for audit committees, 

who could use their direct access to the 

auditor to gain valuable context and 

would have the opportunity, using 

metrics, to communicate more about the 

audit process in their audit committee 

report. On the other hand, an investorrelated group pointed out that audit 

committees are reliant on 

communications from the auditor 

regarding the company’s audit issues 

and the quality of the audit; their 

principal tool is inquiry, not 

observation, which, in audit parlance, is 

the weakest form of audit evidence. 

Many commenters that objected to 

publicly available metrics like the ones 

the Board proposed advocated a nonprescriptive, principles-based approach, 

whereby auditors and audit committees 

would discuss potential metrics and the 

audit committee would determine 

which metrics and other information it 

finds meaningful and when it wants to 

receive and evaluate them. This 

approach, the commenters said, would 

encourage more tailored metrics that 

could be appropriately discussed in 

context and could change over time, 

adapting to changes in the audit 

environment, regulation, technology 

and audit processes, and the 

information needs of audit committees 

and investors and would prioritize 

relevance rather than consistency. Some 

commenters specifically recommended 

amending AS 1301 to mandate such a 

discussion (for example, initially in 

connection with audit planning and 

later as part of reporting on audit 

results). However, one investor-related 

group disagreed with this principlesbased approach, asserting that it would 

not promote comparability or 

accountability because a set of 

principles would inevitably result in 

qualitative rather than quantitative 

disclosure and the information would 

not be comparable between firms and 

engagements and over time. This 

commenter asserted that the 

standardized metrics the Board 

proposed would be more useful to 

investors. 

This commenter also provided 

analysis of audit quality reports 

published by the Big 4 firms, observing 

that elements of the proposed firm-level 

metrics are already presented in those 

reports under a principles-based 

approach whereby each firm has 

developed its own metrics.74 The 

commenter noted that some of these 

metrics are qualitative, some are 

quantitative, some use different 

definitions, and some unfavorable 

metrics or facts may be excluded. This 

commenter also asserted that because 

metrics voluntarily published by firms 

are self-defined and principles-based 

and are only at the firm level and not 

at the engagement level, they are largely 

unused by the investment community; 

they are regarded as marketing materials 

rather than investor information. This 

commenter emphasized that investors 

need more standardized information 

contextualized at the engagement-level 

to the company they are investing in 

and that are anchored to the firm-level 

standardized information. 

Several commenters noted that it 

would be possible for audit committees 

to provide additional public disclosure 

via the audit committee report in the 

issuer’s proxy statement,75 which 

investors could consider in deciding 

whether to ratify the audit committee’s 

selection of auditor and whether to vote 

for the board members who serve on the 

audit committee. Some of these 

suggested that the SEC could take action 

instead of, or along with, the PCAOB. 

Two argued that expanded audit 

committee disclosure would result in 

more relevant and decision-useful 

information for investors than the 

proposed metrics or would be a more 

direct way to address the information 

asymmetry than through this 

rulemaking. The other suggested that 

the SEC, together with the New York 

Stock Exchange and Nasdaq, should 

require inclusion of the metrics in the 

proxy statement to provide context for 

existing fee disclosures and to make 

investors aware of the metrics without 

having to search for them separately. 

One firm suggested that the PCAOB 

gather the information underlying the 

metrics via inspection. However, this 

would defeat the objective of enhancing 

transparency to enable better informed 

decision-making by stakeholders. 

Another firm expressed concern that 

engagement-level metrics may not be 

useful because they will become 

available only once a year, with a delay 

of up to 35 days after the audit is 

completed until Form AP is filed. 

However, an investor-related group 

disagreed with this argument indicating 

that the financial results for companies 

are delivered with the same, or a more 

significant delay, to investors and 

usefulness of the information is not 

simply its immediate discrete disclosure 

but the trends in the information within 

and between companies over time. 

In addition, commenters raised 

general concerns about metrics 

requirements, including 

• the risk that publishing metrics 

would involve releasing confidential or 

nonpublic information, which may 

violate confidentiality obligations 

imposed by the American Institute of 

CPAs (‘‘AICPA’’) Code of Professional 

Conduct or conflict with non-US laws 

and regulations; 

• diverting the attention of the 

engagement team and firm resources 

away from performing quality audits; 

• lessening competition by releasing 

competitively sensitive information and 

reducing the number of registered 

public accounting firms, particularly in 

foreign jurisdictions, that would be 

available to play a substantial role in a 

large multinational group audit; 


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76 In 2023, there were over 333,000 unique 

searches performed on AuditorSearch and the Form 

AP data set was downloaded over 2,000 times. 

Information related to usage statistics can be found 

on the PCAOB’s website (https://pcaobus.org/ 

resources/auditorsearch). 

77The Center for Audit Quality Critical Audit 

Matters Survey (July 2024) at 9. 

• being burdensome and costly to 

compile data for each individual 

engagement; 

• becoming a ‘‘check the box’’ or 

compliance exercise that may not 

improve audit quality or provide 

meaningful transparency to 

stakeholders; and 

• implying that audit committees 

have a legal duty to consider metrics 

even though the PCAOB has no 

authority over audit committees. 

The Board adopted requirements for 

firms to provide both firm- and 

engagement-level metrics, with changes 

from its proposal as described in further 

detail below. The Board continues to 

believe that public reporting of a 

mandated set of firm- and engagementlevel metrics will provide stakeholders 

with comparable information that is not 

currently available, would otherwise be 

difficult or impossible to obtain, and 

will position them to make betterinformed decisions. Further, the Board 

believes that required public disclosures 

will facilitate development of 

standardized data for consistent 

comparison and analysis over time, 

which will be more valuable than the ad 

hoc, individualized disclosures that 

some firms have made on a voluntary 

basis or the information that could be 

provided by individual firms to audit 

committees or investors without any 

basis for cross-firm comparisons. The 

Board believes the new data points, 

when analyzed together with the 

audited financial statements, critical 

audit matters, auditor tenure, and other 

information about the firm and the 

engagement on Form 2 and Form AP, 

will provide more information about the 

audit and, therefore, the reliability of 

the auditor’s report. 

The Board considered comments 

questioning the value of metrics, 

whether they will be used by investors 

and other stakeholders or would 

represent only a ‘‘check the box’’ 

compliance exercise, and whether they 

might contribute to information 

overload or have other negative 

consequences. Based on comments 

received from investors and other data 

provided, among other factors, the 

Board does not share those concerns. 

Investors and investor-related groups 

have commented throughout the course 

of this rulemaking that the metrics will 

be useful. A firm-related group 

commented that, in a recent investor 

survey it conducted, almost all of the 

metrics the Board proposed were 

regarded as ‘‘extremely helpful’’ by 

between 30% and 50% of participating 

investors. (The commenter did not 

indicate whether the survey allowed 

positive responses other than 

‘‘extremely helpful’’—for example, 

‘‘helpful’’ or ‘‘somewhat helpful’’—and, 

if so, what the results were inclusive of 

those responses.) By contrast, the Board 

understands—including from one 

commenter that argues that the 

voluntary approach should be 

maintained—that voluntarily provided 

metrics have not proven useful to 

investors. The Board believes that the 

value of voluntary metrics is 

undermined by a lack of the consistency 

and comparability, as well as enhanced 

credibility, that can be achieved through 

common definitions and calculations 

and required reporting. 

The Board also noted that similar 

objections—that the new information 

would not be used or would be 

confusing or misleading—were raised 

by many of the same commenters in 

connection with the Board’s last two 

rulemakings requiring disclosure of 

additional information about audits and 

auditors: Form AP reporting of the name 

of the engagement partner and 

information about other firms 

participating in the audit, and auditor 

communication of critical audit matters. 

In both cases, these commenter 

concerns appear unsubstantiated. The 

Form AP data set is now one of the most 

frequently visited areas of the PCAOB 

website.76 Indeed, in an investor survey 

conducted by one commenter, 79% of 

respondents indicated that they often or 

very often navigate to AuditorSearch, 

the search tool for Form AP data on the 

PCAOB website. As for CAMs, in a 

recent investor survey conducted by the 

same commenter, over 90% of the 

respondents indicated that CAMs play 

an important role in their investment 

decision-making.77 In addition, data 

aggregators, such as Audit Analytics, 

compile and make available data on 

CAMs, which suggests market demand 

for that information. The Board’s 

experience suggests that contrary to 

concerns about irrelevance and 

information overload, stakeholders seek 

out additional information about 

auditors and audit engagements when it 

is available. 

In lieu of public reporting, the Board 

considered the alternative of 

encouraging or mandating 

communication of engagement-level 

metrics to the audit committee, as many 

commenters suggested. However, such 

an approach would not achieve the 

Board’s goals of increasing the 

information about audit engagements 

and audit firms available to investors 

and other stakeholders, and fostering 

comparability of data through mandated 

reporting based on common definitions 

and specified calculations. The Board 

also believes that a non-prescriptive, 

principles-based approach, whereby 

firms would potentially develop and 

discuss different metrics for different 

audit committees, drawn from different 

data and based on different definitions 

and calculations and changing over 

time, could itself create significant costs 

and challenges for firms without 

necessarily contributing to the audit 

committee’s ability to understand the 

audit it oversees in a broader context. 

Of course, under the Board’s final 

requirements auditors and audit 

committees will be free to discuss 

performance metrics—whether the 

metrics required under the Board’s rules 

or additional or alternative metrics they 

develop themselves—through the kinds 

of discussions the commenters 

recommend. The Board is not requiring 

that auditors make metrics-specific 

communications at this time. However, 

where matters addressed by the metrics 

are the subject of an otherwise required 

communication, discussion of the 

metrics may be a useful part of the 

communication. 

The Board appreciates that the audit 

committee is charged by statute with 

responsibility for oversight of the 

auditor, and the Board cannot, and do 

not purport to, impose any obligations 

on audit committees or imply that audit 

committees have any specific duties in 

relation to metrics. The Board assumes 

that audit committees will fulfill their 

responsibilities as they see fit; whether 

that entails, for example, discussion of 

metrics with auditors or proxy 

statement disclosure regarding their 

consideration of metrics will be for 

them to determine. 

But the Board also notes that 

investors—including many investors 

that are themselves fiduciaries for 

others—have their own investment and 

voting decisions that they are called 

upon to make, like decisions about 

electing members of the board of 

directors, including those who serve on 

the audit committee, and ratifying the 

appointment of the auditor. And in the 

current environment, they have 

extremely limited access to information 

about the auditor’s work—work that, 

after all, is undertaken for their benefit. 

By requiring public reporting of metrics, 

the Board is not suggesting that 

investors will have the ability or the 

responsibility to oversee the work of the 

auditor. However, they will have the 


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78To date, the Board has not adopted proposed 

PCAOB Rule 2400. 

79 15 U.S.C. 7212(d). 

80 15 U.S.C. 7212(b)(2)(H). 

81 15 U.S.C. 7213(a)(1). 

82See Loper Bright Enters v. Raimondo, 144 S. Ct. 

2244, 2263 (2024) (the term ‘‘appropriate’’ ‘‘leaves 

agencies with flexibility’’ (citation and quotation 

marks omitted)); Kisor v. Wilkie, 588 U.S. 558, 632 

(2019) (Kavanaugh, J., concurring in the judgment) 

(the word ‘‘appropriate’’ ‘‘afford[s] agencies broad 

policy discretion’’); Metrophones Telecommc’ns, 

Inc. v. Global Crossing Telecommc’ns, Inc., 423 

F.3d 1056, 1068 (9th Cir. 2005) (‘‘Given the reach 

of the [FCC’s] rulemaking authority under 201(b)’’— 

which granted to the FCC the ‘‘broad power to enact 

such ’rules and regulations as may be necessary in 

the public interest to carry out the provisions of this 

Act’ ’’—‘‘it would be strange to hold that Congress 

narrowly limited the Commission’s power to deem 

a practice ’unjust or unreasonable.’ ’’); Brown v. 

Azar, 497 F. Supp. 3d 1270, 1281 (N.D. Ga. 2020) 

(‘‘[W]hen an agency is authorized to ’prescribe such 

rules and regulations as may be necessary in the 

public interest to carry out the provisions of the 

Act,’ Congress’ intent to give an agency broad 

power is clear.’’), appeal dismissed as moot, 20 

F.4th 1385 (11th Cir. 2021) (mem.). 

opportunity to gain new perspective to 

inform their decision-making. The 

Board agrees with a commenter that, far 

from undermining investor trust, this 

new transparency should enhance that 

trust by helping investors better 

understand the audit and the audit 

committee’s oversight of it. 

The Board has determined to go 

forward with published metrics so that 

investors and other stakeholders will 

have direct access to the metrics and so 

that comparative data can be 

accumulated that will allow 

comparisons to be made across different 

firms and different engagements. As 

discussed below, the Board believes it 

has addressed many of the challenges 

associated with potential lack of 

comparability by narrowing the metrics 

to a group that it believes will send 

relatively clear, comprehensible signals 

that users will be able to interpret when 

taken together with the other 

information about the issuer and the 

auditor that is available to them. In the 

Board’s view, public reporting is the 

most practical way for comparative data 

to be created and disseminated. While 

two commenters suggested that audit 

committees could obtain comparative 

data when they consider changing 

auditors, the Board’s understanding is 

that is a relatively infrequent 

occurrence, and in any case is not a 

route available to other stakeholders. 

The Board also believes that gathering 

data and calculating the final metrics, 

given the subjects they address, will not 

be overly time-consuming or 

burdensome, and will not entail 

disclosure of confidential or otherwise 

protected information, as discussed 

below. 

Regarding the concerns of possibly 

disclosing confidential information and 

competition lessening effect due to 

public reporting of metrics; unintended 

consequences, including attention 

diversion, litigation and reputation 

risks, competition lessening effect, and 

audit labor market impacts; and costs, 

see discussions below. 

3. Legal Authority 

Some commenters questioned the 

Board’s statutory authority to require all 

or some of the proposed firm and 

engagement metrics. In addition, one 

commenter stated that the statement in 

the proposal that ‘‘this [rulemaking] 

would advance investor protection and 

promote the public interest by enabling 

stakeholders to make better informed 

decisions, promoting auditor 

accountability and ultimately enhancing 

capital allocation and confidence in our 

capital markets’’ is beyond the Board’s 

rulemaking authority. Other 

commenters questioned the Board’s 

authority with respect to specific 

aspects of the rulemaking. Two 

commenters questioned how the 

requirements could extend beyond the 

accounting firms’ issuer and brokerdealer audit practices. One of these 

commenters stated that it believes 

including non-issuer information could 

be misleading to stakeholders who may 

mistake such disclosures as being 

within the PCAOB’s purview and that 

including the non-issuer portion of a 

firm’s audit practice appears 

contradictory to the Board’s pursuit of 

clarity through its proposed PCAOB 

Rule 2400, Proposals Regarding False or 

Misleading Statements Concerning 

PCAOB Registration and Oversight and 

Constructive Requests to Withdraw from 

Registration. This commenter suggested 

that if the Board intends to make clear 

what lies within and outside its purview 

through proposed PCAOB Rule 2400, 

the rulemaking related to firm- and 

engagement-level metrics should reflect 

similar principles.78 Another 

commenter suggested that several new 

requirements seem to require public 

production of information that is 

confidential or otherwise outside of or 

unnecessary for the Board’s oversight 

function. 

In accordance with Sarbanes-Oxley, 

the PCAOB is endowed with regulatory 

powers designed to ensure 

transparency, uphold high professional 

standards, and protect investors in the 

auditing process. This discussion 

outlines the statutory basis for this 

rulemaking as outlined in Sections 101, 

102, and 103 of Sarbanes-Oxley. In 

particular, here and throughout the 

release, the Board discussed how the 

final rules will increase transparency 

regarding audit practices, increase the 

comparability and accessibility of 

information available to investors and 

others, and enhance investors’ ability to 

efficiently and effectively make 

investment and voting decisions, in line 

with the Board’s statutory mandate. 

Section 102 of Sarbanes-Oxley 

mandates that each registered firm must 

submit an annual report to the Board. 

Beyond this, Section 102 grants to the 

Board the authority to require more 

frequent and detailed reporting, 

empowering the Board to require 

registered firms to report ‘‘such 

additional information as the Board or 

the Commission may specify.’’ 79 This 

authority must be exercised through 

PCAOB rulemaking that deems the 

information ‘‘necessary or appropriate 

in the public interest or for the 

protection of investors.’’ 80 This 

statutory language supports the Board’s 

authority to adapt its reporting 

requirements to the evolving needs of 

audit oversight, thereby enhancing 

investor protection and public 

confidence in the financial markets. 

The metrics the Board adopted in its 

release are important for increasing 

transparency regarding the practices of 

registered firms, particularly in their 

audits of issuers. By mandating the 

disclosure of this information, the 

PCAOB will enable investors and other 

market participants to have a clearer 

and more comprehensive view of the 

operational practices of the registered 

firms that audit issuers. This enhanced 

transparency will allow investors and 

other market participants to make more 

informed decisions, contributing to the 

integrity and reliability of financial 

reporting and audit practices. 

Additionally, Section 103 of 

Sarbanes-Oxley grants the Board 

authority to establish auditing standards 

and quality control standards ‘‘to be 

used by registered public accounting 

firms in the preparation and issuance of 

audit reports’’ as ‘‘may be necessary or 

appropriate in the public interest or for 

the protection of investors.’’ 81 Although 

the information the PCAOB requires 

from registered firms does not appear 

directly within audit reports, it is 

comfortably within the ambit of the 

Board’s rulemaking mandate under 

Section 103—especially given the 

flexibility inherent in the statutory 

language.82 In brief, this mandate 

involves establishing the procedures 

and practices of registered firms that 

promote the quality and accuracy of 

audit reports, which extends to 


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83See, e.g., Mark DeFond and Jieying Zhang, A 

Review of Archival Auditing Research, 58 Journal 

of Accounting and Economics 275, (2014) (asserting 

that audit quality improves financial reporting 

quality by increasing the credibility of the financial 

reports). 

84For example, Section 101(c)(5) empowers the 

Board to perform additional duties or functions that 

are ‘‘necessary or appropriate to promote high 

professional standards among, and improve the 

quality of audit services offered by’’ registered firms 

and their associated persons. 15 U.S.C. 7211(c)(5). 

This provision empowers the PCAOB to implement 

measures that enhance the integrity and efficacy of 

the auditing profession. In addition, Section 

101(g)(1) provides rulemaking authority to the 

Board, specifying that the Board’s rules, subject to 

the approval of the Commission, are to ‘‘provide for 

the operation and administration of the Board, the 

exercise of its authority, and the performance of its 

responsibilities under’’ Sarbanes-Oxley. 15 U.S.C. 

7211(g)(1). 

85See Navajo Nation v. Dalley, 896 F.3d 1196, 

1212–13 (10th Cir. 2018) (‘‘Congress expressed its 

scope in broad terms, to encompass ‘any other 

subjects that are directly related to the operation of 

gaming activities.’ But the key word here is ‘other.’ 

. . . And applying the ordinary and everyday 

meaning of the word ‘other’ . . ., it becomes patent 

that Congress did not intend for that clause to 

address the ‘subjects’ covered in the preceding 

clauses of subsection (C)[.]’’ (citation omitted)); see 

also, e.g., Madison v. Virginia, 474 F.3d 118, 133 

(4th Cir. 2006) (‘‘other Federal statute prohibiting 

discrimination’’ is a ‘‘catch-all provision’’); Meehan 

v. Atl. Mut. Ins. Co., 2008 WL 268805, at *7 

(E.D.N.Y. Jan. 30, 2008) (‘‘The term ‘other policies’ 

now accomplishes the task of including all 

governmental activity and becomes a catch-all 

phrase including all other policies not already 

implied[.]’’ (citations and quotation marks 

omitted)). 

overseeing how firms report their 

operational conduct. 

In alignment with Section 103 of 

Sarbanes-Oxley, the PCAOB views the 

rule, form, and associated amendments 

requiring the metrics as fundamental 

auditing and quality control standards 

at their core. The information required 

by the metrics relates to practices of the 

firm that directly bear on the conduct of 

audits and ultimately the quality and 

accuracy of audit reports. By mandating 

the submission of this information to 

the PCAOB, the Board provides deeper 

transparency into the auditing practices 

that support issuer audits. The 

information required by the metrics will 

also support the Board’s oversight and 

enhance the reliability of audit 

performance.83

Finally, the Board notes that Section 

101 of Sarbanes-Oxley provides 

ancillary authority that supports the 

Board’s primary powers in Sections 102 

and 103.84 This provision enables the 

PCAOB to develop standards that 

protect investors and serve the public 

interest. 

Some firms and firm-related groups 

questioned the Board’s statutory 

authority to require the reporting of the 

proposed metrics on the basis that the 

Board’s rulemaking authority should 

correspond directly with the type of 

information outlined in Sarbanes-Oxley 

Section 102(b)(2) for the contents of 

registration applications. However, this 

interpretation significantly misreads the 

reporting provisions of Sarbanes-Oxley. 

Sections 102(b)(2)(H) and 102(d) clearly 

grant to the Board broad authority to 

require additional information in 

periodic reports that it finds necessary 

or appropriate to serve the public 

interest or protect investors. 

Section 102(b)(2) generally details 

baseline requirements for reported 

information and Section 102(b)(2)(H) 

primarily details requirements for any 

additional information the Board 

requires, providing that additional 

information in reports must be deemed 

‘‘necessary or appropriate in the public 

interest.’’ It is incorrect to construe 

those provisions as imposing a rigid 

limitation that restricts the content of 

reports exclusively to the types of 

information specified in Section 

102(b)(2)(A)–(G) for initial registration 

applications. Indeed, Section 

102(b)(2)(H) expressly contemplates the 

provision of ‘‘other information’’ the 

Board may require through rulemaking. 

This provision shows that Congress 

intended to provide the Board authority 

to require additional information 

beyond that enumerated in Section 

102(b).85 By referencing this provision, 

Section 102(d) applies this broader 

authority to periodic reports that the 

Board finds necessary or appropriate to 

serve the public interest or protect 

investors. The Board’s release has 

outlined how the disclosures mandated 

by the metrics will enhance 

transparency and bolster the PCAOB’s 

oversight capabilities. Such 

enhancements are designed to 

ultimately improve audit quality. For 

example, as discussed more completely 

below, the final metrics will enhance (i) 

audit committees’ ability to efficiently 

and effectively monitor and select 

auditors as well as (ii) investors’ ability 

to efficiently and effectively make 

decisions about ratifying the 

appointment of their auditors and 

allocating capital. In addition, as an 

important indirect benefit, the final 

rules could further spur competition to 

the benefit of investors. Thus, the final 

rules align with the overarching 

objectives of Sarbanes-Oxley, and 

therefore are appropriate exercises of 

the Board’s authority under Section 102. 

In response to the concerns raised by 

firm commenters regarding the Board’s 

use of Sarbanes-Oxley’s relevant 

‘‘necessary and appropriate’’ clauses, it 

is important to clarify that the Board has 

not claimed any implicitly delegated 

authority beyond the regulatory 

parameters established by Congress. The 

use of the Section 101, 102, and 103 

authorities in this rulemaking is firmly 

grounded within the explicit mandates 

provided by Sarbanes-Oxley, and is 

consistent with the statutory limitations 

and directives outlined in those 

provisions. The Board’s application of 

these authorities has been specifically 

aimed at enhancing the transparency 

and quality of audits of issuers and 

broker-dealers, which directly aligns 

with the Board’s core mission to protect 

investors and the public interest. The 

Board has utilized the tools provided by 

Sarbanes-Oxley to carry out the 

responsibilities entrusted to it. 

Other commenters raised concerns 

about the Board’s authority to include 

metrics extending beyond a registered 

firm’s issuer and broker-dealer audit 

practice. One of these commenters 

asserted that including non-issuer 

information could be misleading to 

stakeholders who may mistake such 

disclosures as being within the 

PCAOB’s regulatory purview. The Board 

disagrees with these comments. The 

metrics the Board is requiring are 

designed to provide information that 

directly relates to firms’ audits of 

issuers, and will be important for such 

matters as assessing auditor 

performance and resource allocation as 

it relates to issuer audits. For instance, 

in the Workload metric, firms are 

required to report not only the hours 

worked dedicated to issuer engagements 

but the entire workload of the personnel 

involved. This includes hours spent on 

non-issuer engagements, training, 

practice development, staff 

development, or other firm activities. A 

narrower focus, which only accounts for 

hours worked on issuer engagements, 

could provide an incomplete picture. It 

would fail to reflect the true extent of 

the auditor’s commitments and how 

these may impact their capacity and 

focus on tasks in issuer audit work. 

Without this comprehensive view, 

investors and other stakeholders would 

lack important information to assess the 

potential risks over overcommitment on 

audit quality and auditor performance 

in audits of issuers. By requiring firms 

to report certain narrowly tailored 

information regarding their audit 

engagements and audit practices, the 

Board is not seeking to extend its 

purview to regulate those aspects of the 

firm’s operations. Rather, in line with 

the Board’s statutory authority, it is 

enhancing the transparency and the 

depth of information available to 

investors and other stakeholders 

concerning firms’ audits of issuers. 


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86This point is discussed more fully below. 87See QC 1000.64g, Note to QC 1000.67e. 

4. Summary of the Metrics 

The Board adopted a set of firm-level 

and engagement-level metrics across 

eight areas. Firm-level metrics will 

provide a basis for drawing comparisons 

between firms as well as a baseline for 

evaluating engagement-level metrics. 

Engagement-level metrics will elicit 

more granular information and will 

enable comparisons over time and 

across engagements both within the firm 

and across other firms. 

Firm-level metrics will be disclosed 

on a new Form FM, Firm Metrics, and 

engagement-level metrics will be 

disclosed on a revised and renamed 

Form AP, together with the other 

engagement-specific information 

currently required (the name of the 

engagement partner and information 

regarding other firms participating in 

the audit). 

Most of the metrics the Board has 

adopted will be presented at both the 

firm and the engagement level. 

However, two metrics will be reported 

only at the firm level, because the Board 

believes aggregated data will be most 

meaningful or appropriate. 

The metrics are: 

• Partner and Manager Involvement. 

Hours worked by senior professionals 

relative to more junior staff across the 

firm’s large accelerated and accelerated 

filer engagements and on the specific 

engagement. 

• Workload. For senior professionals 

who incurred hours on large accelerated 

and accelerated filer engagements, 

average weekly hours worked on a 

quarterly basis, including time 

attributable to all engagements, 

administrative tasks, training, and all 

other matters. 

• Training Hours for Audit Personnel. 

Average annual training hours for 

partners, managers, and staff of the firm, 

combined, across the firm and on the 

engagement. 

• Experience of Audit Personnel. 

Average number of years worked at a 

public accounting firm (whether or not 

PCAOB-registered) by senior 

professionals across the firm and on the 

engagement. 

• Industry Experience. Average years 

of career experience of senior 

professionals in key industries audited 

by the firm at the firm level and the 

audited company’s primary industry at 

the engagement level. 

• Retention of Audit Personnel (firmlevel only). Continuity of senior 

professionals (through departures, 

reassignments, etc.) across the firm. 

• Allocation of Audit Hours. 

Percentage of hours incurred prior to 

and following an issuer’s year end 

across the firm’s large accelerated and 

accelerated filer engagements and on the 

specific engagement. 

• Restatement History (firm-level 

only). Restatements of financial 

statements and management reports on 

ICFR that were audited by the firm over 

the past three years. 

Figure 1. Firm and Engagement Metrics 

Reporting 

Firm and engagement metrics reporting Firmlevel 

Engagementlevel 

Partner and Manager Involvement .......................................................................................................................... ✓ ✓ 

Workload .................................................................................................................................................................. ✓ ✓ 

Training Hours for Audit Personnel ......................................................................................................................... ✓ ✓ 

Experience of Audit Personnel ................................................................................................................................ ✓ ✓ 

Industry Experience ................................................................................................................................................. ✓ ✓ 

Retention of Audit Personnel ................................................................................................................................... ✓ X 

Allocation of Audit Hours ......................................................................................................................................... ✓ ✓ 

Restatement History ................................................................................................................................................ ✓ X 

The final suite of metrics focuses 

primarily on information about audit 

personnel. The Board believes these 

metrics will provide new insights into 

how engagements are staffed, including 

the extent of involvement of senior 

personnel; auditors’ overall workload; 

retention of personnel across the firm; 

and levels of training, audit experience, 

and industry-specific expertise. The 

final metrics will also provide 

information about the extent of audit 

work completed prior to the issuer’s 

year end, an aspect of the audit process 

that the Board believes is associated 

with improved audit outcomes, and 

about the firm’s history of restatements, 

a key measure of audit outcomes. 

This new information will allow users 

to draw inferences about audits and 

audit firms that are not possible today. 

Some may relate to specific metrics. For 

example, a heavy workload for a 

particular engagement team relative to 

the firm average or compared to peer 

firms may raise questions about the 

quality of the work performed. 

Conversely, a relatively high level of 

industry-specific experience, 

particularly for an engagement in an 

industry requiring specific accounting 

and auditing expertise, would be a 

positive signal. Other inferences may 

relate to combinations of metrics. For 

example, the personnel-related metrics, 

taken together, give an overall sense of 

how an engagement is staffed that can 

be compared to firm averages and to 

engagements for similar issuers. It is 

possible that the precise numerical 

values of metrics may be important in 

some cases, but in general the Board 

believes the metrics will be more useful 

to convey a sense of whether a 

particular engagement or firm appears 

fairly typical or is an outlier in one or 

more respects. This should provide a 

richer context for understanding the 

work of the auditor than the current 

environment of almost no publicly 

available information. 

Based on the Board’s oversight 

activities, it appears that the largest 

firms are already tracking data in many 

of these areas,86 and the Board believes 

that all firms should be able to capture 

the data required by the metrics without 

undue burden. Many of the metrics are 

based on data that firms already track or 

will be required to track for purposes of 

other PCAOB requirements. For 

example, Partner and Manager 

Involvement and Allocation of Audit 

Hours are based on the same ‘‘total audit 

hours’’ that firms are already required to 

track for Form AP reporting. Training 

hours will reflect the same information 

that firms track to ensure proper 

licensing of their personnel. 

Restatement data, to the extent firms are 

not already tracking it, is required to be 

tracked under QC 1000.87 In addition to 

required data, many firms track the 

experience of their personnel, as well as 

industry experience, for use in 

marketing materials and for inclusion in 

requests for proposals, and some firms 

already track staff retention and 

turnover metrics as part of their human 

capital management. Firms should be 

able to generate other data required by 

the final metrics, such as Workload, 


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from their existing timekeeping systems 

with minimal additional effort. 

Below, the Board provides a detailed 

discussion of key terms and concepts 

used in the metrics, as well as a 

description of each final metric and its 

calculations. 

5. Comparability 

Developing comparable data regarding 

firms and engagements has been one of 

the Board’s key objectives throughout 

this rulemaking. As noted previously, 

the information currently provided in 

firm transparency reports is not based 

on common definitions or methods of 

calculation, which prevents users from 

being able to make comparisons across 

firms or over time. The Board believes 

that an important benefit of mandatory 

reporting will be the ability of investors 

and other stakeholders to compare the 

metrics, within the same firm over time, 

among firms, and among engagements. 

The basic approach of the Board’s 

final rules—a required set of metrics, 

derived from specified calculations 

incorporating consistently defined terms 

and concepts—is designed to generate 

comparable data with respect to firms 

and engagements that are subject to the 

reporting requirements. One investorrelated group agreed that standardized 

and contextualized metrics will provide 

investors with a consistent data set for 

analysis over time and for comparison 

between companies and firms and a set 

of standardized data is more valuable 

than the ad hoc individual measures 

that some firms have made on a 

voluntary basis. 

In some cases, considering the 

importance of scalability, the Board has 

also designed the proposed metrics as 

percentages (e.g., relative to total audit 

hours) or averages where the Board 

believes that will provide more 

comparability across firms and 

engagements than methods based on 

absolute amounts. 

Several firms and firm-related groups 

expressed skepticism about whether the 

metrics could generate comparable data 

because of inherent differences across 

firms and engagements, either with 

regard to any metrics or engagementlevel metrics specifically. For example, 

one commenter said that differences 

between firms and among engagements 

will create heterogeneity in the 

underlying data, so that cross-sectional 

differences and changes over time will 

be unclear and challenging to interpret, 

and will cause confusion. Another 

commenter emphasized the importance 

of comparability between larger and 

smaller firms so that investors and audit 

committees can interpret them 

appropriately. 

Two commenters stated that if 

context, including qualitative aspects of 

data, is necessary to understand the 

metrics, that would suggest that the data 

are not comparable, which could mean 

that the metrics are not decision-useful 

and are at risk of misinterpretation. One 

commenter expressed the opposite 

concern, that metrics would become 

homogenized over time due to peer 

comparisons, making them considerably 

less useful to investors. 

One commenter asserted that the 

Board’s choices in defining terms and 

specifying calculations undermine the 

comparability of the metrics—for 

example, because some metrics include 

issuers other than accelerated or large 

accelerated filers, the Board’s proposed 

industry classification taxonomy differs 

from the one used by the SEC, and its 

proposed period for measuring 

restatements differs from the period 

used by a commonly-used data 

provider. These issues are addressed 

below in the discussion of the final 

metrics. 

With regard to firm-level metrics, 

several commenters expressed concern 

that some or all of the metrics would not 

be comparable across firms. They cited 

factors such as the size of the firm 

(including the number of issuer and 

non-issuer engagements), specialization 

of the firm’s audit practice, strategies, 

priorities, investments, organizational 

structure and quality control system of 

the firm, and size of the issuer (which 

affects, among other things, whether an 

integrated audit is required). 

Several commenters expressed 

particular concern about comparability 

between U.S. and non-U.S. firms 

because non-U.S. firms tend to have 

structural, jurisdictional, and cultural 

aspects that differ from U.S. firms. In 

addition, non-U.S. firms may have a 

relatively smaller issuer audit practice, 

which could skew metrics that are based 

on the entire practice because there may 

be significant differences between issuer 

audits and the rest of the firm’s audit 

practice, and could increase the 

volatility of metrics based on the issuer 

practice because of its small size. One 

of these commenters also criticized the 

application of metrics to non-U.S. firms 

because they would not capture the 

qualitative benefits of being a part of a 

global network (e.g., use of consistent 

policies and procedures that drive use 

of training, technology, consultation and 

other centrally available support across 

the network). Another commenter also 

noted that some non-U.S. firms may 

publicly report firm-level metrics on 

similar topics, such as workload, using 

different calculation methods under 

PCAOB and local reporting 

requirements, which would be costly for 

these firms and potentially confusing to 

the users. 

Many commenters expressed concern 

that engagement-level metrics are 

inherently incomparable. Commenters 

suggested a number of factors that could 

affect the comparability of engagementlevel metrics, some relating to the firm 

(e.g., the firm’s organizational structure, 

IT systems, resources, and audit 

methodologies), some to the individual 

audit engagement (e.g., selected audit 

approaches including substantive 

analytical procedures or test of details, 

audit findings including internal control 

deficiencies, use of technology, first 

year or recuring engagement, and risk of 

material misstatement), and some to the 

issuer (e.g., business structure 

(including the extent of centralization or 

decentralization and number of business 

units), complexity of the organizational 

structure and IT infrastructures, number 

of significant unusual transactions, and 

business and industry risks affecting the 

issuer). In addition, one commenter 

noted that there are significant 

developments (e.g., in delivery models, 

technology, and professional rules and 

standards) that affect the way audits are 

performed each year. 

The Board solicited comment on 

whether comparability could be 

enhanced by further segmenting firmlevel reporting (for example, on the 

basis of the size of the firm or the size 

of the issuer) or engagement-level 

reporting (for example, on the basis of 

industry sector, region, or whether it is 

a first-year audit). One commenter 

stated that all stakeholders would 

benefit from a consistent calculation 

methodology and comparable 

presentation format of firm-level 

reporting. Several commenters indicated 

that more disaggregated data for 

engagement- or office-level reporting 

could be useful, though one 

acknowledged that this benefit would 

need to be weighed with the cost of 

requiring this data. Other commenters 

cited challenges associated with 

providing subsets of information, 

including that firm and issuer sizes 

change over time and that smaller firms’ 

metrics could disclose individual client 

information. One of these asserted, 

however, that the reported data could be 

disaggregated and compared without 

additional data fields being collected. 

The Board determined not to collect 

additional data fields or require 

additional segmentation of the metrics 

at this time because of the potential cost 

and complexity it would add to the 

process of compiling and reporting the 

metrics. Stakeholders that want to 

perform more detailed analysis (for 


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88For two of the metrics areas the Board 

proposed, Quality Performance Ratings and 

Compensation and Audit Firms’ Internal 

Monitoring, firms would have reported based on 

their own internally established cycles. Neither of 

these is included in the metrics the Board adopted. 

89See Instructions to Part IV of Form AP as 

currently in effect. Under the amendments to Form 

AP adopted by the Board, this appears in General 

Instruction 9, as amended. 

example, segmenting data based on size 

of the issuer, size of the firm, region, or 

industry sector) will be able to do so 

using information that is already 

publicly available in combination with 

the metrics. 

The Board understands that firms 

differ from each other in the number 

and types of audits they perform and in 

their resources, such as the number, 

experience, and degree of specialization 

of their people as well as their access to 

technological resources and resources 

provided by networks. The Board also 

understands that engagements differ 

based on factors such as the size of the 

engagement, the industry of the 

company, the risks related to the 

company and the audit, whether it is a 

new engagement for the firm or the 

engagement partner. 

However, the Board does not believe 

that such differences make useful, 

comparable metrics impossible. As one 

commenter noted, investors are 

experienced in using a wide array of 

performance metrics, such as non-GAAP 

measures and key performance 

indicators, and are able to analyze them 

despite a lack of perfect comparability 

between companies or over time. 

Indeed, the commenter argued that, due 

to the nature of the audit process and 

audit firms, the proposed firm and 

engagement metrics have a greater 

propensity for comparability than many 

companies whose financial results 

investors already analyze. 

The Board believes it has also 

addressed many of the challenges 

associated with potential lack of 

comparability by narrowing the metrics 

to a group that should send relatively 

clear, comprehensible signals in a 

variety of different contexts. Metrics on 

workload, training hours, experience in 

public accounting, retention of 

personnel, and restatement history 

should send a clear signal, regardless of 

the circumstances of the firm and the 

engagement. Metrics on partner and 

management involvement and 

allocation of audit hours may be more 

influenced by those circumstances. For 

example, unusually high involvement 

by senior professionals could signal an 

especially complex audit or one that 

encountered unexpected problems; a 

relatively low percentage of audit hours 

incurred before year end could signal a 

poorly planned audit or simply that, 

due to the nature and scope of a 

company’s business, it was unnecessary 

or impractical to perform many audit 

procedures prior to year end. The Board 

has limited the scope of the Partner and 

Manager Involvement, Workload, and 

Allocation of Audit Hours metrics to 

large accelerated filer and accelerated 

filer engagements to enhance the 

comparability of the underlying data. 

The metric on relevant industry 

experience may also be influenced by 

the circumstances of the firm and the 

engagement in that industry experience 

may be more important in some 

industries than others. However, the 

Board believes users will be able to 

interpret this metric when taken 

together with the other information 

about the issuer and the auditor that is 

available to them. Common definitions 

and consistent methodology will also 

contribute to comparability. Taken 

together, the metrics should enable 

users to make both broad comparisons 

across the full population of reporting 

firms and accelerated filer and large 

accelerated filer audits, and more 

targeted comparisons across smaller 

subgroups of similar firms and 

engagements, and will be a very 

significant improvement over the 

information that is currently available— 

ad hoc reporting by the largest firms at 

the firm level, and essentially no 

information at the engagement level. 

Of course, any additional context that 

firms believe is necessary for proper 

understanding can be provided as 

narrative disclosure. While narrative 

disclosure will not make the metrics 

comparable, it will balance the 

comparability of standardized metrics 

disclosure with the ability to provide 

further context if needed. For example, 

a firm could provide an explanation for 

why a metric changed significantly from 

what was reported in the prior year. 

6. Time Period Covered by the Metrics 

Firm-level metrics are reported as of 

September 30, generally covering the 

period from October 1 of the previous 

year through September 30.88 Specific 

commenter feedback regarding the 

reporting period is discussed in detail 

below. Firms are required to file Form 

FM on or before November 30, 61 days 

after the end of the reporting period, 

also discussed below. 

Related to the Training Hours for 

Audit Personnel metric, the Board 

understands that many firms already 

have defined periods or cycles that may 

not align with the final reporting date 

(e.g., for which the firm tracks training 

data in order to comply with state 

continuing professional education 

(‘‘CPE’’) reporting requirements). 

Therefore, the firm is permitted to use 

its already-established training calendar 

cycle for calculation and reporting of 

this metric, provided that the cycle 

covers a 12-month period (which is 

expected to be consistently applied). 

The Board does not believe that the data 

will be especially sensitive related to 

any particular 12-month period. The 

Board believes allowing firms flexibility 

to use their internally established dates 

for this metric is appropriate and still 

provides the comparability discussed 

above since all firms would be reporting 

this metric based on a 12-month period. 

For engagement-level metrics, which 

will be reported on Form AP, the data 

and information underlying the reported 

metrics will generally be based on the 

most recent period’s audit. However, 

some engagement-level metrics relate to 

information about personnel on the 

engagement, such as Experience of 

Audit Personnel, and these metrics will 

reflect information that may not be 

directly related to the most recent 

period’s audit. Specific commenter 

feedback regarding the reporting period 

and filing date of Form AP is discussed 

in detail below. 

In addition, the time period covered 

by each metric also is discussed in more 

detail below. 

7. Rounding and Use of Estimates 

Many of the metrics involve the 

calculation of a numerical value that 

may result in very small fractional parts. 

Consistent with the proposal, firms are 

required to report metrics that are 

rounded to the nearest whole number, 

except where additional decimal places 

(no more than two) are needed to 

properly interpret the result or to enable 

comparison to prior periods. 

In calculating the firm- and 

engagement-level metrics, actual 

amounts should be used, if available. 

However, if actual amounts are 

unavailable, firms are permitted to use 

a reasonable method to estimate the 

components of a calculation. This 

approach is consistent with existing 

Form AP, which allows firms to use a 

reasonable method to estimate certain 

information required in the calculation 

of total audit hours.89 Firms are also 

required to document in their files the 

method(s) used to estimate amounts 

when actual amounts are unavailable. 

Commenters generally agreed with the 

proposed approaches, with one 

commenter agreeing that rounding and 

estimation should be permitted for all 

metrics. Other commenters stated that 

rounding and estimation will be 


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90The proposed Audit Hours and Risk Areas 

metric is not included in the metric that the Board 

adopted, as discussed further below. 

91See Letter from PricewaterhouseCoopers LLP 

(June 7, 2024). 

92Nothing in PCAOB rules and forms, including 

Form FM and Form AP, provides for incorporation 

by reference of external documents or other 

materials. 

especially important for metrics related 

to the reporting of hours, with two of 

these pointing to the subjectivity 

involved with the proposed metrics that 

would require allocation of hours to 

specific audit areas.90 One commenter 

stated that the PCAOB should not 

restrict the number of decimal places. 

However, the Board believes that 

limiting reporting to hundredths will 

allow for the presentation of an 

appropriate level of detail while 

ensuring comparability of presentation 

and avoiding the technical issues that 

could arise with unlimited digits. 

8. Operational Narrative Disclosure 

In order to give firms the ability to 

provide any context they thought 

necessary for an appropriate 

understanding of the reported metrics, 

the Board proposed that firms would be 

permitted, but not required, to provide 

a brief narrative disclosure (no more 

than 500 characters per metric) to 

accompany any, or all, of the firm-level 

and engagement-level metrics reported 

on Form FM or Form AP. While some 

commenters agreed with the proposal to 

provide firms with the ability to include 

an optional narrative to accompany the 

metrics, one commenter explicitly 

agreed with the proposed 500-character 

limit, one commenter asserted that the 

500-character limit greatly limits the 

context that could be provided, and one 

commenter suggested revising the 

character limit to no more than 1,000 

characters. Two commenters suggested 

increasing the character limit beyond 

500 characters without suggesting an 

upper limit. Approximately half of the 

commenters suggested that there should 

be no character limit imposed on the 

optional narrative. A firm-related 

organization also suggested that the 

narrative be mandatory and not 

optional, while a firm suggested that the 

utility of metrics would be diminished 

without potentially extensive 

accompanying narrative. 

One commenter suggested that firms 

can also provide a link in the narrative 

to their transparency reports and audit 

quality reports if they wish to provide 

further context to the metrics. One 

commenter stated that there should be 

guidelines such as the narratives being 

factual, directly relevant to the metric, 

and free from promotional or marketing 

language. Another commenter stated 

that it would provide the following 

narrative in Form FM, potentially with 

respect to every firm metric: 

We do not believe any one metric or even a 

combination of metrics is necessarily 

indicative of audit quality, nor is it useful or 

productive to speculate on the questions 

reviewers of this information may have on 

each metric for every audit. We further 

discuss this metric in our Audit Quality 

Report, along with the measures we believe 

are better indications of our audit quality.91

Taking into consideration commenter 

feedback, the Board is retaining the 

option to provide narrative disclosure 

with each metric but expanding the 

character limit to 1,000 characters. The 

Board believes this character limit 

strikes the right balance between 

allowing firms the ability to provide any 

contextual information they believe is 

necessary to interpret the results of a 

particular metric while also managing 

the length of the forms and keeping 

them to a manageable size.92

In addition, in an effort to assist firms 

in making the optional narrative 

disclosures as helpful and substantive 

as possible, to help remind firms of their 

responsibility under QC 1000 to 

produce and report information that is 

accurate and not misleading, and to 

reduce the possibility that users will 

find the narrative confusing or in 

conflict with the required metrics, the 

following provision has been added as 

a general instruction to Form FM and a 

note to Part VI of Form AP to provide 

additional direction to those firms 

electing to provide an optional narrative 

for any metric: 

‘‘When the Firm elects to provide a brief 

narrative to accompany any of the Items in 

[the part of the form in which metrics are 

reported], language should be concise and 

focused on the reported metrics, with a view 

to facilitating the reader’s understanding of 

the metrics.’’ 

Firm and Engagement Metrics 

1. General Comments 

Investors and investor-group 

commenters were broadly supportive of 

the proposed metrics, saying that the 

metric areas would provide investors 

with decision-useful information about 

audit firms and audits. However, they 

expressed mixed views on certain 

specific metric areas. These commenters 

also suggested additional metric areas, 

including investments in both training 

audit professionals and in technology, 

and further details related to PCAOB 

inspection results (e.g., Part I.A 

deficiencies). The Board has addressed 

these comments in the discussion of 

each metric area below. On the topic of 

implementation of the proposed 

metrics, one commenter requested 

analytical tools and research showing 

how investors might use metrics. The 

information disclosed on Form FM will 

be available in a searchable database on 

the Board’s website, similar to the Form 

AP database, and will provide users of 

the information the ability to perform 

comparisons across engagements. 

Firms and firm-related groups were 

broadly supportive of some of the 

proposed firm-level metrics. However, 

they generally opposed public reporting 

of engagement-level metrics, asserting 

that no amount of context around 

engagement-level metrics would 

provide an appropriate basis for public 

reporting. These commenters suggested 

that the audit committee, being deeply 

familiar with the company, the audit, 

and the independent auditor, is the only 

party equipped to appropriately 

interpret the metrics. Instead of public 

reporting, they suggested several 

alternatives, including adding a 

requirement for communication to the 

audit committee under AS 1301; 

expanding SEC requirements for audit 

committee disclosures; encouraging 

voluntary reporting; issuing PCAOB 

Spotlights, practice alerts, or guidance; 

and performing further outreach before 

adopting any requirements. These 

alternatives are discussed in greater 

detail above. One commenter suggested 

that the PCAOB take a proactive role in 

educating all users as to the proper use 

of reported metrics, including the need 

for them to be interpreted in context and 

making users aware of potential dangers 

and drawbacks associated with a mere 

comparison of isolated metrics between 

firms. The Board discussed the forms 

and how the data can be accessed in 

more detail below. 

Commenters generally expressed 

concern that proposed metrics were not 

all calculated from the same data 

sources. Some metrics were calculated 

on the basis of all audit engagements, 

others on the basis of issuer 

engagements, and engagement-level 

metrics on the basis of large accelerated 

and accelerated filer engagements. Some 

commenters suggested that calculating 

firm-level metrics based solely on total 

audit hours on large accelerated and 

accelerated filer engagements may result 

in more comparable data among firms. 

The Board discussed this in greater 

detail below. 

Other commenters recommended that 

the PCAOB establish criteria for 

determining which metric areas warrant 

public disclosure, so as to build in 

flexibility over time and minimize the 

risk of misinterpretation. The following 


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93See paragraph .A1 of AS 1201, Supervision of 

the Audit Engagement (‘‘the member of the 

engagement team with primary responsibility for 

the audit’’). 

94See AS 1220, Engagement Quality Review, for 

a description of the engagement quality reviewer’s 

role. 

95As noted in the proposing release, the Board 

believes this is consistent with the use of the term 

‘‘partner’’ in the Board’s auditing standards. 

Although the Board does not usually state expressly 

that partners are limited to those who participate 

Continued 

criteria were among those suggested by 

these commenters: 

• Is the metric’s relation with audit 

quality unambiguous? 

• Can the metric be appropriately 

interpreted on its own, without 

additional context (e.g., client mix or 

complexity—size, industry, 

international operations; firm’s audit 

approach; etc.)? 

• If disclosure of the metric results in 

behavioral change in audit firms, does 

research suggest the change will 

improve audit quality or, at least, not 

adversely impact audit quality? 

• Will the metric require firms to 

develop systems, processes, and 

procedures that they do not already 

have and at a reasonable cost? 

• Will the metric impose ongoing 

administrative burdens on engagement 

teams that result in a reallocation of 

effort away from audit quality 

enhancing activities? 

• Will the metrics align with 

measures used in the system of quality 

control to manage the audit practice? 

• Will the metrics meet the 

information needs of the users? 

• Will the disclosure of metrics not 

result in the communication of 

proprietary information? 

In responding to commenters and 

articulating the rationale for adopting 

the firm- and engagement-level metrics 

below, the Board considered the views 

of commenters, including these 

suggested evaluation criteria. The Board 

believes some of the suggested criteria 

would impose an unworkable 

framework that is inconsistent with the 

Board’s regulatory objectives. For 

example, the Board does not think it is 

necessarily practicable to establish an 

‘‘unambiguous’’ relationship to audit 

quality, as suggested, for any individual 

metric, nor would such an exercise be 

consistent with the intended uses of the 

metrics, which envisions their being 

considered as part of the total mix of 

information available to stakeholders. 

Moreover, the Board believes that 

imposing rigid criteria for each 

proposed metric imposes too high a 

burden and is not conducive to effective 

regulation. It does not permit the Board 

to account for facts and circumstances 

unique to individual metrics and their 

potential uses, nor does it account for 

the holistic manner in which the Board 

intends for the metrics to be used or 

developing information about the utility 

of the metrics over time. 

A number of commenters 

recommended that the PCAOB engage 

in additional stakeholder outreach, 

sponsor pilot programs, or otherwise 

engage in further study and research 

before finalizing the metrics 

requirements, or even withdraw the 

proposal. Based on the lengthy project 

history described in Section II, which 

includes repeated input over time from 

the Board’s advisory groups, multiple 

rounds of public notice and comment, 

study of relevant academic literature, 

study of voluntary firm disclosures, and 

consideration of actions taken in other 

jurisdictions, the Board does not believe 

further study is necessary or that the 

Board’s investor protection mission 

would be served by delaying adoption 

of the final rules. However, the Board 

will monitor and determine if further 

implementation resources or support is 

appropriate for users of these metrics. 

2. Key Terms and Concepts 

As described below, the Board 

developed certain key terms and 

concepts that were used in calculating 

the proposed metrics. Where practical 

and relevant, these key terms and 

concepts align with existing definitions 

in PCAOB standards and rules. In other 

cases, the Board has developed new 

definitions and new descriptions of 

terms specifically for use in the metrics, 

which are not intended to inform the 

interpretation of other rules, standards, 

or forms of the PCAOB. The Board 

provided the key terms and concepts 

along with formulas for calculating each 

metric to drive consistency among firms 

and engagement teams. 

One investor-related group said that 

the units of account (e.g., hours, years 

of experience) or measurement used 

within the proposed metrics are 

sufficiently standardized and adaptable 

by firms as they are commonly used 

within audit practice or defined within 

the existing standards. 

Some commenters raised concerns 

about the definitions and descriptions of 

the population used for various metrics 

or about not having a defined set of 

terms applicable to all standards and 

rules. Other commenters questioned 

whether the PCAOB had provided 

sufficient guidance to address potential 

variations in the interpretation and 

application of terminology used in the 

metrics or asserted that not having 

sufficient guidance would add 

complexity and challenges in 

calculating the metrics and 

understanding them or result in 

inconsistent reporting of metrics or lack 

of comparability across audit firms and 

audits engagements. Two of these 

commenters recommended that the 

PCAOB create a glossary of defined 

terms to support consistent use of terms 

throughout the standards and rules or 

conduct additional study to evaluate the 

defined terms in the proposal against 

terms already defined in other PCAOB 

standards and rules. Another 

commenter raised a concern that 

defining terms and specifying 

computations for each metric 

undermines their comparability. 

Some firms offered examples of areas 

where they suggested that clarification 

would be needed, which the Board 

discussed below in the context of the 

relevant metrics. In general, however, 

the Board continues to believe that the 

use of defined terms is critical to driving 

consistent calculation of the metrics. 

Other firms questioned why different 

metrics are based on different 

underlying data (for example, total audit 

hours vs. total hours worked or 

engagement team vs. core engagement 

team). In general, the Board’s choice of 

the data on which to base a metric is 

tailored to the intended objective of the 

metric, and also takes into account the 

practicality and potential costs 

associated with gathering data and 

calculating the metrics. The Board does 

not believe that metrics based on a 

single data set would be as clear or as 

informative. 

The Board addresses specific 

concerns raised in the discussion of 

each metric below. The Board has 

clarified certain terms and concepts 

used or revised the descriptions of 

proposed terms and concepts after 

consideration of the specific comments 

received. 

i. Populations Covered by the Metrics 

a. Partners and Managers (Used in All 

Metric Areas Except for Allocation of 

Audit Hours and Restatement History); 

Staff (Used in Training Hours for Audit 

Personnel) 

While some of the functional roles 

played by individuals involved in an 

audit are otherwise defined and used in 

the Board’s standards (e.g., engagement 

partner 93 and EQR),94 the Board 

proposed to clarify following additional 

functional roles referred to in the 

metrics to ensure consistent reporting 

by firms. 

Partners—Partners or persons in an 

equivalent position (e.g., shareholders, 

members, or other principals) who 

participate in audits; 95


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in audits, as a practical matter the Board’s auditing 

standards apply only in those circumstances. 

96Engagement quality review is not considered 

the performance of an audit procedure. See AS 

1220.07 (The EQR ‘‘should not make decisions on 

behalf of the engagement team or assume any of the 

responsibilities of the engagement team.’’). 

97Note, however, that the Retention of Audit 

Personnel metric treats promotions as if they had 

occurred at the beginning of the year. See note to 

Item 4.6 of Form FM. 

Managers—Accountants or other 

professional staff commonly referred to 

as managers or senior managers (or 

persons in an equivalent position) who 

participate in audits; and 

Staff—Accountants or other 

professional staff who participate in 

audits and are not partners or managers. 

Some engagement-level metrics 

differentiate between engagement 

partner and the other partners who 

participate in the audit. The Board 

believes the differences between the 

responsibilities borne by engagement 

partner and those of other participating 

partners justify presenting data for the 

two categories separately in those 

metrics. For firm-level metrics, 

‘‘engagement partners’’ include all 

partners who served as the engagement 

partner on any audit the firm performed 

of an accelerated filer or large 

accelerated filer. Partners that are 

included in the metrics as an 

engagement partner are not included as 

an ‘‘other partner,’’ even if they served 

in a non-engagement partner role in 

other audits (in other words, partners 

are only counted once within any 

metric). 

The Board adopted the definitions of 

partners, managers, and staff as 

proposed, with clarifications discussed 

below. 

The Board solicited comment on 

whether the proposed definitions of 

partners, managers, and staff are clear 

and appropriate. Two commenters 

agreed that the proposed definitions for 

partners, managers, and staff are clear 

and appropriate, one saying that linking 

the definitions used in the metrics to 

existing definitions would help in 

preventing multiple definitions 

throughout the auditing standards. 

However, some commenters expressed 

concern that titles and roles are not 

consistent across firms or most firms 

have roles which do not clearly or 

obviously reconcile to the roles listed. 

One of these commenters also raised a 

concern about continuing emphasis on 

the engagement staffing model that 

currently exists, on the basis that 

artificial intelligence and other tools 

could affect the staffing of audit 

engagements in the future. This 

commenter recommended including 

‘‘contractors’’ engaged by firms in the 

definition and clarifying whether the 

definitions are meant to be descriptions 

of the roles rather than legal 

interpretations of the roles. Another 

commenter recommended aligning the 

definitions of partners, managers and 

staff with the definition of engagement 

team, by using the phrase ‘‘who perform 

audit procedures’’ instead of ‘‘who 

participate in audits’’ to avoid inclusion 

of personnel who may participate in 

audits in an administrative or project 

management function, but who do not 

perform audit procedures. Another 

commenter expressed concern that audit 

effort associated with roles typically 

referred to as ‘‘national office’’ and 

‘‘professional practice development,’’ 

especially for managers through 

partners, would be excluded from the 

definitions and calculations of the 

metrics. 

For the definition of partners, one 

commenter questioned whether the 

definition is intended to have any 

alignment with ownership interests in a 

firm and requested clarification as to 

how a leadership level role such as a 

managing director would be classified 

because, in the commenter’s view, that 

role does not appear to meet the 

definition of either a partner or a 

manager. 

For the definition of managers, the 

same commenter requested clarification 

on whether the manager title is based on 

the person’s general title in the firm 

because, for example, in certain cases an 

experienced supervisor may serve a 

manager capacity on a less complex 

engagement. Another commenter 

suggested adding a specific number of 

years of audit experience to the 

definition of managers because of the 

risk that firms could inflate percentage 

of audit hours incurred by managers by 

changing the titles of more junior 

professionals to increase the number of 

managers. 

The Board adopted the definitions of 

partners, managers, and staff as 

proposed. Because there are differing 

legal structures and titles among firms, 

the Board is providing foundational 

definitions so that each firm can allocate 

its professionals in three levels: 

partners, managers, and staff. The Board 

believes that the vast majority of firms 

have these three levels, and that, 

although staffing models may change 

over time, these levels are likely to be 

retained for the foreseeable future. The 

Board also believes that other job titles, 

such as managing director, can be fit 

into the appropriate category based on 

the level of responsibility assigned to 

them. For example, in a firm where 

managing directors are given similar 

responsibilities as the firm’s principals 

(for example, signing authority on audit 

engagements), they would be treated as 

partners under the Board’s definition; 

otherwise, they would align with 

managers. Similarly, professionals in a 

firm that does not use the title 

‘‘manager’’ would be reported as 

managers if they are assigned the duties 

that are typically carried out by 

managers and senior managers at firms 

that do use those titles. Professionals 

who work under the firm’s direction 

and control and function as the firm’s 

employees, such as secondees and 

contractors, may or may not have these 

titles but would be reported based on 

their level of responsibility and 

decision-making authority. In all cases, 

the determination would be made based 

on the responsibilities, decision-making 

authority, and scope of duties of the 

person. If necessary, firms could utilize 

the optional narrative disclosure to 

describe how the firm aligned their 

categories of professionals with 

partners, managers, or staff levels. 

The Board considered adding a 

specified minimum number of years of 

audit experience in the definition of 

manager but determined not to. Some 

managers qualify for promotion with 

fewer years of audit experience due to 

other relevant education or experience. 

The Board was concerned that building 

a minimum number of years of audit 

experience into the definition would 

result in people with the responsibilities 

and title of manager being required to be 

reported as staff, making the metrics less 

meaningful while increasing the 

administrative burden associated with 

reporting. 

The Board did not use the phrase 

‘‘who performed audit procedures’’ in 

the definitions of partners, managers, 

and staff because use of this term would 

exclude professionals who do not 

perform audit procedures—for example, 

partners who only conduct engagement 

quality reviews 96 or national office 

personnel in connection with certain 

types of consultations that are not audit 

procedures. 

Because the definitions of managers 

and staff are limited to ‘‘accountants or 

other professional staff,’’ administrative 

personnel are not included. 

In the Board’s proposal, the Board 

generally did not specify how to 

account for promotions within the 

reporting period from one level to 

another (e.g., from manager to 

partner),97 although the Board noted 

that firms would be expected to be 

consistent in their approach across 

metrics. The only commenter to address 

this issue supported the flexibility 


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98This should be interpreted consistently with 

‘‘firm personnel,’’ as defined in QC 1000.A5. 

99The ‘‘engagement team’’ is defined in AS 

2101.A3 [as adopted by the Board in Planning and 

Supervision of Audits Involving Other Auditors and 

Dividing Responsibility for the Audit with Another 

Accounting Firm, PCAOB Rel. No. 2022–002 (June 

21, 2022), to take effect with respect to audits of 

fiscal years ending on or after December 15, 2024] 

as follows (footnotes omitted): 

.A3 Engagement team— 

a. Engagement team includes: 

1. Partners, principals, and shareholders of, and 

accountants and other professional staff employed 

or engaged by, the lead auditor or other accounting 

firms who perform audit procedures on an audit or 

assist the engagement partner in fulfilling his or her 

planning or supervisory responsibilities on the 

audit pursuant to this standard or AS 1201, 

Supervision of the Audit Engagement; and 

2. Specialists who, in connection with the audit, 

(i) are employed by the lead auditor or an other 

auditor participating in the audit and (ii) assist that 

auditor in obtaining or evaluating audit evidence 

Continued 

proposed with respect to the treatment 

of promotions. Consistent with the 

proposal, the final rules do not impose 

any prescriptive requirements regarding 

the reporting of professionals whose job 

title or responsibilities change during 

the reporting period. However, the 

Board believes that treating such 

transitions inconsistently, whether 

within a metric or across metrics, would 

be misleading and the Board expects 

firms to report such changes in a 

consistent way. 

(1) Participate in Audits (Used in the 

Terms Partners, Managers, and Staff) 

‘‘Participate in audits’’ is a broad 

concept that would include the work of 

all professionals (partners, managers, 

and staff) that are involved in the firm’s 

audits, including tax personnel, 

information technology (‘‘IT’’) 

personnel, and employed specialists. 

The Board proposed the phrase 

‘‘participate in audits’’ rather than 

referring to the activities of individuals 

assigned to a specific business line, 

such as the firm’s audit practice, 

because some firms do not assign 

individuals to specific business lines. 

However, the Board solicited comment 

on whether the relevant population 

would be partners, managers, and staff 

of the firm’s audit practice, if the firm 

assigns its professionals to specific 

business lines. 

Some commenters agreed with the 

phrase ‘‘participate in audits’’ as used in 

the proposal. One of these commenters 

suggested that, because firms have 

different structures, attempting to 

separate members of the engagement 

team based on a firm’s structure could 

lead to less comparability across 

metrics. One firm stated that it assigns 

individuals to specific business lines, 

and collecting data based on that 

assigned business line would be more 

practical to implement versus the 

proposal’s requirement to include all 

individuals participating in audits. 

Some other commenters stated that 

firm-level metrics should look only to 

the firm’s audit practice because (i) the 

inclusion of other service lines in the 

metrics would impair comparability 

between firms due to the varying size 

and scope of non-assurance practices 

and (ii) the work of tax professionals 

and consultants would not improve the 

usefulness of these metrics for the 

purposes outlined in the Board’s 

proposal. Another commenter requested 

clarification on how to account for 

individuals who move between audit 

support roles and engagement-facing 

functions. 

The final definitions of ‘‘partners,’’ 

‘‘managers,’’ and ‘‘staff’’ include the 

phrase, ‘‘who participate in audits,’’ as 

proposed. Because some firms do not 

assign partners and other professionals 

to a specific business line, the Board 

believes this approach is the best way to 

drive consistent reporting by firms with 

different organizational structures. 

In the proposal, the Board clarified 

that members of the engagement team 

who participate in audits would include 

every partner and manager who worked 

on any aspect of the audit, even if their 

involvement was extremely limited. The 

Board proposed not to provide a 

participation threshold, such as a 

minimum number of hours, because the 

Board believes, based on the objectives 

of these metrics, that the metrics should 

capture all partners, managers, and staff 

who participate in audits in any 

capacity. However, the Board solicited 

comment on whether the concept 

should include a participation 

threshold. 

One commenter agreed there was no 

need to create a minimum threshold for 

participation on the basis that it would 

increase the complexity and cost of 

calculating the metrics without a 

corresponding benefit. Another 

commenter recommended establishing a 

minimum threshold for participation 

because exclusion of professionals with 

certain firm roles (e.g., firm leadership, 

national office, or specialist line of 

service individuals with limited 

participation during the year in any 

specific engagement) would not reduce 

the reliability of the metric. This 

commenter further recommended 

creating a minimum threshold for 

purposes of firm-level metrics, such as 

individuals who spent more than 10% 

of their time participating on audit 

engagements, and engagement-level 

metrics (e.g., similar to the concept of 

core engagement team). This commenter 

and another commenter recommended 

the additional threshold as optional for 

firms to use due to cost-benefit 

considerations, particularly for smaller 

firms, and should only be considered if 

additional thresholds allow for simpler 

aggregation or preparation of the data. 

The Board did not adopt additional 

thresholds to be used for firm-level or 

engagement-level metrics, except for the 

concept of core engagement team used 

in certain engagement-level metrics 

discussed below. The objectives of the 

five metrics that use ‘‘partners, 

managers, and staff of the firm’’ are to 

understand the firm’s professionals who 

participate in audits in totality, and the 

Board believes imposing a threshold on 

what counts as participation would 

defeat that objective. 

(2) Partners, Managers, and Staff ‘‘of The 

Firm’’ (Used in Workload, Training 

Hours for Audit Personnel, Experience 

of Audit Personnel, Industry 

Experience, and Retention of Audit 

Personnel) 

Because firm-level metrics provide 

information about the firm, in 

calculating some firm-level metrics, the 

Board proposed to include partners, 

managers, and staff ‘‘of the firm,’’ which 

refers to individuals participating in 

audits who work for the firm or work 

under the firm’s direction and control 

and function as the firm’s employees 

(e.g., secondees and contractors), 

regardless of whether the audits are 

performed under PCAOB standards or 

other auditing standards.98 The Board 

believes including individuals in the 

firm-level metrics who participate on 

any firm audit is appropriate because 

these metrics would provide 

information about the firm and not 

about specific engagements (for 

example, in the area of firm-level 

industry experience, which would be 

relevant across a firm’s entire audit 

practice). The Board added a new 

section to Part III, Terminology in Form 

FM to clarify the meaning of these 

phrases. The Board also clarified that 

participation in audits means any 

involvement (including, for example, 

consultation on specific matters), and 

thus may include individuals outside 

the engagement team, such as national 

office personnel. 

b. Engagement Team (Used in Partner 

and Manager Involvement) 

The Board proposed to provide 

information about partners and 

managers on the engagement team, a 

term defined in AS 2101, Audit 

Planning.99 The Board believes it is 


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with respect to a relevant assertion of a significant 

account or disclosure. 

b. Engagement team does not include: 

1. The engagement quality reviewer and those 

assisting the reviewer (to which AS 1220, 

Engagement Quality Review, applies); 

2. Partners, principals, and shareholders of, and 

other individuals employed or engaged by, another 

accounting firm in situations in which the lead 

auditor divides responsibility for the audit with the 

other firm under AS 1206, Dividing Responsibility 

for the Audit with Another Accounting Firm; or 

3. Engaged specialists. 

appropriate to provide metrics related 

specifically to the engagement team 

because this would provide investors 

and other stakeholders with relevant 

information related to the audit as a 

whole, who perform audit procedures 

on the audit or assist in planning or 

supervising the audit. 

One commenter suggested clarifying 

whether ‘‘engagement team’’ for 

purposes of this rule includes internal 

specialists. Another commenter stated 

that the proposal appeared to provide an 

alternative definition of partners and 

managers on the engagement team 

compared to AS 2101, which is aligned 

to other PCAOB standards, and 

recommended providing clarity as to the 

treatment of specialists. Another 

commenter expressed concern that the 

definition of ‘‘engagement team’’ under 

AS 2101 could have ramifications for 

the calculation of engagement-level 

metrics, but did not provide any 

indication of what those ramifications 

might be. 

The Board adopted the AS 2101 term 

‘‘engagement team,’’ as proposed. The 

definition of engagement team in AS 

2101 includes specialists who, in 

connection with the audit, (i) are 

employed by the lead auditor or an 

other auditor participating in the audit 

and (ii) assist that auditor in obtaining 

or evaluating audit evidence with 

respect to a relevant assertion of a 

significant account or disclosure. It 

excludes engaged specialists. 

Figure 2. Engagement Team Members 


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• Engagement partner • Auditor-engaged specialists100 

• Personnel from the • Engagement quality reviewer and those 

engagement partner's firm assisting the reviewer101 

who perform audit 

procedures on the audit • Service auditors of a third-party service 

organization102 

• Personnel of accounting 

firms and individual • A firm professional who performs a 

accountants outside the contemporaneous quality control 

engagement partner's firm function ( e.g., internal inspection or 

who perform audit quality control review) but does not 

procedures on the audit perform audit procedures or help plan 

supervised under AS 1201 or supervise the audit work 

• A firm professional in the • Individuals employed or engaged by 

national office or the company being audited, such as a 

centralized group in the company's internal auditors, a 

firm (including within the company's specialists, and a company's 

firm's network) who consultants 103 

performs audit procedures 

on the audit or assists in 

planning or supervising the 

audit 
Federal Register / Vol. 89, No. 238 / Wednesday, December 11, 2024 / Notices 99991 

100See AS 1210, Using the Work of an AuditorEngaged Specialist. 101AS 1220 applies to those persons. 102AS 2601, Consideration of an Entity’s Use of 

a Service Organization, sets forth the auditor’s 

responsibilities with respect to using the work of 

service auditors who issue reports on the controls 

of a third-party service organization. 

103Because of their roles at the company, the 

work of individuals employed or engaged by the 

company is not subject to supervision under AS 

1201; they are not considered members of the 

engagement team under the adopted definition. 

PCAOB standards include requirements regarding 

the auditor’s use of work performed by some of 

these individuals. See, e.g., AS 1105, Audit 

Evidence, Appendix A; AS 2201, An Audit of 

Internal Control Over Financial Reporting That Is 

Integrated With An Audit of Financial Statements; 

AS 2605, Consideration of the Internal Audit 

Function. 

104See below for the discussion of ‘‘total audit 

hours.’’ 

c. Core Engagement Team (Used in 

Workload, Training Hours for Audit 

Personnel, Experience of Audit 

Personnel, and Industry 

Experience)100 101 102 103

For some engagement-level metrics, 

the Board proposed to include 

information about members of the ‘‘core 

engagement team’’ rather than the full 

‘‘engagement team,’’ so as to focus the 

metrics on the individuals who make 

the primary decisions regarding 

planning and performance of the audit 

and determine the final conclusions 

supporting the auditor’s opinion. With 

the ‘‘core engagement team’’ concept, 

the Board intends to provide more 

meaningful and focused data by 

excluding information about certain 

partners and managers with lesser 

participation. The Board also simplifies 

the data collection effort by limiting 

these metrics to firm personnel. 

The Board proposed that the core 

engagement team would include the 

engagement partner and members of the 

engagement team who are partners or 

employees of the firm issuing the audit 

report. In addition, under the proposal, 

core engagement team would include 

either a partner (excluding the 

engagement partner as described above) 

who worked ten or more hours on the 

engagement or a manager or staff who 

worked on the engagement for 40 or 

more hours or, if less, 2% or more of the 

total hours.104

Figure 3 illustrates how partners, 

managers, and staff used in the 

calculation of the metrics, relate to the 

firm, engagement team, and the core 

engagement team. 

Figure 3. Relationship Between the 

Groups of Individuals Included in 

Metric Calculations 

The Board solicited comments on 

whether the proposed definition of core 

engagement team, and the proposed 

participation thresholds for inclusion in 

the core engagement team, were 

appropriate. 

One commenter agreed that at the 

engagement level, metrics related to 

only the core engagement team will be 

more useful to investors and other 

stakeholders. Two commenters 

supported the proposed 10-hour 

minimum threshold for partners other 

than engagement partners. One of these 


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Partners, Managers, and Staff 

Firm Engagement 

Team 
99992 Federal Register / Vol. 89, No. 238 / Wednesday, December 11, 2024 / Notices 

105See discussion of ‘‘total audit hours’’ used for 

Form AP reporting below. 

also supported the proposed threshold 

for managers and staff. This commenter 

suggested, however, that the Board 

includes only partners and employees of 

the lead audit firm and exclude 

component auditors. 

One commenter suggested aligning 

the definition of ‘‘core engagement 

team’’ with the ‘‘lead auditor’’ definition 

in amended AS 1201 and AS 2101. 

Another commenter indicated that the 

creation of thresholds would conflict 

with other existing aspects of Form AP. 

This commenter further stated there 

would be challenges for firms to 

accumulate and report this data, 

specifically obtaining the data from 

firms that are not required to report on 

Form FM or Form AP and additional 

time may be needed for implementation 

of these metrics. 

Another commenter recommended 

replacing the phrase ‘‘who worked’’ in 

the proposed definition to ‘‘who 

performed audit procedures’’ to be 

consistent with the definitions of 

engagement team because this 

commenter was concerned that wording 

inconsistencies may cause confusion as 

to whether the same criteria apply 

across the various definitions. One 

commenter indicated that it is not clear 

on what basis the proposed threshold is 

determined and further indicated that 

the concept of core engagement team 

suggests that certain work in the 

engagement would be either not 

important or optional and 

recommended further study. 

The proposal also asked whether 

other individuals involved in the audit 

(e.g., individuals in the firm’s national 

office, the EQR, employees of shared 

service centers, or individuals involved 

in loaned staff arrangements and 

alternative practice structures) should 

be treated differently in the metrics and, 

if so, how they should be considered in 

the definition of core engagement team. 

One commenter sought clarification as 

to whether shared service center 

employees should be included in the 

definition of core engagement team and 

recommended considering the nature 

and use of centralized services and how 

service centers continue to evolve across 

a changing professional landscape. 

Another commenter suggested including 

the EQR and specialists in the core 

engagement team but not treating them 

differently from other individuals 

involved in the audit. Two commenters 

recommended the definition to simply 

include all individuals who charged 

time to the engagement or whose cost 

was included within the engagement to 

minimize the cost of reporting the 

metrics, but one of the two commenters 

recommended excluding the quality 

functions such as the EQR to avoid any 

impression that they are part of the 

engagement team. 

The Board adopted the proposed 

definition of core engagement team 

substantially as proposed: 

1. The engagement partner and 

2. Members of the engagement team 

who are: 

a. Partners or employees of the 

registered public accounting firm 

issuing the audit report (or individuals 

who work under that firm’s direction 

and control and function as the firm’s 

employees); and 

b. Either of the following: 

i. A partner (excluding the 

engagement partner) who reported ten 

or more hours on the engagement; or 

ii. Managers and staff who reported 40 

or more hours on the engagement or, if 

less, 2% or more of the total audit 

hours. 

As suggested by two commenters, the 

Board reformatted the presentation of 

core engagement team to clarify that the 

engagement partner is part of the core 

engagement team. In addition, the Board 

modified the descriptions of core 

engagement team members by 

substituting ‘‘who reported’’ for ‘‘who 

worked’’ to make clear that the basis for 

determining whether hours thresholds 

have been reached is time reported in 

the firm’s timekeeping system. The 

Board did not align the definition of 

‘‘core engagement team’’ with the ‘‘lead 

auditor’’ definition because including 

information from all of the partners and 

managers of the firm, rather than just 

those with significant participation in 

the engagement, would potentially skew 

or dilute the data, making the metrics 

less meaningful. 

As the Board proposed and the Board 

adopted, the term core engagement team 

excludes other auditors. As a result, 

there will be no need to obtain data 

from other auditors, and the definition 

will not encompass firms that are not 

required to file Form AP. Under current 

reporting requirements for Form AP, the 

lead auditor has to accumulate all of the 

hours worked on issuer engagements.105

While it will require some 

disaggregation of this data, the Board 

does not believe reporting the data for 

the engagement team for Partner and 

Manager Involvement and total audit 

hours for Allocation of Audit Hours will 

create a significant challenge for firms. 

Regarding individuals at shared service 

centers, if partners or managers 

employed by a shared service center 

meet the definition of core engagement 

team, they will be included. As further 

discussed below, the Board did not 

include the EQR in the definition of the 

‘‘core engagement team’’; the core 

engagement team is a subset of the 

engagement team, and the EQR is not a 

part of the engagement team. 

Figure 4. Core Engagement Team 

Members 


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Example firm-level calculation: 

Total audit hours of the firm's accelerated filer and large accelerated filer engagements 

Accelerated filer and Total Audit Hours Total Audit Hours 

large accelerated filer incurred by partners 

engagements and managers on the 

engagement team 

CompanyX 3,900 1,400 

CompanyY 2,500 625 

Company Z 1,500 300 

Total 7,900 2,325 

Total audit hours incurred by partners and managers on the engagement team for all 

accelerated filer and large accelerated filer engagements/ Total audit hours for all accelerated 

filer and large accelerated filer engagements 

Calculation: 2,325 / 7,900 = 29% 

Example firm-level reporting for Form FM: 

Partner and Manager Percentage of total audit hours 

Involvement for partners and managers for 29% all accelerated filer and large 

accelerated filer engagements 

Example engagement-level calculation: 

Details for total audit hours of the accelerated filer or large accelerated filer engagement 

• Lead auditor issues the audit report for Company X. 

• Total audit hours for the engagement: 3,900 

Details for partners and managers 
99994 Federal Register / Vol. 89, No. 238 / Wednesday, December 11, 2024 / Notices 

107See AS 1220.02. 

108See AS 1220.05. 

109See Part IV of Form AP. 

110 ‘‘Total audit hours’’ [as amended and adopted 

by the Board in PCAOB Rel. No. 2024–005, to take 

effect on December 15, 2025] exclude the hours 

incurred by: (1) the engagement quality reviewer; 

(2) specialists engaged, not employed, by the firm; 

(3) accounting firms in performing the audit of 

entities in which the issuer has an investment that 

is accounted for using the equity method; (4) 

internal auditors, other company personnel, or third 

parties working under the direction of management 

or the audit committee who provided direct 

assistance in the audit of internal control over 

financial reporting; and (5) internal auditors who 

provided direct assistance in the audit of the 

financial statements. 

d. Engagement Quality Reviewer (Used 

in Experience of Audit Personnel and 

Industry Experience) 

The objective of the EQR is to perform 

an evaluation of the significant 

judgments made by the engagement 

team and the related conclusions 

reached in forming the overall 

conclusion on the engagement and in 

preparing the engagement report, if a 

report is to be issued, in order to 

determine whether to provide 

concurring approval of issuance.107 The 

EQR must possess the level of 

knowledge and competence related to 

accounting, auditing, and financial 

reporting required to serve as the 

engagement partner on the engagement 

under review.108 While reporting on 

specific hours spent by the EQR or 

including the EQR’s time in 

engagement-level metrics may have a 

negligeable quantitative impact, the 

Board believes reporting on EQR’s 

competency for two of the engagementlevel metric areas will be important and 

valuable for stakeholders. 

Because the EQR is not a member of 

the engagement team as defined in AS 

2101, EQRs were not included in the 

proposed metrics when the proposed 

metrics required disclosure of the 

engagement team’s information unless 

the disclosure of EQRs was specifically 

called out in the proposed metric area. 

Therefore, the Board solicited comment 

about whether EQRs should be added to 

any of the proposed metrics, separately 

or together with a group such as the 

engagement team. 

Some commenters agreed that EQRs 

should be excluded from the 

engagement-level metrics. These 

commenters indicated not to add them 

as a separate category because the EQR 

is not a part of the engagement team as 

defined by AS 2101 and the inclusion 

of the EQR would be inconsistent with 

AS 2101. 

One commenter suggested that the 

EQR should be included in the metrics 

but presented separately, to ensure that 

there is no impression that the EQR is 

not independent. One commenter 

recommended including EQR in firmlevel metrics because firms generally do 

not assign partners to solely perform 

engagement quality reviews and firmlevel metrics should include all partners 

with no requirement to allocate their 

time spent between the roles of an 

engagement partner and an EQR. Two 

investor-related commenters generally 

supported including EQR hours in the 

metrics. Another commenter questioned 

the rationale for not including metrics 

relating specifically to engagement 

quality reviewers, despite the fact that 

they are not part of the engagement 

team. 

In the final requirements, EQRs are 

included in the two experience-related 

metrics (Experience of Audit Personnel 

and Industry Experience), where the 

Board believes that the information 

would be significant to users. EQRs are 

not included in other metrics, primarily 

due to their quantitatively insignificant 

impact on the metrics and to avoid any 

confusion regarding whether they are 

part of the engagement team. For 

metrics that depend on total audit hours 

(i.e., Partner and Manager Involvement 

and Allocation of Audit Hours), this 

approach also aligns with the reporting 

required for purposes of Form AP, from 

which EQRs are excluded. 

ii. Total Audit Hours (Used in Partner 

and Manager Involvement and 

Allocation of Audit Hours) 

For several metric areas, the Board 

proposed to use ‘‘total audit hours,’’ 

which would be the same as the hours 

used to compute the extent of 

participation in an audit of other 

accounting firms in Form AP.109 Total 

audit hours include hours attributable 

to: (1) the financial statement audit; (2) 

reviews pursuant to AS 4105, Reviews 

of Interim Financial Information; and 

(3) the audit of ICFR pursuant to AS 

2201.110

Under the proposal, some firm-level 

metrics were based on total audit hours 

across all issuer engagements while 

others were based on specific subsets of 

total audit hours (e.g., partner and 

manager hours). The Board also clarified 

that some engagement-level metrics 

would also use a subset of total audit 

hours (e.g., those incurred by partners 

and managers, on certain areas of the 

audit, or within stated time periods 

before or after the issuer’s year end). 

The Board adopted the definition of 

total audit hours as proposed. 

Two commenters criticized the use of 

hours in metrics. One expressed 

concern that basing metrics on hours 

would encourage stakeholders to focus 

on time spent rather than on whether 

the work was effective, and potentially 

exacerbate the notion that auditors 

should reduce the hours spent on an 

engagement. The other, while generally 

not objecting to the use of the hours in 

specific metrics, asserted that many 

firms have moved away from the burden 

of time reporting and that there is no 

incentive to track time on fixed fee 

engagements. The Board continues to 

believe that basing certain metrics on 

audit hours is appropriate. It will allow 

firms to leverage systems already in 

place for purposes of Form AP reporting 

and human capital management. 

Moreover, the Board is not aware of any 

alternative method of tracking auditor 

work that is commonly accepted by 

firms and could be implemented 

without the creation of entirely new 

systems. 

Commenters responding to the 

specific questions in the proposal on 

total audit hours generally expressed 

support for using Form AP hours for the 

total audit hours in the metrics. A few 

commenters recommended including 

engagement quality review hours in 

total audit hours. A commenter stated 

that hours from shared service centers 

should be excluded from both the 

partner and manager involvement 

metrics. A few commenters asked that 

the Board either include or exclude 

certain specialist hours in total audit 

hours. Two commenters suggested that 

hours spent on quarterly reviews should 

either be excluded or disaggregated, one 

stating that otherwise the metric area 

related to allocation of audit hours 

would generally show that most hours 

were incurred before year end. Another 

commenter requested clarification as to 

whether hours spent on quarterly 

reviews are included or excluded from 

total audit hours, stating that if 

excluded, firms may need to implement 

more detailed time tracking mechanisms 

or estimations of time between quarterly 

review and year-end audit procedures. 

In general, as required for Form AP, 

total audit hours is comprised of the 

hours of the lead auditor, other 

accounting firms participating in the 

audit with whom the principal auditor 

does not divide responsibility for the 

audit, and nonaccounting firm 

participants that assist the principal 

auditor or other accounting firms. 

Consistent with the calculation of total 

audit hours for Form AP, total audit 

hours exclude hours incurred by certain 

persons and entities. In addition, 

existing Form AP includes reviews 

performed pursuant to AS 4105 because 

these reviews are an integral part of the 

overall audit process. The Board 


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111For example, the Board adopted the definition 

of ‘‘partner’’ to include only persons who 

participate in audits. While the Board believes that 

is consistent with the use of that term in the Board’s 

auditing standards (see footnote above), it is 

narrower than the use of the term in connection 

with registration and reporting requirements. 

112See General Responsibilities of the Auditor in 

Conducting an Audit and Amendments to PCAOB 

Standards, PCAOB Rel. No. 2024–004 (May 13, 

2024), as adopted by the Board and approved by the 

SEC, to take effect with respect to audits of fiscal 

years beginning on or after December 15, 2025, at 

8–11 (describing responsibilities of engagement 

partners under existing PCAOB standards) and 17 

(describing clarification for the existing 

responsibilities of engagement partners); see also, 

e.g., In the Matter of Melissa K. Koeppel, CPA, 

PCAOB File No. 105–2011–007, at 78 (Dec. 29, 

2017) (concluding that, as the individual with final 

responsibility for the audit, the engagement partner 

must act with due professional care to ensure that 

the audit team performs all required audit 

procedures). 

113See, e.g., a research paper, Joshua Khavis, 

Mengtian Li, and Brandon Szerwo, Manager 

Staffing Leverage at the Audit Office and Audit 

Quality, available at https://papers.ssrn.com/sol3/ 

.cfm?abstract_id=4856541; a study using Korean 

data, Suyon Kim, Does Engagement Partners’ Effort 

Affect Audit Quality? With a Focus on the Effects 

of Internal Control System, 9 Risks 225, (2021); a 

study using Japanese data, Sarowar Hossain, 

Kenichi Yazawa, and Gary S. Monroe, The 

Relationship Between Audit Team Composition, 

Audit Fees, and Quality, 36 AUDITING: A Journal 

of Practice and Theory 115, (2017); and Agnes WY 

Lo, Kenny Z. Lin, and Raymond MK Wong, Does 

Availability of Audit Partners Affect Audit Quality? 

Evidence from China, 37 Journal of Accounting, 

Auditing & Finance 407, (2022). 

continues to believe that using total 

audit hours, as already defined by Form 

AP and collected by firms, will provide 

an appropriate and cost-effective basis 

for calculating metrics. 

Commenters, mostly firms and firmrelated groups, noted that several metric 

areas use total audit hours, which 

includes information from other 

auditors. According to these 

commenters, referring to such metrics as 

‘‘firm-level metrics’’ is misleading, and 

they recommended the firm-level 

metrics be limited to data related solely 

to the firm filing the Form FM and 

exclude information from other 

accounting firms. The Board is retaining 

the label of ‘‘firm-level metrics’’ for the 

metric areas in question as the Board 

believes it is important to include all of 

the relevant information for the lead 

auditor’s engagements. In addition, the 

Board believes this information will 

provide key insights into the way that 

engagements are conducted by the firm 

that is the lead auditor. 

iii. Terms Used in Metrics 

In addition to the terms discussed 

above, many of the terms used in the 

metrics are defined elsewhere in the 

Board’s standards and rules. Other 

terms will be defined specifically for 

use in the metric calculations and may 

differ from the way such terms are used 

elsewhere in PCAOB rules and 

standards.111 Terms that are used in 

only one metric are discussed in greater 

length below, in the context of 

discussing the relevant metric. The 

Board has italicized the terminology in 

the final calculations. 

3. Metric Descriptions and Calculations 

This section describes the firm-level 

and engagement-level performance 

metrics the Board adopted. The 

Appendix provides illustrative 

examples to show how metrics would 

be calculated based on specific facts and 

circumstances presented therein. 

a. Partner and Manager Involvement 

Partners and managers are responsible 

for oversight of the engagement team, 

which includes less experienced staff. 

Spending time to oversee the work of 

the audit staff is critical to the 

engagement. Included in this oversight 

is the engagement partner’s 

responsibility to exercise due 

professional care related to supervision 

and review of the audit, including 

evaluating whether significant findings 

or issues are appropriately addressed 

and determining that the significant 

judgments and conclusions on which 

the auditor’s report is based are 

appropriate and supported by sufficient 

appropriate audit evidence.112 Less 

extensive supervision raises the risk of 

less effective audit procedures. With a 

lower ratio of senior engagement team 

time to staff time, the risk may be 

greater that partners and managers may 

not be devoting sufficient time to 

supervise and review staff work and 

evaluate audit judgments. Academic 

research also suggests that greater 

partner or manager involvement in the 

audit is positively associated with 

proxies for the quality of the audit.113

The proposal set forth requirements 

for firms to calculate firm-level and 

engagement-level metrics for the 

percentage of total audit hours incurred 

by partners and managers. As described 

in the proposal, this metric area could 

provide users with information 

regarding each firm’s oversight of their 

engagements and the supervision of less 

experienced engagement team members. 

The Board adopted this metric area 

substantially as proposed, with one 

modification discussed in more detail 

below. 

Commenters generally agreed with 

requiring public reporting of the 

proposed firm-level metrics for Partner 

and Manager Involvement. Investorrelated commenters stated that 

disclosure of hours worked by senior 

professionals relative to more junior 

staff across the firm and on the 

engagement is valuable. One investorrelated group noted that information 

regarding the hours worked by senior 

professionals who have more experience 

in making judgments and evaluating 

estimates relative to more junior staff 

provides important insights into the 

oversight, supervision, and review of 

the engagement team. One commenter 

agreed that the proposed metrics would 

provide useful information to investors, 

audit committees, or other stakeholders 

because it would provide a salient 

indicator of audit quality. Another 

commenter agreed that the firm-level 

metric is clear and appropriate because 

it provides an indication of the level of 

involvement of partners and managers 

in the firm’s audit engagements. At the 

same time, a few commenters were 

concerned that the engagement-level 

metric could be misunderstood because 

the level of supervision and review 

should vary based on the nature of the 

company (e.g., size and complexity), the 

nature of the work assigned to 

engagement team members, the risks of 

material misstatement, and the 

knowledge, skill, and ability of each 

engagement team member. Further, a 

commenter stated that the engagementlevel metric would not provide 

meaningful information without 

contextual information obtained 

through a discussion with the audit 

committee. 

The Board solicited comment on 

whether data for partners and managers 

should be presented separately, 

including whether there should be a 

separate calculation for the engagement 

partner. Two commenters expressly 

supported this disaggregation, one 

stating that because the engagement 

partner is the person signing the 

opinion, it would appear to be more 

consistent to separate this data. The 

other commenters on this topic said that 

further disaggregation of the 

involvement of partners and managers is 

not warranted and could create 

unnecessary complexity. For example, a 

commenter stated that segregation of 

involvement by levels in the firm does 

not provide incremental value and 

would dilute or potentially 

mischaracterize what can be inferred 

from this metric (e.g., disaggregation of 

the engagement partner role is not likely 

to be meaningful due to the engagement 

partner’s ability to have assistance). 

Two commenters expressed concern 

that adding up partner and manager 

data and calculating these metrics for all 

issuer engagements could be very time 

consuming and unnecessarily increase 


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114See, e.g., Julie S. Persellin, Jaime J. Schmidt, 

Scott D. Vandervelde, and Michael S. Wilkins, 

Auditor Perceptions of Audit Workloads, Audit 

Quality, and Job Satisfaction, 33 Accounting 

Horizons 95, 101 (2019) and Brant E. Christensen, 

Nathan J. Newton, and Michael S. Wilkins, How Do 

Team Workloads and Team Staffing Affect the 

Audit? Archival Evidence from U.S. Audits, 92 

Accounting, Organizations and Society 101225, 

(2021). 

115See, e.g., Seokyoun Hwang and Philip Keejae 

Hong, Auditors’ Workload and Audit Quality under 

Audit Hour Budget Pressure: Evidence from the 

Korean Audit Market, 26 International Journal of 

Auditing 371, (2022); John Goodwin and Donghui 

Wu, What is the Relationship Between Audit 

Partner Busyness and Audit Quality?, 33 

Contemporary Accounting Research 341, (2016); 

Persellin, et al., Auditor Perceptions. 

116Hours worked for purposes of the proposed 

metrics excluded hours that were not considered 

working hours (e.g., paid time off and holiday time). 

compliance costs. Another commenter 

expressed concern that further 

breakdown by role could lead to more 

inconsistencies in reporting across 

engagements (e.g., differences in how 

firms are structured, such as a managing 

director role). Commenters also 

recommended further study by the 

PCAOB. 

The Board notes, in response to 

commenter concerns about the need for 

further study, there is extensive 

academic literature on this topic and 

widespread support among investorrelated groups (see above discussion). 

The Board does not believe that adding 

up partner and manager data and 

calculating and reporting these metrics 

will unnecessarily increase compliance 

costs as firms are already required to 

track these hours in aggregate for 

purposes of Form AP reporting. While 

the Board acknowledges the importance 

of the engagement partner’s role, as this 

person is primarily responsible for the 

engagement as evidenced by the fact 

that they sign the opinion and is 

required to be identified on Form AP, 

the Board continues to believe that the 

aggregation of partner and manager 

involvement and reporting of one 

percentage provides a more holistic 

picture of the overall supervision and 

review of the audit engagement. The 

Board agrees with most commenters 

who said that further disaggregation of 

the involvement of partners and 

managers is not warranted. 

Some commenters, mostly firms and 

firm-related groups, suggested excluding 

hours from other accounting firms and 

focusing only on the involvement of 

partners and managers of the reporting 

firm. These commenters were concerned 

that in situations where accounting 

firms outside the lead auditor’s network 

are involved, both the firm- and 

engagement-level metrics would require 

information from outside the lead 

auditor’s system of quality control. 

Another commenter requested that firms 

should present partner and manager 

involvement across high-, medium-, and 

low-risk engagements. According to this 

commenter, it would enhance 

comparability across firms. 

The Board believes the metric area on 

partner and manager involvement could 

be less informative or even potentially 

misleading if it were based only on the 

lead auditor, rather than the entire 

engagement team (including other 

auditors). Moreover, since relevant data 

in aggregated form is already collected 

for purposes of Form AP reporting, it is 

subject to existing quality controls over 

firm reporting. The Board does not 

believe the additional administrative 

burden of reporting partner and 

manager hours will be significant. As to 

the suggestion to present partner and 

manager involvement across different 

engagement risk profiles, the Board 

notes there is no requirement in PCAOB 

standards or rules for such 

categorization and no established 

framework for differentiating among 

engagements in that way. Therefore, the 

Board does not believe this suggestion 

would yield comparable information. 

However, firms will have the ability to 

provide context in an optional narrative 

disclosure if they believe information as 

to relative risk profiles is helpful in 

interpreting the metric. 

The Board adopted the firm- and 

engagement-level metrics for partner 

and manager involvement substantially 

as proposed. The Board believes they 

will provide useful information to assist 

in understanding hours worked by 

senior professionals relative to more 

junior staff and gauging the associated 

risks. 

However, the final requirements have 

been modified in one respect, to narrow 

the population of engagements covered 

by firm-level reporting. Considering 

comments received expressing concern 

with the potential lack of comparability 

across different types of issuers, the 

Board has limited firm-level reporting to 

only engagements for accelerated filers 

and large accelerated filers—that is, the 

engagements for which engagementlevel reporting is required—rather than 

all issuer engagements. The Board 

believes this narrower scope will yield 

better alignment between firm- and 

engagement-level metrics and more 

comparable information across 

engagements. Additionally, this 

modification should further reduce data 

collection and reduce the administrative 

burden associated with calculating and 

reporting these metrics. 

(See Exhibit A, ‘‘Partner and Manager 

Involvement.’’) 

b. Workload 

The Board believes that in general, the 

greater the workload, the greater the 

likelihood that members of the 

engagement team may have insufficient 

time to appropriately perform the 

necessary audit procedures and make 

the appropriate judgments that an audit 

requires. 

Professionals may become less 

effective when working long hours,114

and such an environment may affect the 

level of due professional care they 

exercise. For example, a heavy workload 

may create pressure on the audit staff to 

focus too much on efficiency in 

executing auditing procedures rather 

than on ensuring the effectiveness of 

those procedures or on supervising less 

experienced engagement team members. 

The Board believes heavy workloads 

could prevent an engagement partner 

from providing adequate and focused 

attention to an audit engagement. The 

information provided by the metrics at 

the engagement level may help audit 

committee members and other 

stakeholders understand the various 

activities competing for an engagement 

partner’s time. 

Studies find that excessive audit 

partner workloads can have negative 

impacts on audit effectiveness, although 

the literature also suggests that partners 

may be less affected than more junior 

staff.115

The proposal set forth requirements 

for firms to calculate firm-level and 

quarterly engagement-level workload 

metrics for (i) engagement partners and 

(ii) other partners, managers, and staff. 

The Board proposed separate reporting 

for engagement partners at both the firm 

and engagement level, as they have 

primary responsibility for the audit. At 

the engagement level, the Board 

proposed limiting reporting to the core 

engagement team, which the Board 

believes would be more useful to 

investors and other stakeholders than 

information regarding the entire 

engagement team (some of whom may 

have extremely limited participation in 

the audit). 

The proposed calculations for 

workload at both the firm and 

engagement levels included all working 

hours incurred during the relevant 

periods: hours incurred on issuer and 

non-issuer engagements as well as on 

training, practice development, staff 

development, or other firm activities.116

The Board adopted this metric area 

substantially as proposed, with 

modifications discussed in more detail 

below. 


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117One example of a utilization metric reported 

in firms’ audit quality reports is ‘‘average annual 

hours worked by audit professionals over 40 hours 

per week.’’ 

Some commenters agreed with 

requiring firm- and engagement-level 

metrics in this area, stating that the 

proposed workload metrics ensure there 

is appropriate attention and focus on 

audit engagements. One commenter 

asserted that the proposed firm-level 

metric is significantly less complicated 

than the engagement-level metric and 

should be sufficient for assessing a 

firm’s capacity to accept new clients. 

However, the same commenter 

expressed concern that the proposed 

engagement-level metric is very 

complicated and would take 

considerable effort for firms to compile 

and calculate for every engagement. 

Further, the commenter expressed 

concern that the cost of calculating this 

metric likely exceeds any benefit. 

Another commenter stated that just 

having higher workload during peak 

months does not necessarily impact 

audit quality. 

While some firms and firm-related 

groups generally expressed support for 

public disclosure of the firm-level 

workload metrics, they also expressed 

concerns with the metrics or requested 

modifications be considered for firmlevel workload calculations. Some firms 

and firm-related groups questioned 

what benefits stakeholders would gain 

from the information. Commenters 

suggested that alternative measures, 

such as an annual utilization metric as 

reported in firms’ audit quality reports, 

may be more meaningful to reflect how 

a firm is measuring and monitoring the 

activities competing for their 

professionals’ time.117 Further, some of 

these commenters expressed concern 

about the effort involved in collecting, 

analyzing, and reporting the data for 

average weekly hours on a quarterly 

basis. 

The Board continues to believe that 

disclosing the firm-level workload 

metrics quarterly as opposed to 

annually will provide a comparative 

basis for the engagement-level metrics. 

At the engagement level, the Board 

believes that information for members of 

the core engagement team will be 

especially useful to investors and other 

stakeholders for the quarter in which 

the auditor’s report is issued, usually 

the busiest time of the year for the 

auditor. The Board also believes that a 

workload metric based on actual hours 

worked (i.e., productivity) versus a 

utilization metric based on a standard 

number of work hours (e.g., a 40-hour 

week, including time off) will provide 

more useful information. 

The Board solicited comment on 

hours worked, including whether the 

proposed term should be changed. Some 

commenters expressed support for 

including all hours worked including 

time spent on audits and time spent on 

activities other than audits. One 

commenter expressed concern that 

many firms do not require detailed 

recording of ‘‘non-chargeable’’ time, so 

the disclosure of hours worked will be 

a rough estimate at best for some firms. 

This commenter expressed a view that 

the benefits of the workload metrics 

would not justify the burden of asking 

firm professionals to spend more time 

and energy tracking all of their ‘‘nonchargeable’’ time. Another commenter 

suggested that the Board break out 

training and development from the rest 

of the hours worked. Further, a 

commenter stated that a clearer 

definition of the proposed term ‘‘hours’’ 

is required if this metric is to be used. 

For example, firms may be inconsistent 

on how they report hours spent on 

travel for work purposes. A commenter 

stated the proposed metrics exclude 

time off, which is a key component of 

workload and may vary significantly 

between levels. By excluding time off or 

leaves of absences, this commenter 

expressed concern that the workload 

metric would not provide consistent 

and comparable information. 

The Board continues to believe it is 

important to capture the sum of hours 

that are incurred on engagements and 

hours spent on training, practice 

development, personnel development, 

or other firm activities in the workload 

metrics, while excluding holiday or 

other paid time off (i.e., when 

individuals would not be working). The 

Board believes the potential additional 

administrative burden of including 

‘‘non-chargeable’’ time for partners and 

managers on issuer engagements (firmlevel workload metric) will not be 

burdensome based on the Board’s 

understanding that many firms track 

this time already. Disaggregating the 

hours worked, as suggested by one 

commenter, will further complicate the 

workload metrics. Finally, the Board 

believes the definition of hours worked 

is sufficiently clear and does not require 

further explanation for certain types of 

non-engagement hours. 

Firms and firm-related groups stated 

that because the proposed workload 

metrics were based on the definitions of 

partner, manager, and staff, which 

determination is based on ‘‘participation 

in the audit,’’ it was not clear whether 

and where certain individuals should be 

included in this metric as they move 

between audit support and engagementserving functions (e.g., individuals who 

provide tax reporting and compliance 

services to other clients). One 

commenter stated that including these 

individuals would dilute the value that 

could be derived from metrics related to 

workload, as peak periods for these 

other services and activities would mask 

meaningful trends in the workload of 

other members of the engagement team 

whose primary responsibility is 

performing audit work. 

At the engagement level, the Board 

does not believe the commenter’s 

concern is relevant because the 

individuals in question are not likely to 

be part of the core engagement team (see 

above for discussion of the definition). 

At the firm level, the Board believes the 

workload of these individuals will still 

be relevant as they presumably shift 

between engagement work and nonengagement work as needed. Further, 

trying to figure out a systematic 

approach for excluding these 

individuals will only add to the 

administrative burden of gathering the 

data and calculating and reporting the 

metrics. 

Other commenters requested that the 

Board reconsider the inclusion in the 

workload metrics of partners and 

professional staff who do not work on 

issuer audits. One expressed concern 

that comingling statistics associated 

with professionals who do not 

participate in any way on the firm’s 

issuer audits would be contrary to the 

stated objective of ‘‘advancing investor 

protection and promoting the public 

interest by enabling stakeholders to 

make better-informed decisions . . .’’ 

Another stated that the metric as 

proposed would encompass individuals 

who work on engagements other than 

issuer audits (e.g., audits of non-issuer 

employee benefit plans or governmental 

entities), who may have a different 

‘‘busy season’’ than individuals working 

on issuer audits. As a result, this metric 

may show a relatively consistent 

average weekly hour throughout the 

year across the firm, even though 

specific individuals may have more 

variability in their schedules. 

The Board streamlined the workload 

metrics in some respects, in part based 

on commenter input. To provide a more 

useful metric, the Board is limiting the 

firm-level metric to partners and 

managers who participate in accelerated 

filer and large-accelerated filer 

engagements for which the firm issued 

an audit report. The Board believes this 

will provide information that will be 

comparable to the engagement level 

information. The Board excluded staff 

from the firm- and engagement-level 


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118See PCAOB Rel. No. 2024–004, at 8–9 

(describing competence to perform an audit under 

existing PCAOB standards). 

119See paragraph .08 of AS 1000, General 

Responsibilities of the Auditor in Conducting and 

Audit. 

120See QC 1000.50 (‘‘The firm should design, 

implement, and maintain policies and procedures 

regarding licensure such that the firm and firm 

personnel hold licenses or other qualifications 

required by the relevant jurisdiction(s) under 

applicable professional and legal requirements.’’). 

See also QC 1000.34(e) and PCAOB Rel. No. 2024– 

005, at 151–52 (describing mandatory training 

under PCAOB standards). 

121See below for additional discussion on the 

academic literature. 

122See Accountancy Europe Report at 6, 7, 8, 11, 

12, 13, and 14 for IDW (Germany), Quartermasters 

(Netherlands), CMVM (Portugal), CPAB (Canada), 

ICAI (India), ACRA (Singapore), and IRBA (South 

Africa). See also FRC Feedback Statement, at 18. 

123Professional development training hours are 

training hours for credit in support of obtaining or 

maintaining a professional accounting license in a 

jurisdiction in which the auditor is licensed or 

pursuing a license. For example, in the United 

States, professional development training hours 

would be synonymous with CPE credits as defined 

by the National Association of State Boards of 

Accountancy (NASBA). In some jurisdictions, 

including the United States, a training hour may be 

less than 60 minutes. If a jurisdiction does not 

impose training requirements in support of 

professional licensure, professional development 

training hours are hours of training associated with 

acquiring and maintaining professional 

competence. 

calculations in order to focus the metric 

area on the more senior members of the 

engagement team—those individuals 

determining that the significant 

judgments and conclusions on which 

the auditor’s report is based are 

appropriate. In addition, this will also 

lessen the administrative burden of 

gathering the data and calculating and 

reporting the metrics. 

Some commenters found the 

proposed requirement to segregate 

engagement partners from other partners 

in the proposed calculations to be 

impractical to implement and not a 

meaningful distinction in the metric. A 

commenter pointed out that segregating 

the roles may create a practical 

challenge in calculating the metrics, as 

in practice a large portion of partners 

generally fill both roles. Another 

commenter asserted that because the 

proposal provided no justification for 

distinguishing between ‘‘engagement 

partners’’ and ‘‘other partners,’’ the 

distinction between engagement and 

non-engagement partners should be 

eliminated for purposes of calculating 

the firm-level workload metric. 

The Board adopted a firm-level metric 

that does not require differentiating 

between engagement partners and other 

partners in reporting on workload 

because the Board questions whether 

useful information could be derived 

from that distinction, given that many 

partners serve in both capacities. In 

addition, the Board understands it may 

be a difficult and manual process to 

identify and track the distinction 

between the types of partners. As stated 

above, the Board continues to believe it 

is important for firms to disclose their 

engagement partners’ workloads at the 

engagement level. Overall, the Board 

believes the modifications will improve 

or maintain the value of the information 

provided by this metric area compared 

to the proposal, while reducing the 

administrative burden associated with 

gathering data and calculating and 

reporting the metrics. 

(See Exhibit A, ‘‘Workload.’’) 

c. Training Hours for Audit Personnel 

The professional development 

training auditors receive should 

enhance their competence and therefore 

their ability to perform effective audits. 

Competence encompasses having the 

knowledge, skill, and ability to perform 

assigned activities in accordance with 

applicable professional and legal 

requirements and the firm’s policies and 

procedures.118 Training is a critical 

aspect of developing auditor 

competence. 

Licensing requirements for continuing 

education for public accountants to 

obtain and retain certification speak to 

the relationship between quality and 

appropriate training and education.119

Additionally, QC 1000 mandates certain 

training requirements, including with 

respect to ethics and independence.120

While the Board did not propose a 

training metric, the Board’s proposal 

solicited comment on training as a 

potential additional metric. Commenters 

on the topic all agreed about the 

importance of training to the 

development of auditors. One 

commenter included training hours per 

professional as one of six metrics they 

believed would increase technical 

excellence, and other commenters 

suggested an alternative training metric 

focused on the percentage of revenue 

firms spend on training. Other 

commenters highlighted challenges to 

defining a training metric that would 

provide decision-useful information. 

One commenter stated that training is 

important for development and building 

awareness, but on-the-job training is 

invaluable, yet not measurable. One 

commenter suggested that training 

metrics may not be informative given 

they would be quantitative and not 

qualitative and also suggested that these 

concerns would be best addressed 

through the implementation of QC 1000 

and related standards. 

The Board believes there are benefits 

to having firms report information 

regarding training. Indeed, academic 

research provides evidence that certain 

proxies for auditor training are 

positively associated with some proxies 

for audit quality, although the results 

vary depending on the type of 

training 121 The Board also observes that 

almost all of the firms that provide 

voluntary reporting include their 

average training hours as well as 

information about their policies and 

procedures regarding training, which 

appears to emphasize the value those 

firms place on the development of their 

professionals as well as the potential 

informativeness of an hours-based 

quantitative measure. The Board’s 

research also indicates that at least eight 

other jurisdictions include training as a 

firm-level metric.122

The Board recognizes that 

quantitative measures such as the 

number of professional development 

training hours cannot capture 

qualitative factors, such as the skill of 

trainers, the quality and relevance of 

training content, whether the training is 

in a specialized area specific to the 

trainee, and the degree of trainee 

engagement, that contribute to the 

effectiveness of training. However, the 

average number of training hours per 

audit professional provides an 

indication of the importance the firm 

places on the training of its 

professionals. In addition, given that the 

metrics are presented as a suite of 

metrics and are not expected to be 

considered in isolation, providing some 

visibility into firm’s commitments and 

efforts to promote the development of 

their professionals through ensuring 

they receive adequate training will 

provide an additional data point for 

consideration in that context. 

Metrics the Board considered in this 

area, both at the firm level and the 

engagement level, include (i) the 

average total number of CPE hours per 

professional; (ii) average number of CPE 

hours received by audit professionals in 

specified fields of study, such as (a) 

accounting and auditing and (b) ethics 

and independence; and (iii) CPE 

compliance rates at the firm or specific 

to engagement teams. In consideration 

of the importance of training to the 

development of audit professionals and 

the impracticality of measuring training 

through qualitative means, the Board 

adopted metrics for average annual 

professional development training 

hours 123 for audit partners, managers, 

and staff, both firm-wide and for the 

core engagement team. These metrics 

will create visibility into training at both 

the firm and engagement level, using 


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124See, e.g., Wuchun Chi, Linda A. Myers, 

Thomas C. Omer, and Hong Xie, The Effects of 

Audit Partner Pre-Client and Client-Specific 

Experience on Audit Quality and on Perceptions of 

Audit Quality, 22 Review of Accounting Studies 

361, 363 (2016). 

125See, e.g., G. Bradley Bennett and Richard C. 

Hatfield, The Effect of the Social Mismatch Between 

Staff Auditors and Client Management on the 

Collection of Audit Evidence, 88 The Accounting 

Review 31, (2012). 

data that the Board believes will be 

readily accessible to firms. 

The Board considered the suggested 

alternative of a training metric focused 

on the percentage of a firm’s revenue 

invested in training. However, the Board 

believes that any approach based on the 

costs of training would be difficult to 

implement. For example, some firms 

develop their own training, some firms 

purchase training, and other firms may 

reimburse their professionals for thirdparty training. Also, firms may develop 

training for non-audit professionals 

within the organization and then 

subsequently provide that training to 

audit professionals, further adding to 

the complexity of suggested cost-based 

training metrics. By contrast, the Board 

expects that firms will generally already 

be tracking training hours as part of 

monitoring ongoing compliance with 

CPE requirements, which should ease 

implementation of the hours-based 

metrics the Board adopted. The Board 

believes that the difficulties associated 

with measuring costs would outweigh 

the advantages of a cost-based metric, as 

compared to the hours-based approach. 

(See Exhibit A, ‘‘Training Hours for 

Audit Personnel.’’) 

iv. Experience of Audit Personnel 

The auditor’s years of experience at a 

public accounting firm can provide 

useful information about how the 

auditor staffs the audit. Academic 

studies show that auditor experience is 

related to improved audit effort and 

skill, through both pre-client and clientspecific experience,124 and through 

behavioral adaptations associated with 

managing their clients.125 At the firm 

level, an experience metric can provide 

information regarding the ‘‘bench 

depth’’ of firm personnel and the ability 

of the firm to staff its engagements. At 

the engagement level, the engagement 

team’s years of experience can provide 

useful information about the depth of 

experience of the engagement team for 

that particular engagement. 

The Board proposed firm-level 

reporting of the average years of 

experience at a public accounting firm 

of the firm’s engagement partners, 

partners other than engagement 

partners, and managers; and 

engagement-level reporting of the years 

of experience at a public accounting 

firm of the engagement partner and the 

EQR, as well as the average years of 

experience of other partners and 

managers on the core engagement team. 

Both metrics captured all experience at 

a public accounting firm, whether or not 

the firm was registered with the PCAOB, 

and included audits of issuers and nonissuers, as well as non-audit work. 

Some commenters agreed in concept 

with firm- and engagement-level metrics 

for experience, stating that they agreed 

that auditor’s years of experience at a 

public accounting firm may provide 

useful information about how the 

auditor staffs the audit. One of these 

commenters broadly supported both 

metrics but suggested a number of 

potential refinements, discussed below. 

One commenter suggested that an 

employee experience metric could 

identify firms that are more likely to 

have a firm culture that contributes to 

audit quality. Another commenter 

suggested that a metric depicting years 

of experience after CPA licensing would 

provide insight into whether a firm has 

more experienced professionals. 

Several commenters generally 

supported the firm-level experience 

metric, while objecting to all proposed 

engagement-level metrics, including the 

experience metric. One of these 

commenters stated that the proposed 

firm-level metric met its criteria of being 

readily interpretable, aligning with 

measures used by the firm in its system 

of quality control, having broad linkage 

to audit quality, having minimal 

unintended consequences, and meeting 

the information needs of users. 

Some commenters asserted that 

proposed experience metrics, both at the 

engagement and firm levels, were not 

useful or meaningful, saying that there 

is great potential for misunderstanding 

and misuse with little value to be 

derived. Another said that the emphasis 

on years of experience overlooks the 

centrality of technology in the future. 

Some commenters raised questions 

about the professionals covered by the 

metrics. Two commenters suggested that 

the firm-level metric cover only 

individuals who have been assigned to 

issuer audits, one of whom said that 

firms may use different personnel on 

issuer audits than non-issuer audits, so 

a metric that includes personnel 

regardless of whether they work on 

issuer audits would not provide an 

accurate view of personnel that may be 

staffed on an issuer audit. One 

commenter questioned whether it was 

appropriate to provide engagement-level 

reporting regarding the experience of 

the EQR, because it might imply that the 

EQR was part of the engagement team. 

Commenters also questioned the 

appropriate level of disaggregation for 

reporting. One commenter described the 

requirement to segregate engagement 

partners from other partners as 

impractical to implement and not a 

meaningful distinction in the metric. 

Another suggested further 

disaggregation, with partner and 

manager experience reported separately 

and data broken down by industry. 

Commenters reacted to the proposal 

to count only experience in public 

accounting as relevant. One agreed that 

experience metrics should be limited to 

audit experience. Several others 

suggested that experience in addition to 

years worked at a public accounting 

firm, such as industry experience or 

time spent working at a relevant 

regulator, should be included. For 

example, one said that limiting relevant 

experience exclusively to auditing 

experience could potentially overlook 

the comprehensive skill set that 

individuals gain from various roles 

throughout their career. Two 

commenters said that context is needed 

to understand metrics depicting 

experience, as the depth of experience 

and whether it is current may differ 

considerably. Some commenters 

expressed concern about the challenges 

of gathering data regarding experience, 

particularly if the experience metric is 

not limited to time spent at the 

individual’s current firm. 

Commenters also raised issues with 

the calculation of the proposed metric. 

One remarked that the experience 

metrics provided an incentive to have a 

number of very experienced partners 

provide modest assistance in order for 

their experience to be included in, and 

significantly improve, the metric. This 

commenter suggested that requiring a 

weighted average for this metric would 

act as a deterrent. One commenter 

expressed that the calculation did not 

address how to treat personnel role 

changes at the firm level. 

One commenter suggested that further 

outreach was needed to determine the 

ability to prepare such information and 

for investors and audit committees to 

understand how such firm-level metrics 

would be used in decision making. 

After considering commenter input, 

the Board adopted the firm- and 

engagement-level metrics with the 

modifications described below. While 

the Board appreciates that there are 

limits to the information an experience 

metric can provide, the Board believes 

that it is and will continue to be a useful 

element in a suite of metrics, even in the 

context of technological advances and 

other changes in the audit market. 


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126See AS 2101.07. 

127QC 1000.38a.(2)(d) requires firms to establish 

quality objectives that address the firm’s judgments 

about the extent to which the firm has or can obtain 

resources to perform the engagement as part of its 

acceptance and continuance of engagements. 

128See, e.g., W. Robert Knechel, Vic Naiker, and 

Gail Pacheco, Does Auditor Industry Specialization 

Matter? Evidence from Market Reaction to Auditor 

Switches, 26 Auditing: A Journal of Practice and 

Theory 19, (2007); Steven Balsam, Jagan Krishnan, 

and Joon S. Yang, Auditor Industry Specialization 

and Earnings Quality, 22 Auditing: A Journal of 

Practice and Theory 71, (2003); and Allen T. 

Craswell, Jere R. Francis, and Stephen L. Taylor, 

Auditor Brand Name Reputations and Industry 

Specializations, 20 Journal of Accounting and 

Economics 297 (1995). 

129See Kin-Yew Low, The Effects of Industry 

Specialization on Audit Risk Assessments and 

Audit-Planning Decisions, 79 The Accounting 

Review 201, 202 and 214 (2004). 

The Board considered whether, as 

some commenters suggested, the firmlevel experience metric should be 

narrowed to cover only professionals 

who worked on an issuer audit in the 

most recent year. However, the Board 

does not believe that approach would 

increase the information value of the 

metric, because individuals may 

participate in issuer audits in some 

years but not others, so it would cover 

only a portion of the total talent pool. 

Such an approach would also add 

significant complexity to the 

calculation, as well as variability year 

over year. Accordingly, the Board 

concluded that it would be more 

appropriate for firms to report the 

experience of all audit professionals, as 

proposed. 

The Board also considered whether to 

eliminate engagement-level reporting of 

the experience of the EQR, based on 

commenter concern that this could 

imply that the EQR is a member of the 

engagement team. However, the Board 

does not believe that concern is well 

founded. There is nothing in Form AP 

to support such an implication, and the 

Board’s standards are clear that the EQR 

is not a member of the engagement 

team. Because of the significance of the 

EQR role, the Board continues to believe 

that EQR experience is important and 

should be separately reported. 

The Board is eliminating the 

requirement to provide separate firmlevel reporting of the experience of 

engagement partners. Instead, the final 

rules require firm-level reporting of (i) 

the average experience of all partners in 

aggregate, both those who serve as 

engagement partners and those who do 

not, and (ii) the average experience of 

all managers in aggregate. After 

considering commenter responses, the 

Board is concerned that separate 

reporting of engagement partner 

experience may not add significant 

information value but will increase the 

complexity and administrative burden 

associated with the metric. The Board 

believes these metrics, with all partners 

in aggregate, will also serve as a useful 

baseline for comparison of the 

engagement-level reporting of 

engagement partner and EQR 

experience. The Board has also 

separated the partner and manager 

experience metrics at the engagement 

level for consistency and comparability 

with the firm-level metrics. 

The Board considered broadening the 

scope of relevant experience beyond 

public accounting but decided to adopt 

that aspect of the metric as proposed. 

The Board notes that the commenters 

who recommended a broader scope had 

inconsistent recommendations as to 

what would constitute relevant 

experience (e.g., experience in a 

financial accounting role, previous 

experience at a regulator, etc.), reflecting 

the difficulty of arriving at an agreedupon view of the non-audit experience 

that would be relevant and should be 

included. The Board believes a metric 

focused on experience in public 

accounting will be better focused and 

would avoid that difficulty. 

Several commenters raised concerns 

about the ability to track the historical 

information called for by the metric, 

some implying that the experience 

metric should be limited to experience 

with the individual’s current firm. The 

Board is concerned that such a limited 

metric could be misleading, as it would 

understate the experience of anyone 

who changed jobs. Moreover, the Board 

believes that firms could readily capture 

the information from current personnel 

and otherwise during the hiring and 

onboarding process, and the information 

would therefore generally be available 

to firms without a significant ongoing 

administrative burden. 

The Board noted the questions 

commenters raised about how to 

calculate averages, including how to 

treat partial years of experience and 

whether the average at the engagement 

level should be calculated on a 

weighted basis to reflect the extent of 

participation in the audit. As to partial 

years of experience, firms will be free to 

report in whole years on a rounded 

basis or, if they wish, more precisely. 

While the Board appreciates that it may 

be possible to make staffing changes in 

an effort to manage this or other metrics, 

the Board believes that calculating the 

experience metric for the other partners 

and managers as a weighted average 

would add unnecessary complexity. The 

Board also considered that the risk of 

managing the engagement-level 

experience metrics is minimized by 

other considerations, such as industry 

or other specialized experience needs, 

that go into staffing decisions. In 

addition, the Board expects that 

comparisons of trends in the reported 

metrics over time will provide balance. 

The Board also notes that, if a firm 

believed additional information or 

context would be required for a reader 

to understand the metrics provided, the 

firm could provide it as narrative. 

(See Exhibit A, ‘‘Experience of Audit 

Personnel.’’) 

v. Industry Experience 

As part of the planning activities of an 

audit, auditors have a responsibility to 

gain an understanding of the company’s 

business. These activities include 

gaining an understanding of matters 

affecting the industry in which the 

company operates, such as financial 

reporting practices, economic 

conditions, laws and regulations, and 

technological changes.126 Experience in 

a particular industry helps an auditor 

understand the industry’s operating 

practices, the critical accounting issues 

confronting companies in that industry, 

the risks of material misstatement of the 

financial statements specific to industry 

factors, and any industry-specific audit 

procedures. 

Understanding the experience of 

firms’ audit personnel across industries 

is an important factor in assessing the 

firm’s capacity and resources to perform 

audits of issuer engagements that benefit 

from specific industry knowledge. The 

Board believes industry experience 

metrics will assist in gaining that 

understanding.127

Importantly, academic literature has 

long identified auditor industry 

specialization as related to the 

effectiveness of audits.128 One study 

that examines the impact of auditor 

industry specialization on the 

assessment of audit risk and in audit 

planning found that auditors with 

industry-specific knowledge improved 

the auditor’s assessment of differential 

audit risk and the quality of their audit 

planning decisions.129

Investor-related commenters were 

generally supportive of industry 

experience metrics stating they believe 

that it is critical for auditors to have an 

elevated level of industry-specific 

knowledge. One investor-related group 

stated that experience in a particular 

industry helps an auditor understand 

that industry’s operating practices, 

critical accounting issues faced in that 

industry, the risks of material 

misstatement of the financial statements 

specific to industry factors, and any 

industry specific audit procedures. 

Another commenter suggested that 

further guidance on the classification of 


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130A note to the calculations clarifies that 

industry experience is accumulated throughout an 

individual’s career (i.e., aggregates experience 

obtained at all career levels). When determining 

whether an individual has experience in a specific 

industry the following may be taken into account: 

(i) industry experience may be, but is not required 

to be, exclusive to experience on audit 

engagements, or exclusive to experience gained at 

an accounting firm, but must be relevant, and (ii) 

industry experience can be acquired in nonconsecutive years. Relevant experience includes 

experience in accounting or auditing roles and 

other specializations, such as experience that is 

related to fair value estimates in the industry. See 

Note 2 to Item 4.5 of Form FM, Note 1 to Item 6.5 

of Form AP. 

131QC 1000.47 requires firms to design, 

implement, and maintain policies and procedures 

such that their personnel obtain and maintain the 

competence to fulfill their respective assigned 

engagement roles, including an understanding of, 

among other things, the industry in which the 

company operates and its relevant characteristics. 

industries would be helpful and also 

suggested that weighting current 

experience should be considered. One 

commenter suggested that the metric be 

disaggregated between partners and 

managers. 

While most firm and firm-related 

commenters opposed industry 

experience metrics, one firm commenter 

stated that they understand in principle 

why industry metrics may be perceived 

as meaningful. Some commenters stated 

that the proposed industry experience 

metrics were not useful due to issues 

with comparability and complexity. 

Some commenters believed that the 

industry metrics gave rise to the 

potential for confusion and 

misunderstanding, in part because any 

classification system could group 

together very different types of issuers 

that could result in inappropriate 

comparisons. 

One commenter suggested that the 

proposed metric does not address the 

issue that not all audits require specific 

industry experience and that audit 

quality is enhanced when an 

engagement team includes personnel 

with diverse experiences. Another 

commenter stated that metrics depicting 

experience would need context to be 

meaningful. 

After considering commenter input, 

the Board has retained industry 

experience metrics, but simplified them 

from the proposal. The changes include 

limiting the scope for reporting at the 

firm level and limiting the requirements 

for reporting at the engagement level to 

the engagement partner, the engagement 

quality reviewer and certain members of 

the core engagement team among other 

changes further discussed below. At a 

high level, the Board believes this 

addresses the concerns of commenters 

regarding complexity, certain data 

collection concerns, the potential for 

confusion and misunderstanding, and 

also provides for more comparable 

information. 

a. Thresholds 

The Board proposed that the metrics 

would count partners who have at least 

five years of experience throughout their 

careers in a particular industry and 

managers who have at least three years 

of such experience.130 For determining 

what counted as a year’s experience, the 

Board proposed a minimum threshold 

of 250 hours, or 25% of hours worked, 

focused on an industry in a given year. 

The proposed instructions for 

reporting the metric included 

qualitative considerations to assist in 

determining whether an individual had 

experience in a specific industry, 

including consideration that industry 

experience may be, but is not required 

to be, exclusive to experience on audit 

engagements, or exclusive to experience 

gained at a public accounting firm, but 

must be relevant, which includes 

experience in accounting or auditing 

roles and other specializations, such as 

experience that is related to fair value 

estimates in the industry. The 

instructions also clarified that industry 

experience may be acquired in nonconsecutive years. 

One commenter expressly agreed with 

the proposed requirement of 250 hours 

or 25% of the auditor’s time as being a 

reasonable criterion for a year of 

qualifying industry experience. 

However, several other commenters 

criticized the proposed threshold. Some 

of the concerns raised included tracking 

the information throughout the career of 

professionals, particularly at the global 

network level; obtaining historical data; 

complying with the proposed 250 hour 

or 25% thresholds; and maintaining 

documentation to support the metrics. 

Another commenter expressed that the 

thresholds were not meaningful as 

different individuals may perform the 

same tasks in different amounts of time. 

This commenter also expressed that 

without research supporting the 

thresholds, it is not possible to 

recommend how much industry 

experience would be necessary. While 

one commenter acknowledged the 

proposal allowed self-reporting as an 

option, they had concerns about the 

ability of personnel to accurately 

determine whether they worked 250 

hours or more in a specific industry 

going back many years, potentially 

decades, and encouraged qualitative 

thresholds for determining industry 

experience. 

One commenter agreed with the 

proposed 3- and 5-year thresholds for 

measuring industry experience and also 

suggested adding an additional 

threshold of 10-years at the partner 

level. Other commenters raised other 

concerns with the proposed reporting 

requirements. Some commenters 

disagreed with the proposal to count 

managers with three years of experience 

and partners with five years of 

experience. Among these commenters, 

some expressed that it would unfairly 

exclude some partners and managers, 

could be a disadvantage to smaller 

firms, could be time consuming to 

compile data to support, and should not 

include individuals with de minimis 

involvement. Commenters that 

responded to the question of whether 

industry experience should be limited 

to audit experience or rather should 

include all relevant experience agreed 

with the proposal to include all relevant 

experience. They also agreed that it 

need not be consecutive years. 

Several additional commenters voiced 

concern about whether industry 

experience was required to be recent. 

Two commenters claimed that the 

Board’s recently adopted quality control 

standard acknowledges that there is no 

right level of industry experience,131

and each audit may require different 

background and experience. 

After considering commenter 

feedback, the Board retained the 3- and 

5-year thresholds for determining 

whether partners and managers should 

be included in the industry experience 

metrics. The Board has also retained the 

threshold of 250 hours or 25% of hours 

worked as the baseline to determine 

whether a year qualifies as industry 

experience but recast it as a general 

expectation rather than a requirement to 

allow firms to exercise reasonable 

judgment. At the firm level, once the 3- 

or 5-year industry experience threshold 

has been attained, partners and 

managers should be included in the 

metrics until or unless a firm 

determines, in its reasonable judgment, 

that the particular industry experience 

is no longer relevant. At the engagement 

level the Board has simplified the 

reporting requirements by limiting the 

metrics to the years of experience of the 

engagement partner, the EQR, and 

members of the core engagement team. 

The metrics will not include a 

requirement to determine the industry 

experience of other partners and 

managers who participated in the audit 

who are not members of the core 

engagement team. The Board believes 

these changes will appropriately 

address commenter concerns about 

potential difficulties in gathering and 

verifying data while continuing to allow 


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132See FTSE Russell Industry Classification 

Benchmark (ICB), available at https://

www.lseg.com/en/ftse-russell. 

133Consideration was given to recent 

Transparency Reports and information available on 

public firm websites. 

firms to take into account matters like 

experience in related industries, the 

nature of non-audit experience, and 

whether experience is recent or remote 

in time. In addition, consistent with the 

proposal, the final rules do not specify 

how the relevant information should be 

accumulated. Because experience may 

be obtained in different ways at 

different points throughout a 

professional’s career, there are many 

ways in which information could be 

accumulated to support the firm’s 

judgment, including personnel selfreporting or a firm’s own time-keeping 

system. 

b. Industry Classification 

The proposal set forth requirements 

for firms to provide information 

regarding partner and manager 

experience in particular industries. In 

order for firms to use a consistent 

approach to industry identification, the 

Board proposed the Industry 

Classification Benchmark (ICB), 

operated and managed by FTSE Russell. 

The ICB is used by global stock 

exchanges, including the London Stock 

Exchange, Euronext, and NASDAQ 

OMX, to categorize listed companies. 

Based on the ICB classification system, 

firms would have selected from among 

a total of 31 possible industry 

classifications.132

Several commenters agreed that the 

proposed index was an appropriate 

reference for industry classification. 

One commenter acknowledged that 

there was a potential for imprecision 

when reporting on large conglomerate 

companies that operate in many 

different industries, but stated their 

belief that using the ICB rather than the 

legacy Standard Industrial Classification 

(SIC) codes is a better strategy from the 

outset of the creation of the metrics. 

This commenter also expressed their 

understanding that there could be some 

imprecision at the margins. On the other 

hand, several commenters stated that it 

would be inconsistent with other 

reporting required by the SEC using the 

SIC codes or the North American 

Industrial Classification system 

(NAICS). Some commenters stated that 

firms do not necessarily align with the 

industries proposed. One commenter 

pointed out that the ICB listing does not 

include public sector or government and 

asked whether these should be omitted 

from the reporting requirements. 

Commenters responding to the 

proposal’s question about whether 

reporting should be expanded to allow 

for industries in addition to an issuer’s 

primary industry stated that industry 

reporting for large issuers is complex, 

some stating that changes over time 

from mergers and other activities would 

add to the complexity. Some 

commenters also stated that the 

proposed industry metrics would 

provide challenges with respect to data 

collection. 

In response to these concerns and 

after further considering recent 

voluntary public reporting by firms,133

the Board has expanded the 

classification taxonomy and added 

flexibility. With respect to the proposed 

industry classification listing, the final 

requirements continue to provide a 

listing from which to select industries 

for reporting purposes, but have been 

revised to include certain additional 

industries such as agriculture and 

forestry and government and public 

services categories to facilitate reporting 

for firms that have large practices in 

these industries or sectors. In addition, 

for certain industry groupings, such as 

finance and health care, an ‘‘other’’ subgrouping has been added to provide 

flexibility while maintaining a level of 

comparability at the overall industry 

level. Firms are also permitted to 

specify additional industries for 

reporting in the event that the listing 

does not include an industry that 

accurately represents the industries that 

they serve. 

The taxonomy the Board adopted is as 

follows: 

[Form FM and Form AP will provide 

drop-down menus for industry 

classifications] 

Industry Classification 

1 Agriculture and Forestry 

1.1 Agriculture and Forestry 

2 Automotive 

2.1 Automotive: Manufacturing 

2.2 Automotive: Retail 

3 Basic Resources 

3.1 Basic Resources: Chemicals 

3.2 Basic Resources: Industrial 

Materials 

3.3 Basic Resources: Industrial 

Metals and Mining 

4 Construction and Materials 

4.1 Construction and Materials 

5 Consumer Products and Services 

5.1 Consumer Products and Services 

6 Energy 

6.1 Energy: Alternative Energy 

6.2 Energy: Oil, Gas, and Coal 

6.3 Energy: Other Energy and 

Transportation 

7 Finance 

7.1 Finance: Banks (Excluding 

Investment Banking and Brokerage 

Services) 

7.2 Finance: Investment Banking 

and Brokerage Services 

7.3 Finance: Finance and Credit 

Services 

7.4 Finance: Insurance 

7.5 Finance: Real Estate 

7.6 Finance: Other 

8 Government and Public Services 

8.1 Government and Public Services: 

Government 

8.2 Government and Public Services: 

Public Services 

9 Health Care 

9.1 Health Care: Health Care 

Providers 

9.2 Health Care: Pharmaceuticals 

and Biotechnology 

9.3 Health Care: Medical Equipment 

and Services 

9.4 Health Care: Other 

10 Industrial Goods and Services 

10.1 Industrial Goods and Services: 

Aerospace and Defense 

10.2 Industrial Goods and Services: 

General 

11 Technology, Media, and 

Telecommunication 

11.1 Technology, Media, and 

Telecommunication: Media 

11.2 Technology, Media, and 

Telecommunication: Technology 

Hardware and Equipment 

11.3 Technology, Media, and 

Telecommunication: 

Telecommunication 

11.4 Technology, Media, and 

Telecommunication: Other 

12 Trades and Services 

12.1 Trades and Services: Travel and 

Leisure 

12.2 Trades and Services: Retail 

12.3 Trades and Services: Wholesale 

12.4 Trades and Services: Other 

13 Utilities 

13.1 Utilities: Electricity 

13.2 Utilities: Gas, Water, and Multiutilities 

13.3 Utilities: Waste and Disposal 

Services 

14 Other Industry [specify] 

14.1 [Industry] 

The Board acknowledges that its 

taxonomy does not align with issuer 

reporting using SIC or NAICS codes. As 

discussed in the Board’s proposal, the 

Board rejected those systems, as well as 

others, based on several considerations, 

including that the SIC system has not 

been updated since the 1980s, the 

NAICS system uses a productionoriented and North America-centric 

structure that would not be appropriate 

as applied to many issuers, and that 

none of the alternative systems the 

Board considered would provide a basis 

for a meaningful metric. For example, 


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134See https://www.sec.gov/search-filings/ 

standard-industrial-classification-sic-code-list. 

135Based on PCAOB staff’s analysis performed on 

the data obtained from Audit Analytics, Standard 

& Poor’s, and publicly available data from the 

PCAOB’s Registration, Annual and Special 

Reporting (RASR), available at https://

rasr.pcaobus.org. For the two-year period ended 

September 30, 2023, the Board expects that 

approximately 50 firms will be required to report 

this metric each year. 

the SIC code system, in addition to 

being dated, is highly fragmented, 

employing more than 440 different 

industry classifications as listed on the 

SEC’s website.134 The Board believes 

this fragmentation would dramatically 

impair the utility of the metrics, 

particularly because there is no logical 

hierarchy by which industries with a 

need for similar accounting or auditing 

specializations can be grouped together. 

By comparison, the Board believes that 

the curated taxonomy that the Board 

developed and refined in consideration 

of the ICB system most closely aligns 

with the industries that firms generally 

disclose in their transparency reporting 

and will provide the most relevant basis 

for comparison among firms. 

c. Metrics 

The firm-level metrics provide 

information related to the firm’s 

industry specialization and the 

engagement-level metrics provide 

information related to experience in the 

issuer’s primary industry of engagement 

partners and engagement quality 

reviewers. The following sections 

discuss the proposed metrics, comments 

received, responses to those comments, 

and the final requirements for firm- and 

engagement-level metrics. 

(1) Firm-Level Metrics 

At the firm level, having industry 

experience may provide a group of 

professionals who can both work on 

engagements and advise members of 

engagement teams when additional 

technical, industry-specific knowledge 

is needed. Firm-level industry 

experience may indicate that the firm 

has specific industry-based audit 

knowledge, industry-specific tools 

related to risk assessment, and industryspecialized methodologies for 

accounting and auditing. As a firm-level 

metric, the Board proposed that firms 

report, for each industry that represents 

at least 10% of the firm’s revenue from 

audit services, the number of partners 

and managers who have accumulated 

five or more years or three or more 

years, respectively, of industry 

experience throughout their careers. The 

Board also proposed to allow firms to 

provide the same information for 

additional industries voluntarily. As 

discussed above, the proposed reporting 

instructions specified a minimum 

threshold number of years of industry 

experience for reporting and how those 

years were to be calculated. 

Some commenters questioned the 

proposed 10% of revenue threshold for 

identifying the firm’s top industries. 

One commenter stating that considering 

both the proposed threshold and the fact 

that the proposed index is not inclusive 

of all industries in which the firm 

earned revenue from audit services, the 

calculation would be problematic or 

would result in the exclusion of those 

industries. Another commenter 

questioned what period the 10% was 

meant to be measured over and whether 

it was meant to be aligned with the 

firm’s fiscal year or another period. One 

firm commenter expressed concern that 

the proposed metric would require it to 

compile data for industries in which it 

did not perform any issuer audits. This 

commenter, and another, suggested an 

alternative of calculating the metric 

based on 10% of a firm’s issuer audit 

practice rather than its overall audit 

practice. Other commenters suggested 

that the metric be narrowed to a firm’s 

issuer audit practice, particularly in 

light of the proposed 10% of the firm’s 

revenue from audit services threshold. 

One of these commenters additionally 

suggested that the metric include only 

partners who serve on issuer audits. 

In the Board’s proposal, the Board 

solicited comment on alternatives to the 

10% threshold, such as requiring firms 

to disclose their top five or top ten 

industries by revenue from audit 

services. One commenter stated that this 

approach would be more practical and 

clearer for stakeholders. 

Some commenters suggested potential 

alternative approaches. One commenter 

suggested requiring public disclosure of 

industry expertise at the firm level 

based on the percentage of a firm’s 

issuer clients according to the industry 

marked on those issuers’ SEC filings. 

Another suggested reporting the number 

of entities under audit in a certain 

industry rather than partner and 

managers with years of experience. 

Other commenters suggested that, rather 

than focusing on the percentage of 

revenue and using the ICB listing, each 

firm should be allowed to list the 

industries, presumably not limited to 

the proposed ICB listing, and to choose 

the number of industries, for which they 

have specific expertise and report on 

those. 

Several commenters suggested that 

further study or outreach was needed to 

determine the ability to prepare such 

information and for investors and audit 

committees to understand how such 

firm-level metrics would be used in 

decision-making. 

After considering the comments 

received, the Board simplified firm-level 

reporting of industry experience in 

several ways: 

• The Board is limiting reporting 

requirements to firms that issued five or 

more audit reports for accelerated filers 

and large accelerated filers during the 

reporting period, combined. The Board 

believes this will reduce the chances 

that a firm’s top industries will not 

include the industries represented in its 

issuer audit practice, resulting in a more 

meaningful data set, while also 

alleviating compliance burdens on firms 

with a small issuer practice.135

• Rather than requiring reporting 

with respect to industries that account 

for at least 10% of the firm’s revenue 

from audit services, the Board is 

requiring firms to report the top five 

industry sectors based on such revenue, 

regardless of the percentage of revenue 

they represent. The Board believes this 

will address commenter concerns 

regarding potential complexities of the 

calculation. The Board has also clarified 

the instructions to provide that the 

determination is based on revenue for 

the firm’s most recently completed 

fiscal year. While this means that the 

top five industries will be measured 

over a different period than the years of 

experience, the Board believes that 

consequences of that misalignment are 

likely to be immaterial, while it will 

simplify data collection and align it 

with the firm’s business cycle. The 

Board has also provided the ability for 

firms to report additional industries if 

the Board’s list does not include an 

appropriate industry grouping. 

While the Board considered 

commenter suggestions to limit the 

metric to firm revenue from issuer 

audits rather than revenue from all audit 

services, the Board continues to believe 

that the metric is more relevant if it 

includes all audit services. The 

information it provides offers a user of 

the information a view to the firm’s 

entire audit practice, not just its issuer 

audit practice, which informs users of 

the depth of industry experience of the 

firm’s people. The Board believes this 

information is more relevant than the 

number of issuers a firm audits in a 

particular industry because, in absence 

of an understanding of the specific 

issuer population, that data may be less 

easily interpreted. 

(2) Engagement-level Metrics 

At the engagement level, industry 

experience provides professionals with 


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136See, e.g., Kris Hardies, A Survival Analysis of 

Organizational Turnover in the Auditing Profession, 

97 MAB 5 (2023). 

137See Christophe Van Linden, Marie-Laure 

Vandenhaute, and Aleksandra Zimmerman, Audit 

Firm Employee Turnover and Audit Quality, 

Working Paper, Vrije Universiteit Brussel, SSRN 

(2023). 

138See, e.g., Joshua Khavis and Brandon Szerwo, 

Audit-Employee Turnover, Audit Quality, and the 

Auditor-Client Relationship, SSRN Electronic 

Journal, (2023); Linden, et al., Audit Firm Employee 

Turnover and Audit Quality; W. Robert Knechel, 

Juan Mao, Baolei Qi, and Zili Zhuang, Is There a 

Brain Drain in Auditing? the Determinants and 

Consequences of Auditors Leaving Public 

Accounting, 38 Contemporary Accounting Research 

2461 (2021); and Brant E. Christensen, et al., How 

Do Team Workloads and Team Staffing Affect the 

Audit? Archival Evidence from U.S. Audits. The 

Board notes that SSRN does not peer review its 

submissions. 

an understanding of risks unique to the 

industry and industry-specific auditing 

and accounting considerations. The 

proposed engagement-level metrics 

required disclosure of the years of 

experience in the issuer’s primary 

industry for the engagement partner and 

the engagement quality reviewer. In 

addition, the Board proposed that the 

number of partners (excluding the 

engagement partner) and managers on 

the engagement team with experience in 

the issuer’s primary industry also be 

disclosed. 

Commenters raised questions with 

respect to personnel to be included in 

the engagement-level industry metrics. 

One commenter suggested that industry 

experience metrics be limited to the 

core engagement team, suggesting that 

including the EQR implies that the EQR 

is part of the engagement team, when 

they are not. This commenter, and some 

others, suggested that industry 

experience should be limited to recent 

experience. A commenter stated that 

these metrics should be limited to the 

engagement partner and the EQR, while 

another commenter stated that partners, 

other than the engagement partner, and 

managers, should be disaggregated. 

As discussed above, many 

commenters had concerns with the 

calculations, including the thresholds to 

be used in the calculations. In response 

to these concerns, the Board has limited 

reporting to the engagement partner and 

the engagement quality reviewer, and 

other partners (excluding the 

engagement partner) and managers on 

the core engagement team. The Board 

has eliminated the proposed reporting 

for other firm partners and managers 

who are not members of the core 

engagement team. The Board believes, 

given the key roles played by the 

engagement partner and the EQR, and 

other partners and managers on the core 

engagement team that this will focus the 

metric on the most salient information. 

(See Exhibit A, ‘‘Industry 

Experience.’’) 

vi. Retention of Audit Personnel 

The retention rate and the headcount 

change inform the overall readiness, 

availability, and ability of the firm to 

conduct effective and efficient audits. 

While some turnover is expected within 

audit firms,136 a comparatively high rate 

of turnover or higher-than-expected 

turnover could adversely affect 

audits.137 It could diminish the 

available pool of talent who have the 

appropriate competency. It may take 

time and resources for the firm to 

replace the competency lost, likely 

through effective recruiting and further 

training. Academic literature 

consistently finds the same conclusion: 

turnover negatively affects audit quality, 

more so at longer-tenured engagements 

than newer engagements.138

The proposal set forth requirements 

for firms to calculate the average annual 

retention rate and the average annual 

headcount change of partners and 

managers both at the firm- and 

engagement-level. 

At the firm level, the Board also 

proposed to require disclosing the 

average number of partners and 

managers to provide context for the 

retention and headcount change 

metrics. For example, a 67% retention 

rate at a larger firm (200 departures out 

of 600 professionals) would involve a 

different level of employee continuity 

and hence imply a different magnitude 

of possible impact on the firm’s human 

resource management, than at a smaller 

firm (e.g., one departure out of three 

professionals) because this larger firm 

will likely need to replace 200 

professionals while the smaller firm will 

only need to replace one professional 

assuming all things are consistent. 

At the engagement level, the Board 

also proposed to require disclosing the 

average tenure on the engagement for 

partners and managers to quantify the 

overall continuity of the engagement 

team members. Average annual 

retention rate is a year-over-year metric, 

but tenure would provide overall 

engagement-level experience as an 

important component to understand the 

experience of the engagement team on 

the specific audit. 

a. Firm-Level Reporting 

The annual retention rate measures 

the percentage of firm personnel 

continuously employed for the reporting 

period to demonstrate the continuity of 

firm personnel. The average annual 

headcount change measures changes in 

the firm’s overall headcount of 

managers or partners, giving an 

indication of the firm’s success in 

replacing professionals who left roles 

performing audits and the overall 

availability of firm personnel. The 

annual retention rate and the annual 

headcount change are closely related; 

however, the annual retention rate 

would measure the ‘‘same people’’ 

within the firm, while the annual 

headcount change would measure the 

‘‘same number of people.’’ The annual 

retention rate measures whether the 

same individuals are still holding their 

positions at the firm while the annual 

headcount change is focused on the 

change in the number of individuals 

serving in those positions. Changes in 

annual headcount over time could result 

from a variety of reasons, for example, 

changes in a firm’s human resource 

strategy (e.g., greater use of 

technological resources, shifting more 

work to shared service centers), or a 

downturn in the economy. 

Commenters generally supported the 

proposed firm-level metrics. Some said 

they were sufficiently objective or 

straightforward and easy to interpret. 

One of these commenters also indicated 

that some firms already published 

similar metrics in firm audit quality 

reports and another commenter 

indicated that these metrics allow for 

some comparisons and may help a user 

in better understanding a firm. Two 

investor-related groups agreed with the 

proposal that a comparatively high rate 

of turnover or higher-than-expected 

turnover could adversely affect the 

audit, while another commenter 

indicated that staff turnover reporting is 

directionally supporting audit quality 

improvement through better continuity 

year-over-year. One of these 

commenters also stated that retention 

metrics will add to the mix of 

information provided in the final 

metrics without drawing a specific 

inference as to an ‘‘ideal’’ retention rate, 

considering the need to strike a balance 

between maintaining continuity of the 

engagement team members and 

introducing new personnel who will 

take a ‘‘fresh look’’ at the audit. Another 

commenter stated that a benefit of the 

headcount change metric is that it will 

provide context for the retention metric. 

A commenter stated if a firm reports 

favorable employee retention metric, the 

firm’s culture is ideal to contribute to 

higher audit quality. One commenter 

supported the firm-level metrics and 

acknowledged the importance of 

assessing the readiness and availability 

of the firm for conducting effective 

audits, but requested the Board 

determine how the metrics correlate 


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with audit quality before requiring 

public reporting. 

One commenter supported firm-level 

reporting of this metric area, but 

expressed concern that users could 

misinterpret the average annual 

headcount change metric due to 

unfamiliarity with the distinction 

between the turnover rate and 

headcount change. This commenter 

urged the PCAOB to host a roundtable 

discussion or pilot test to determine 

how audit committees or investors may 

interpret and use this information. 

Another commenter agreed that the 

turnover at various levels could have an 

impact on audit quality. 

Two commenters did not support the 

firm-level reporting of these metrics. 

While one commenter agreed with the 

proposed calculation and description of 

the metrics, this commenter was 

concerned that it could be misconstrued 

and present firms with a competitive 

disadvantage for recruiting talent 

without providing context (e.g., 

turnover due to changes in firm 

structure, shifting industry 

concentration, performance, ethical, or 

independence issues). Another 

commenter claimed the metric was 

convoluted and would be at the risk of 

misinterpretation. 

Additionally, two other commenters 

raised a concern; one of them 

questioned whether these metrics would 

be meaningful or of value to investors 

and whether firms would be sufficiently 

consistent in calculating the metrics to 

make them worthwhile and another 

questioned that the inclusion of all the 

firm’s managers and partners may make 

this metric meaningless for firms whose 

issuer audit practice is small in relation 

to the total practice and recommended 

more outreach regarding the usefulness 

for stakeholders. 

Regarding the description and 

calculation of these metrics, several 

commenters asked questions or 

suggested refinements. One commenter 

questioned how the metrics would be 

calculated in a case of voluntary partner 

rotation. Another commenter 

recommended clarifying whether ‘‘other 

service lines within the firm’’ includes 

‘‘other accounting services’’ as defined 

by PCAOB Rule 1001(o)(i). 

Additionally, one commenter 

recommended renaming the description 

of the average annual headcount change 

to align with the calculation to avoid 

confusion; as proposed, it would 

provide current year headcount as a 

percent of the prior year headcount, not 

a change as a percent of the prior year. 

This commenter also suggested 

clarifying the meaning of ‘‘holding the 

same position,’’ used in the retention 

calculation and ‘‘transferred out of audit 

practice,’’ and ‘‘continuously employed 

during the 12-month period’’ used in 

the illustrative example of the firm’s 

average annual retention rate 

calculation. One commenter suggested 

disaggregating partners and managers. 

Three commenters did not support 

separately reporting senior or all staff 

level annual retention and annual 

headcount change metrics. 

Taking into account commenter 

feedback, the Board adopted the 

retention metric as proposed and 

adopted the headcount change metric 

with some modifications. 

As noted above, academic literature 

consistently supports that turnover 

negatively affects audit quality. The 

Board believes the retention metric is 

objective, provides important data, and 

is already publicly reported by a 

number of firms in their audit quality or 

other reports. This metric was also 

generally supported by commenters 

from the different constituencies, 

including firm, firm-related groups, 

investor-related groups, and others. 

Since this or similar metrics are already 

reported by firms, the Board does not 

believe there will be a disadvantage in 

recruiting, difficulty in consistently 

reporting of this metric, or a risk of 

misinterpretation. Firms could also use 

the expanded narrative disclosures to 

provide context, if necessary. 

The Board also continues to believe 

the inclusion of all partners and 

managers who participate in audits, not 

a subset of partners and managers who 

serve issuer engagements, is appropriate 

because the retention rate and the 

headcount change inform the overall 

readiness, availability, and ability of the 

firm to conduct an effective and 

efficient audit. While this metric area 

provides historical information, the 

Board believes historical data signals 

impact on the firm’s near-future staffing 

needs and ability to conduct effective 

audits due to the time it takes to hire 

and train additional resources. Firms 

with sufficient overall headcount could 

reallocate staffing due to a possible 

staffing shortage on issuer engagements. 

The Board does not believe that 

partner rotation, whether mandatory or 

voluntary, is likely to affect firm-level 

reporting of this metric, as the rotating 

partner will likely continue to 

participate in audits in the subsequent 

year (albeit on different engagements). 

The term used in the calculation 

‘‘holding the same position’’ means that 

a partner remains as a partner and a 

manager remains as a manager of the 

firm during the reporting period. The 

term ‘‘continuously employed within 

the 12 months’’ means the individual is 

continuously employed by the firm 

throughout the 12 months, without 

departing to another employment. 

The Board revised the average annual 

headcount change calculation to address 

concerns raised by commenters, 

specifically that users may 

misunderstand this metric as a turnover 

rate and that the calculation should 

align with the title. The Board believes 

that the revision will help a user’s 

understanding of the metric and align 

with the title of this metric by reporting 

the headcount change as a percentage of 

prior year. For example, using the 

illustrative example in the proposal, 

Firm A had 204 managers and 200 

managers as of October 1, 20X0 and 

September 30, 20X1, respectively. 

Under the revised calculation, the 

average annual headcount change 

will be ¥2% based on (200–204)/ 

204 = ¥1.96%. 

The Board believes this change will 

help users understand that the average 

annual headcount change of –2% means 

a 2% decrease in headcount from prior 

reporting year end to current reporting 

year end. This information is often used 

as a human resource management 

metric. 

Lastly, regarding the description and 

the calculation of the proposed average 

number of the firm’s partners and 

managers, one commenter indicated that 

they are clear and appropriate. Another 

commenter indicated that it would help 

to provide context for the retention 

metric but use a simple average of the 

count at the beginning and end of the 

year. This commenter also agreed with 

treating the promotions to another level 

of seniority as if they occurred at the 

beginning of the year. 

Based on commenters’ feedback on 

firm-level reporting of average number 

of managers and partners, the Board 

adopted this metric as proposed because 

comments received agreed with the 

proposed description and calculation 

and this metric will help provide 

context for retention and headcount 

change metrics. The proposed 

calculation provided a simple average of 

the number of partners or managers as 

of the previous reporting period end and 

the current reporting period end so that 

the numbers at the end of each reporting 

period will be used consistently in the 

calculation. Because the proposed 

calculation was not significantly 

different from using the simple average 

of the count at the beginning and end of 

the year, as suggested by a commenter, 

the Board adopted the calculation as 

proposed. 


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139 Daniel Aobdia, Preeti Choudhary, and Noah 

Newberger, The Economics of Audit Production: 

What Matters for Audit Quality? An Empirical 

Analysis of the Role of Midlevel Managers within 

the Audit Firm, The Accounting Review (2024). 

140Brant E. Christensen, Nathan J. Newton, 

Michael S. Wilkins, Archival Evidence on the Audit 

Process: Determinants and Consequences of Interim 

Effort, 38 Contemporary Accounting Research 2 

(2021). 

b. Engagement-Level Reporting 

For the engagement-level reporting, 

commenters generally did not support 

metrics in this area, while several 

commenters supported both firm- and 

engagement-level reporting. Many 

commenters who did not support such 

metrics cited the lack of context in the 

metrics itself or difficulties in 

explaining a wide range of factors that 

caused the engagement-level turnover 

(e.g., mandatory partner rotation, 

personal issues (i.e., family or medical 

leave, or relocations), firm’s strategic 

resources management (i.e., scheduling 

conflicts, resource constraints, 

independence issues, or need for 

additional expertise)). Some 

commenters also cited the difficulty in 

interpreting the information, the risk of 

misinterpretation, misuse and 

misleading users, and even potentially 

being punitive to engagement teams and 

issuers. Others offered further reasons 

for not including this metric, which 

included difficulty in tracking and 

having consistent reporting on Form AP 

to make these metrics worthwhile. One 

commenter indicated the possibility of 

being detrimental to audit quality if 

these metrics incentivize firms to 

manage to achieve certain metrics, 

based on the commenter’s view that 

engagement staffing should be based on 

identified risks of material misstatement 

of the issuer. This commenter and 

another commenter further expressed 

concerns that the engagement-level 

retention rate for smaller engagement 

teams will be significantly more 

sensitive to any turnover relative to the 

retention rate for larger engagement 

teams because the size of engagement 

teams tends to vary with the size of the 

engagement. 

Two commenters also indicated that 

this metric is unnecessary because 

engagement resource management is 

already covered by the firm’s quality 

control system. One commenter 

indicated that the engagement partner is 

responsible for determining the 

sufficiency and appropriateness of 

engagement resources and prior year 

information will not be relevant in 

evaluating the quality of an engagement 

team in the current year. Another 

commenter emphasized that properly 

managed turnover will increase audit 

quality to reduce familiarity biases. 

Some commenters believe these 

metrics will be more relevant to the 

audit committee or audit committee and 

management or should be provided only 

to the audit committee to allow for 

robust discussions. One commenter 

only supported disclosure of the 

engagement-level tenure metric to the 

audit committee because it will provide 

meaningful information to assist audit 

committees in exercising their duties to 

oversee the auditor; however, this 

commenter did not support other 

retention metrics as the engagement 

team staffing is a firm-level decision 

with factors that are not engagement 

specific or local laws and regulations 

that the firms may not be able to 

disclose. 

One commenter indicated that these 

metrics should be considered in 

conjunction with other metrics reported 

rather than presuming a specific 

correlation with audit quality or 

auditor’s independence, indicating as an 

example that there are specific legal and 

ethical mandatory rotation of key audit 

partners requirements in Europe. 

Another commenter asked various 

questions in the calculation of the 

engagement-level metrics for inclusion 

or exclusion of certain specific 

conditions (e.g., whether there is a time 

limit in how far back a partner or 

manager’s tenure to be included). 

Based on comments received, the 

Board did not adopt the engagementlevel reporting of these metrics at this 

time, primarily due to some of the 

challenges described by commenters 

including difficulty in providing context 

(including some information that is not 

permitted for public disclosure), 

consistent reporting, and interpreting 

this metric area at the engagement level, 

due to, for example, sensitivity of 

engagement-level turnover on smaller 

engagements compared to larger 

engagements because turnover will have 

more direct and significant impact to 

engagement-level reporting due to the 

relatively smaller size of the managers 

and partners involved in each 

engagement. 

(See Exhibit A, ‘‘Retention of Audit 

Personnel.’’) 

vii. Allocation of Audit Hours 

At the engagement level, the Board 

believes performing audit procedures 

prior to the issuer’s year end will allow 

the engagement team to identify 

significant issues in a timely manner 

and provide the engagement team with 

the opportunity to address those issues 

earlier. The Board also believes it will 

enable engagement teams to have the 

resources available to appropriately 

respond to significant issues identified 

after year end. Discussing this metric 

with the audit committee could provide 

the audit committee with information 

regarding aspects of the engagement’s 

performance. Academic literature 

suggests that allocation of a greater 

proportion of total hours to earlier audit 

phases, prior to a company’s year end, 

is associated with a lower likelihood of 

restatements 139 and late Form 10–K 

filings and also decreased total audit 

hours.140

As proposed, the firm-level and 

engagement-level metrics related to 

allocation of audit hours would have 

required firms to report the percentage 

of total audit hours incurred both prior 

to the issuer’s year end and following 

the issuer’s year end, separately. 

Several commenters supported the 

reporting of this metric as proposed (i.e., 

at both the firm and engagement level), 

while some commenters only supported 

required reporting of this metric at the 

firm level. Of those commenters that 

supported reporting this metric at only 

the firm level, two commenters 

requested the following clarifications 

regarding various elements of the 

calculation: 

• Whether the period being reported 

at the firm level should be based on 

audit reports dated from 10/1—9/30 or 

based on engagements with a fiscal yearend from 10/1—9/30. This commenter 

expressed concern that if the proposal’s 

intention was the latter, significant 

challenges with the proposed 11/30 

reporting period for Form FM should be 

anticipated. 

• How this metric would be applied 

to an initial public offering (‘‘IPO’’) 

engagement where the audit covers up 

to three years where often the work 

doesn’t follow the traditional audit 

cycle or timeline. 

A commenter expressed concern that 

because the reporting period for Form 

FM is different than the engagement 

period for which total audit hours are 

calculated for Form AP, this will create 

a challenge with data collection and 

validation for different periods. This 

commenter also expressed concern that 

this metric requires the use of total audit 

hours, which relies on information from 

other auditors. The commenter 

recommended that the Board consider 

whether the use of other auditor 

information is necessary to meet the 

Board’s objective. One commenter 

expressed concern that the firm-level 

metric would not be comparable due to 

changes in circumstances of specific 

issuers because while individual issuer 

circumstances may not be significant 

enough to move the metrics for larger 


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firms, for smaller firms individual issuer 

circumstances could impact the overall 

results. As an example, for a smaller 

firm with an issuer that had a large 

acquisition during the fourth quarter, 

that would lead to a significant shift of 

hours after the end of the year. 

As described above, the reporting 

period for firm-level metrics reported on 

Form FM will generally be the 12-month 

period ended September 30 in each 

year. When reporting this metric, the 

firm could use the information reported 

at the engagement level on Form AP for 

this metric to calculate the firm-level 

metric for reporting on Form FM. For 

multi-year audit engagements, including 

IPO engagements, because the audited 

financial statements would be included 

in one auditor’s report, it is not possible 

to identify one particular year-end that 

a firm should use that would not skew 

the reported metric. Therefore, the 

Board excluded multi-year audits from 

the required reporting of this metric. 

Given the commenter concerns raised 

around the collection and data 

validation of this metric for all issuer 

engagements, the Board has modified 

the firm-level description and 

calculation of this metric area to include 

only those accelerated filer and large 

accelerated engagements that will be 

reported at the engagement level. The 

Board believes this narrower scope will 

yield better alignment between firmand engagement-level metrics and more 

comparable information across 

engagements. Related to commenter 

concerns about the collection of 

information from other auditors, Form 

AP currently requires firms to collect 

information regarding the hours of other 

auditors in calculating total audit hours. 

Total audit hours collected for Form AP 

already includes hours related to the 

quarterly reviews, so those hours would 

also be included in the numerator and 

denominator for this metric, see also 

discussion above. 

Some commenters stressed the 

importance of providing narrative 

context in relation to the reporting of 

this metric, for example: 

• One commenter (that only 

supported reporting at the firm level) 

asserted that reported metrics may be 

misleading without proper narrative 

disclosure to provide the necessary 

context to users. This commenter 

elaborated that circumstances beyond 

the auditor’s control may influence the 

allocation of overall audit hours, and 

users should be cautioned against 

making presumptions that a higher 

proportion of hours after the issuers’ 

year ends is a signal of lower quality. 

• One commenter expressed the view 

that comparability of these metrics can 

be highly dependent on factors such as 

industry, type of audit (i.e., financial 

statement audit or integrated audit), and 

transaction timing and volume, among 

others and that stakeholders will need 

appropriate context to interpret the 

significance of these metrics. This 

commenter also stated that there is a 

risk that stakeholders may be biased 

towards inferring that a quantitative 

metric for allocation of audit hours is a 

proxy for audit quality, which further 

supports the need for sufficient 

appropriate context to interpret the 

results. 

The Board agrees that allowing firms 

to provide a narrative disclosure will be 

important in certain situations to help 

users understand the context of a 

specific metric. See additional 

discussion related to this optional 

narrative disclosure above. 

Several commenters, firms and firmrelated groups, disagreed with the 

proposal to report this metric at the 

engagement level publicly and instead 

suggested that this metric would be 

more effectively addressed via dialogue 

with the audit committee. These 

commenters expressed the following 

views: 

• For the engagement-level metrics to 

achieve the Board’s stated objectives, 

such metrics would best be delivered 

through effective two-way 

communication between the auditor and 

the audit committee to provide the 

relevant and necessary context. 

• Even if offered the opportunity to 

provide narrative context, auditors may 

not be inclined to provide a full 

explanation as to why hours allocation 

may have skewed to after year end for 

a particular issuer, as doing so might 

disclose confidential information about 

the issuer’s preparedness for the audit 

or other facts, which might result in 

disputes. 

• There are a variety of factors that 

influence the allocation of hours before 

or after the entity’s year-end which are 

beyond the control of the auditor and 

may drive a disproportionate allocation 

of hours before or after the entity’s yearend in a given audit, including those 

related to the entity entering into 

transactions and changes in the entity’s 

operations or systems. 

Other commenters disagreed with the 

proposal to report this metric entirely. 

These commenters expressed the 

following concerns: 

• The timing of audit procedures (and 

resulting hours) is primarily a function 

of audit strategy decisions based on the 

assessment of a company’s ICFR and 

inadequate ICFR may require most 

hours to be incurred after the balance 

sheet date. This commenter stated that 

more hours incurred after the balance 

sheet date may, in fact, indicate a proper 

evaluation of ICFR and higher audit 

quality and therefore this metric would 

provide little insight into audit quality. 

• This metric is not directly related to 

audit quality. The timing of the 

engagement procedures depends on 

many variables, including the nature of 

the audit areas, specific risks on an 

engagement, the effectiveness of interim 

and roll-forward procedures, the 

availability of staff, when the client is 

available, the client’s specific financial 

reporting systems, and internal controls. 

This commenter stated that this 

information could potentially be 

misleading or misinterpreted. 

• This metric seems somewhat 

arbitrary and may provide misleading 

information for those smaller 

engagements where a higher proportion 

of the work is performed post-year end. 

• It is unclear whether the metric is 

meaningful because it might be 

impacted by among other factors, 

macro-economic trends, company 

controls and activities, and use of 

shared service centers and more 

generally, may require too much 

explanation to provide meaningful 

comparisons. 

• This metric would not be 

comparable between larger firms and 

other firms and could have unintended 

consequences. In an audit of a smaller 

reporting company, it is frequently 

impracticable to perform much work 

prior to an issuer’s year end, both out 

of concerns for efficiency and because 

small companies, who might have an 

outsourced finance function, cannot 

support significant interim work. 

• Since most companies have a 

calendar year end, firms have strong 

incentives to perform work as of an 

interim date to move hours outside of 

the traditional busy season. A firm’s 

ability to shift work to an interim period 

is dependent upon a variety of factors, 

many of which are unrelated to audit 

quality. 

The Board considered commenter 

feedback, and in particular commenter 

concerns related to the fact that 

particular facts and circumstances 

surrounding an engagement could 

significantly skew a firm’s reported 

metric when compared to other firms 

that may have a different portfolio of 

issuer engagements. While the Board 

understands that each engagement is 

affected by the specific facts and 

circumstances, the Board continues to 

believe that users of this information 

will benefit from understanding how 

audit hours are allocated on 

engagements, supplemented by 


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141See, e.g., DeFond and Zhang, A Review of 

Archival Auditing Research. 

142The term ‘‘restatements’’ has the same 

meaning as defined in the FASB Accounting 

Standards Codification (‘‘FASB ASC’’) Topic 250, 

Accounting Changes and Error Corrections; see 

also, ‘‘retrospective restatement’’ as defined in IFRS 

Accounting Standard (IAS) 8, Accounting Policies, 

Changes in Accounting Estimates and Errors. The 

phrase ‘‘error in previously issued financial 

statements’’ has the same meaning as defined in the 

FASB ASC 250; see also ‘‘prior period errors’’ as 

defined in IAS 8. 

143A ‘‘revision restatement’’ of audited financial 

statements was described in the proposal as ‘‘when 

an immaterial error in previously-issued audited 

financial statements, that is material to the current 

period financial statements, is corrected by an 

issuer in the current period comparative financial 

statements by restating the prior period information 

and disclosing the revision.’’ 

144A ‘‘reissuance restatement’’ of audited 

financial statements was described in the proposal 

as ‘‘when a material error in previously-issued 

audited financial statements, report on 

management’s assessment of the effectiveness of 

ICFR, or both, is identified and disclosed by an 

issuer in a filing with the SEC (e.g., on Form 8–K 

Item 4.02, Non-Reliance on Previously Issued 

Financial Statements or a Related Audit Report or 

Completed Interim Review).’’ 

145A ‘‘reissuance restatement of management’s 

report on ICFR’’ was described in the proposal as 

‘‘When a material error in a previously-issued 

report on management’s assessment of the 

effectiveness of internal control over financial 

reporting is identified and disclosed by an issuer in 

a filing with the SEC.’’ 

146 Item 2.1 applies when a firm: 

has withdrawn an audit report on an issuer’s 

financial statements, or withdrawn its consent to 

the use of its name in a report, document, or written 

communication containing an issuer’s financial 

statements, and the issuer has failed to comply with 

a Commission requirement to make a report 

concerning the matter pursuant to Item 4.02 of 

Commission Form 8–K. 

147See Listing Standards for Recovery of 

Erroneously Awarded Compensation, SEC Rel. No. 

34–96159 (Oct. 26, 2022) at 28 (‘‘restatements that 

correct errors that are not material to previously 

issued financial statements, but would result in a 

material misstatement if (a) the errors were left 

uncorrected in the current report or (b) the error 

correction was recognized in the current period’’). 

narrative disclosure to provide context, 

as needed. 

At the engagement level, it may be 

more relevant for a firm to provide a 

narrative disclosure to explain the 

particular facts and circumstances 

related to the current reporting period’s 

metric for this area. One firm stated that 

‘‘Pulling work forward, where feasible 

and appropriate, enables engagement 

teams more time to focus on areas of 

highest risk in the audit.’’ Based on the 

Board’s oversight activities, the Board 

agrees with this statement, and the 

Board believes that this information will 

be beneficial to users at both the firm 

level and the engagement level. As with 

all the metrics, the Board encourages the 

auditor and audit committee to have a 

robust dialogue. 

The proposal asked whether a 

different, more granular, metric would 

be more appropriate, for example 

allocation of audit hours devoted to 

each phase of the audit—planning, 

quarterly reviews, interim field work, 

final field work up until report release 

date, and post-report release date until 

audit documentation completion date. 

Most commenters who commented on 

this question did not agree that a 

different, more granular, metric would 

be more appropriate. Views provided by 

these commenters included the 

following: 

• A more granular metric devoted to 

different phases of an engagement 

would be very challenging to measure 

and interpret as the audit is an iterative 

process. In addition, audit procedures 

may be performed to meet more than 

one specific objective and thus may 

relate for instance to both planning and 

execution phases of the engagement. 

• It will be costly to assemble the 

information to report and such 

additional time spent on data reporting 

diverts very important time during the 

audit and creates an unnecessary 

dilemma for engagement teams as to 

whether it is more important to comply 

with audit quality standards or 

reporting requirement rules. 

The Board agrees with these 

commenters that a more granular metric 

is not necessary to achieve the 

objectives of this metric and did not 

modify the proposed metric to make it 

more granular. 

Other than clarifying that multiyear 

audits are outside the scope of the 

reporting requirement and revising the 

scoping of the firm level metric to limit 

it to only those accelerated filers and 

large accelerated filers of the firm, the 

Board adopted this metric as proposed. 

(See Exhibit A, ‘‘Allocation of Audit 

Hours.’’) 

viii. Restatement History 

Restatements for errors (e.g., not for 

changes in accounting principles) are 

generally considered a signal of 

potential difficulties in at least parts of 

a firm’s audit practice. Academic 

literature suggests that restatements 

provide the cleanest empirical measure 

of audit failure.141 Overall, the Board 

believes the academic literature 

supports a measure that accumulates the 

pattern of restatements for firms, as this 

would provide a strong measure against 

which other metrics may be identified 

in the future. 

The proposed firm-level metric set 

forth requirements for firms to report 

information related to restatements,142

including both revision restatements 

(sometimes referred to as ‘‘little r’’ 

restatements) 143 and reissuance 

restatements (sometimes referred to as 

‘‘Big R’’ restatements) 144 of audited 

financial statements for all issuer 

engagements of the firm. The proposal 

also included reporting of reissuance 

restatements of management’s report on 

ICFR.145 The Board adopted this metric 

area with several modifications 

discussed in more detail below. 

The proposal asked whether the 

proposed descriptions of revision 

restatement and reissuance restatement 

were clear and appropriate. The two 

commenters on this question agreed that 

the proposed descriptions were clear 

and appropriate. The descriptions were 

adopted with modifications: (i) in 

addition to referring to restatements 

identified and disclosed by the issuer in 

a filing with the SEC, the final 

description of reissuance restatement 

also refers to circumstances in which 

the firm is required to file a notice 

pursuant to Item 2.1 of Form 3,146 and 

(ii) the final description of revision 

restatement was revised to improve the 

alignment with the description used by 

the SEC in its adopting release for 

exchange listing ‘‘clawback’’ rules 147

and to clarify that the restated financial 

information and the disclosure appear 

in a filing with the SEC. The revisions 

to the description of reissuance 

restatement ensure that the data set is 

complete because it captures 

circumstances where the issuer fails to 

comply with its reporting obligations. 

The revisions to the description of 

revision restatement avoid potential 

misalignment with the SEC’s 

characterization of little r restatements 

and also provide a clear trigger (SEC 

filing) for when a restatement is 

included in the metrics. 

Accordingly, the descriptions of 

reissuance restatement and revision 

restatement in the final rules provide as 

follows (footnotes omitted): 

Reissuance restatement: When a 

material error in previously-issued 

financial statements is identified and 

disclosed by an issuer in a filing with 

the SEC (e.g., on Form 8–K Item 4.02, 

Non-Reliance on Previously Issued 

Financial Statements or a Related Audit 

Report or Completed Interim Review) or 

the firm is required to file a notice 

pursuant to Item 2.1 of Form 3. 

Revision restatement: When an error 

in previously-issued financial 

statements that did not result in a 

reissuance restatement, but would give 

rise to a material misstatement if (a) the 

error was left uncorrected in the current 

report or (b) the error correction was 

recognized in the current period, is 

corrected and disclosed by an issuer in 

a filing with the SEC. 


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148Under Sarbanes-Oxley, the auditor is required 

to attest to management’s assessment of the 

effectiveness of the company’s internal control only 

for companies that qualify as ‘‘large accelerated 

filers’’ or ‘‘accelerated filers,’’ other than ‘‘emerging 

growth companies.’’ See Section 404 of SarbanesOxley, 15 U.S.C. 7262. 

149See SEC Rel. No. 34–96159 at 35–6 (in 

connection with including both revision 

restatements and reissuance restatements in its 

clawback rules, stating that ‘‘this construction of the 

statutory language addresses concerns that issuers 

could manipulate materiality and restatement 

determinations to avoid application of the 

compensation recovery policy’’). See also Assessing 

Materiality: Focusing on the Reasonable Investor 

When Evaluating Errors (Mar. 9, 2022), available at 

https://www.sec.gov/newsroom/speechesstatements/munter-statement-assessing-materiality030922, (observing that some materiality analyses 

appear to be biased toward supporting an outcome 

that an error is not material to previously-issued 

financial statements, resulting in ‘‘little r’’ revision 

restatements). 

150See Form 8–K Item 4.02, Non-Reliance on 

Previously Issued Financial Statements or a Related 

Audit Report or Completed Interim Review. 

The proposed metric included only 

restatements that related to corrections 

of errors and excluded all other 

restatements, including those resulting 

from changes in accounting principles. 

The proposed metric also excluded 

corrections in the current period 

financial statements of errors that were 

not material to the previously-issued 

financial statements and are not 

material to the current period financial 

statements (e.g., a voluntary restatement 

or an out-of-period adjustment), because 

these are not restatements as described 

in this rulemaking. One commenter 

suggested that the metric should 

explicitly exclude restatements resulting 

from stock splits and similar activities 

that result in non-error restatements. As 

proposed, the metric addressed only 

restatements for errors, and the Board 

does not believe it is necessary to list 

specific types of non-error restatements. 

Commenters generally supported the 

reporting of a restatement metric, 

including all of the investors and 

investor-related groups that addressed 

the topic. Some pointed out that firm 

transparency or audit quality reports 

often include a similar metric. 

However, two commenters questioned 

the usefulness of the proposed metric 

and asserted that such a metric alone 

could provide only limited insight into 

the quality of public oversight over 

issuers and auditors. One commenter 

stated that this information was already 

publicly available, and it did not appear 

necessary to require firms to report it 

but if it were reported, a streamlined 

metric that merely reported on the total 

number of restatements for the year 

would be preferable. One commenter, 

who generally supported the proposed 

metric, stated that it should only 

include those audits where the auditor 

withdrew and amended the opinion. 

Some commenters generally 

supported the proposed metric but 

suggested changes to various elements 

discussed in more detail below, 

including: 

• Removing revision restatements 

from the proposed required reporting. 

• Counting multi-year restatements as 

one restatement, not separately. 

• Reducing the number of reporting 

periods to be reported from five to three. 

• Not requiring engagement-level 

reporting. 

One aspect of the proposal that did 

not draw comment, and which the 

Board adopted as proposed, was the 

proposed reporting of reissuance 

restatements of management’s report on 

ICFR, together with reporting of the 

number of issuer engagements for which 

the firm initially issued an audit report 

expressing an opinion on ICFR.148 Firms 

are required to report those reissuance 

restatements of management’s report on 

ICFR that disclose an additional 

material weakness or additional 

elements to a previously disclosed 

material weakness for all issuer 

engagements. 

a. Revision and Reissuance 

Restatements 

The proposed metric set forth 

requirements for firms to include 

information related to both reissuance 

restatements and revision restatements 

for all issuer engagements of the firm in 

the firm’s required reporting. Three 

commenters agreed specifically with 

this aspect of the required reporting 

with one commenter stating that 

providing information related to 

revision restatements gives a holistic 

picture of the firm’s audit performance, 

reliability of the financial statements, 

and transparency from the fact that all 

restatements are reported and not just 

reissuance restatements. 

The other commenters on this aspect 

of the proposal, all firms or firm-related 

groups, disagreed with the proposed 

requirement to include revision 

restatements in the metric. They 

expressed the following concerns: 

• Such restatements are not material 

to the prior periods and to report them 

suggests an inappropriate level of 

importance to information deemed 

immaterial. 

• These types of restatements are not 

currently separately tracked by some 

smaller firms, given that revision 

restatements are not material to the year 

to which they relate, thus are not 

necessary or useful to decision-making. 

• Requiring the disclosure of these 

instances in the same context as 

reissuance restatements could 

inappropriately suggest that there are 

potential implications for the quality of 

the audit performed. 

The Board continues to believe that 

the restatement history metric should 

include all restatements for errors, both 

revision restatements and reissuance 

restatements. As noted above, several 

commenters were supportive of the 

Board’s proposed scope, including all 

the investors and investor-related 

groups that addressed the issue. The 

Board believes that this scope will 

provide a more complete picture of the 

extent to which financial statements 

audited by the firm contain errors that 

subsequently have to be corrected. 

The Board also believes that its 

reporting requirements should not 

distinguish between revision 

restatements and reissuance 

restatements in a way that may create 

inappropriate incentives for auditors 

and issuers as they make materiality 

determinations with respect to previous 

period errors. The SEC addressed this 

concern in its rulemaking regarding 

exchange listing ‘‘clawback’’ rules, 

which also apply to both revision 

restatements and reissuance 

restatements.149

The Board understands that revision 

restatements and reissuance 

restatements do not necessarily convey 

the same information, particularly as to 

the performance of the auditor. As the 

Board proposed, revision restatements 

will be reported on a separate line from 

reissuance restatements, which will 

enable users to analyze the two different 

types separately. 

In the final metric, both revision 

restatements and reissuance 

restatements will be measured based on 

disclosure in an SEC filing. Reissuance 

restatements will also include 

circumstances in which the issuer is 

required to make an SEC filing under 

Form 8–K Item 4.02 150 and fails to do 

so, which triggers a requirement for the 

firm to file a notice pursuant to Item 2.1 

of PCAOB Form 3. Disclosure in an SEC 

filing could take a variety of forms, such 

as checking the box on the cover page 

of Form 10–K and Form 20–F to 

indicate correction of error in a 

previously issued financial statement, as 

one commenter suggested; filing a Form 

8–K in response to Item 4.02; or simply 

including restated prior period 

information in a periodic report or 

registration statement. The Board 

believes that measuring restatements 

based on SEC filings will provide an 

objective point of reference that will 

enable firms to track the relevant data. 


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151Based on an internal evaluation of restatement 

patterns covering the period from Q1 2008 to Q2 

2018 by the PCAOB’s Office of Economic Risk and 

Analysis, 98% of restatements during this period 

were announced with a delay of approximately five 

years or less and about 80% of the restatements 

were announced with a delay of three years or less. 

The Board notes that one commenter 

asserted that some smaller firms do not 

currently track revision restatements. As 

mentioned above, under QC 1000 firms 

are required to track restatement data 

(i.e., both types of restatements) in order 

to design engagement monitoring 

activities and determine whether 

engagement deficiencies exist. In 

addition, given the public availability of 

the data and the ease with which the 

SEC’s electronic data gathering analysis 

and retrieval (‘‘EDGAR’’) database can 

be searched, the Board does not believe 

that gathering the data will be overly 

burdensome, regardless of whether it is 

a firm’s current practice to do so 

b. Multi-Year Audit Restatements 

The proposal contemplated that, in 

the case of multi-year audits where one 

auditor’s report covers the audits of 

multiple years of financial statements, 

the metric would treat every year that is 

restated as a separate restatement. While 

one commenter supported the proposed 

treatment of these types of audit 

restatements, firms and firm-related 

groups stated that multi-year 

restatements should be based only on 

the initial year audited, and should not 

be counted separately for each year. 

These commenters expressed concern 

that, as proposed, the metric would 

reduce understandability and 

comparability as it would misalign with 

how the audit was classified when 

reporting the metrics in the initial year 

the audit report was issued, creating the 

potential for a misleading multiplier 

effect. One firm stated that some 

restatements may be triggered by a 

distinct issue in one year, which may or 

may not be material to other years 

presented, but those other years are still 

corrected in the restatement process. 

Another firm expressed concern about 

the potential complexity and difficulty 

of the proposed reporting. A firmrelated group suggested that, as an 

alternative, the multi-year-audit 

restatements might instead be covered 

by providing total years impacted by 

restatements as a supplementary metric. 

The Board considered commenter 

input on this issue, but the Board 

continues to believe that the most 

accurate and appropriate presentation of 

multi-year audit restatements is to count 

each year that is restated as a separate 

restatement when reporting this metric. 

If a firm has additional context related 

to a multi-year audit restatement that it 

believes will assist users in properly 

interpreting the metric, the firm could 

describe it as optional narrative 

accompanying the metric. 

c. Number of Reporting Periods to 

Present 

The proposal provided that this 

metric would be reported for the current 

reporting period and each of the 

preceding four years, for a total of five 

years.151 One firm agreed with the 

proposal, stating that the five-year 

period strikes a balance between 

providing sufficient historical context to 

identify trends and patterns in audit 

quality and restatements and it also 

maintains the current relevance. 

The other commenters on this aspect 

of the metric, all firms and firm-related 

groups, disagreed with the proposal and 

instead suggested that firms be required 

to report the current period and each of 

the two preceding years, for a total of 

three years. These commenters offered 

the following rationales: 

• Three years would be consistent 

with an issuer’s reporting of periods in 

an annual report in accordance with 

SEC rules and regulations. 

• It would be better to require firms 

to report three years because it will 

greatly reduce the burden on terminated 

firms to track the restatements of their 

former audit clients (e.g. newly 

implemented monitoring and 

communication protocols with 

successor audit firms and previously 

audited companies). Since issuers are 

required to present three years of 

income statements in the financial 

statements included in Form 10–K, they 

will need to obtain consents from 

former auditors for those prior periods. 

As a result, terminated firms will be 

made aware of any restatements when 

requested to provide consents. 

• Five years is unnecessarily long 

given this information is readily 

available via the SEC’s EDGAR system. 

The Board considered the comments 

received and determined to limit the 

metric to three years, rather than the 

five years initially proposed. As 

commenters have pointed out, this will 

better align with SEC requirements 

regarding financial statement 

presentation and may therefore reduce 

any potential efforts or costs associated 

with implementation. While the change 

may result in some reissuance 

restatements falling outside the 

reporting period, the Board believes that 

focusing on more current information 

will provide users with a more relevant 

metric. 

d. Engagement-level Reporting 

The proposal stated that since 

restatements are disclosed in the 

financial statements, the Board was not 

proposing to require that firms report 

this metric at the engagement level. 

Commenters who expressed views on 

this aspect of the proposal agreed with 

this view stating that this information is 

already publicly available from the SEC. 

One firm supported engagement-level 

reporting of this metric explaining that 

it could lead to deeper accountability to 

assess the performance of audit teams 

by linking the restatements to the 

responsible engagement team, and it 

would result in promoting higher 

standards of audit quality. Taking into 

account commenter feedback, the Board 

continues to believe that reporting 

restatement information at the 

engagement level is unnecessary 

because it is already publicly available 

in a searchable format for any particular 

issuer through the SEC’s EDGAR filing 

system. Conversely, for users to 

aggregate restatement information for all 

of a firm’s issuer engagements could 

require significant time and effort, 

which is why the Board only adopted 

this metric at the firm level. 

Engagement-level reporting is not 

required under the final rules. 

e. Other Commenter Feedback 

Other commenter suggestions 

included: 

• Predecessor and successor auditor. 

Under the proposal, the restatement 

metric would apply with respect to 

audit reports ‘‘initially issued by the 

firm.’’ As a result, restatements would 

be included in the metric of the firm 

that issued the original audit report on 

the financial statements or on the audit 

of ICFR, regardless of whether the firm 

had itself identified the error or 

continued to serve as the issuer’s 

auditor. Firms, in particular those that 

resign from the engagement or are 

otherwise replaced, would need to 

monitor whether previously-issued 

audited financial statements, reports on 

management’s assessment of the 

effectiveness of ICFR, or both, are 

subsequently restated for at least three 

years. Two commenters that addressed 

this aspect of the metric agreed with the 

treatment provided under the proposal, 

and the Board adopted it as proposed. 

• Prospective reporting upon effective 

date. Several commenters suggested that 

if the Board proceeded with the 

proposal to include revision 

restatements in the required reporting 

for this metric, prospective reporting 

upon implementation would be more 

practicable. As discussed above, under 


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152See Exchange Act Rule 12b–2, 17 CFR 

240.12b–2. Generally, under Rule 12b–2, a large 

accelerated filer is an issuer that meets certain 

reporting conditions and has a public float 

(aggregate worldwide market value of voting and 

non-voting common equity held by nonaffiliates) of 

$700 million or more. An accelerated filer is 

generally an issuer that meets the same reporting 

conditions; has a public float of $75 million or 

more, but less than $700 million; and had revenue 

of $100 million or more in the most recent fiscal 

year for which audited financial statements are 

available. 

153Section 3(a)(1) of the Investment Company Act 

of 1940, 15 U.S.C. 80a–3(a)(1), defines an 

‘‘investment company’’ as an issuer which (A) is or 

holds itself out as being engaged primarily, or 

proposes to engage primarily, in the business of 

investing, reinvesting, or trading in securities; (B) 

is engaged or proposes to engage in the business of 

issuing face-amount certificates of the installment 

type, or has been engaged in such business and has 

any such certificate outstanding; or (C) is engaged 

or proposes to engage in the business of investing, 

reinvesting, owning, holding, or trading in 

securities, and owns or proposes to acquire 

investment securities having a value exceeding 40 

per centum of the value of such issuer’s total assets 

(exclusive of Government securities and cash items) 

on an unconsolidated basis. Audits of business 

development companies (BDCs) that met the criteria 

to be an accelerated filer or large accelerated filer 

would be included. 

154See Exchange Act Rule 15d–21, 17 CFR 

240.15d–21. 

155See Regulation S–K, Item 10(f)(1), 17 CFR 

229.10(f)(1). 

156Firms that do themselves not serve as lead 

auditor for an accelerated filer or large accelerated 

filer but play a substantial role in audits led by 

other firms would also not be subject to the 

proposed reporting requirements. See PCAOB Rule 

1001(p)(ii) for the definition of ‘‘play a substantial 

role in the preparation or furnishing of an audit 

report.’’ 

157Based on the PCAOB staff’s analysis 

performed on the data obtained from Audit 

Analytics, Standard & Poor’s, and publicly available 

data from the RASR, available at https://

rasr.pcaobus.org. In the four-year period ended 

September 30, 2022, on average, approximately 4% 

of filers that reported on Form 10–K and Form 20– 

F and had not previously self-identified as either a 

large accelerated filer or accelerated filer newly selfidentified as either a large accelerated or 

accelerated filer each year. 

QC 1000 firms are required to track 

restatement data in order to design 

engagement monitoring activities and 

determine whether engagement 

deficiencies exist, therefore firms will 

already have been tracking this 

information upon the effective date of 

the requirements in this rulemaking. 

(See Exhibit A, ‘‘Restatement 

History.’’) 

Reporting 

1. Thresholds for Required Reporting 

The Board proposed to apply the 

same threshold for both firm-level and 

engagement-level reporting, focused on 

auditors and audit engagements for 

issuers that qualify as accelerated filers 

or large accelerated filers under SEC 

rules. The Board proposed that firmlevel reporting would be required of 

every firm that audits at least one 

company that has self-identified as an 

accelerated filer or large accelerated filer 

by checking the box on an SEC filing 

(or, because Form 40–F does not contain 

such a check box, at least one Form 40– 

F filer that meets the criteria to be an 

accelerated filer or large accelerated filer 

under SEC rules) 152 during the 

reporting period. The Board also 

proposed that engagement-level 

reporting would be required for every 

audit of such an accelerated or large 

accelerated filer. 

The Board believes the proposed 

threshold would focus the reporting 

requirements on the firms and 

engagements in which investors and 

other stakeholders have the greatest 

interest in additional information, and 

that establishing the same threshold for 

firm- and engagement-level reporting 

would foster comparability across both 

issuers and firms and provide richer 

context for the evaluation of 

engagement-level information. The 

proposal also contemplated that firms 

that were not subject to the reporting 

requirements could choose to report 

voluntarily. 

This approach excludes engagementlevel information about audits of nonissuers, including broker-dealers, and of 

issuers that are not accelerated filers or 

large accelerated filers under SEC rules. 

These include, for example, investment 

companies; 153 employee stock 

purchase, savings, and similar plans 

that are required to file reports with the 

SEC on Form 11–K; 154 and many 

smaller reporting companies.155 It also 

excludes firm-level information about 

firms whose PCAOB practice was 

limited to such audits.156

i. Firm- and Engagement-Level 

Reporting Thresholds 

The Board solicited comment on 

whether the proposed reporting 

thresholds for firm- and engagementlevel were appropriate. Investors and 

investor-related groups generally 

supported the proposed thresholds for 

both firm- and engagement-level 

reporting. They agreed that the 

proposed requirements would 

appropriately apply to the audits, and 

auditors, of companies that account for 

the majority of the U.S. public company 

market capitalization, and would 

capture the situations where investment 

and proxy voting decisions would be 

most likely to benefit from additional 

information about the audit and auditor. 

One firm-related group broadly agreed 

with the thresholds for both firm- and 

engagement-level reporting because it 

believes different reporting 

requirements are not warranted. 

Another firm-related group also agreed 

with the proposed reporting thresholds 

as appropriately targeting the largest 

companies having a significant impact 

on the market capitalization of issuers. 

Two commenters recommended 

extending the reporting requirements to 

all PCAOB-registered firms, either 

immediately or over time. 

On the other hand, all firms and a 

firm-related group that commented on 

the firm-level reporting threshold 

objected to it, generally suggesting 

instead that firm-level reporting should 

be required of firms that are annually 

inspected by the PCAOB, with some 

recommending voluntary reporting by 

smaller firms. One commenter suggested 

reporting only for annually inspected 

firms that audit at least one accelerated 

filer or large accelerated filer. Another 

commenter recommended that firmlevel reporting should be required only 

of firms with 25 or more large 

accelerated and accelerated filer 

engagements, saying that firms with a 

small number of large accelerated and 

accelerated filer engagements would not 

produce meaningful metrics with 

sufficient anonymity as their metrics 

can be unduly influenced by a single 

engagement. Some of these commenters 

asserted that requiring reporting only 

from annually-inspected firms would 

balance scalability concerns with the 

need for investor protection, as it would 

still capture a large majority of the U.S. 

public company market capitalization. 

One commenter stated that the issuer 

portfolio at firms with less than 100 

issuers is not sufficiently like those 

firms inspected by the PCAOB annually 

to provide valuable comparisons and 

another commenter expressed concern 

about issuers that frequently move 

above or below the accelerated or large 

accelerated filer thresholds.157 One 

commenter added that there is 

precedent to use an alternative 

threshold based on firms that issue 

audit reports for more than 100 issuers, 

such as PCAOB’s annual inspection and 

QC 1000.18 requirements. 

Several commenters also raised 

concerns about the cost of metrics 

reporting and stated that requiring 

reporting only from annually-inspected 

firms will better support the cost to 

comply with the proposed requirements 

and alleviate related unintended 

consequences, particularly greatly 

reducing the burden for smaller firms 

and firms in foreign jurisdictions. 

Another commenter supported 

requiring reporting only from annuallyinspected firms because it would 

alleviate concerns about privacy and 

confidentiality, particularly for firms 


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158The data was obtained from Audit Analytics, 

Standard & Poor’s, and publicly available data from 

the RASR, available at https://rasr.pcaobus.org. 

Firms that issued audit opinions for issuers that met 

the large accelerated or accelerated filer definition 

in the 12 months ended September 30, 2023, were 

included in this number. Large accelerated filer or 

accelerated filer status was based on the most 

recently filed quarterly or annual report as of 

February 10, 2024. 

159See Accounting Today, 2024 Top 100 Firms + 

Accounting’s Regional Leaders (March 2024), for a 

listing of the top 25 U.S. Firms. Based on staff 

analysis, the three firms in the top 25 firms that 

would be excluded from the reporting requirements 

are Aprio, LLP; Carr, Riggs & Ingram LLC; and 

Citrin Cooperman & Company, LLP. 

160See the 14 firms listed as 2022 Annually 

Inspected Firms, available at https://pcaobus.org// 

inspections/basics-of-inspections. B F Borgers CPA 

PC was removed for the purpose of this analysis as 

its registration withdrawal is currently pending. 

161The data was obtained from Audit Analytics, 

Standard & Poor’s, and publicly available data from 

the RASR, available at https://rasr.pcaobus.org. 

Large accelerated filers and accelerated filers were 

included in this number. Large accelerated filer or 

accelerated filer status was based on the most recent 

quarterly or annual filing as of February 10, 2024. 

Market capitalization was calculated as of 

December 31, 2023. Because in some instances 

multiple audit reports were issued in the same year, 

the total number of audit reports issued during the 

same time period using the same data source would 

be approximately 3,500. 

162From the 14 firms listed as 2022 Annually 

Inspected Firms as described above, B F Borgers 

CPA PC was removed for the purpose of this 

analysis as its registration withdrawal is currently 

pending. 

163See Accounting Today, 2024 Top 100 Firms + 

Accounting’s Regional Leaders (March 2024), for a 

listing of the top 25 Firms. Based on staff analysis, 

two annually inspected firms (B F Borgers CPA PC 

and Cohen & Company, Ltd.) were not included in 

the top 25 firms. 

outside the United States that issue a 

limited number of large accelerated or 

accelerated filer auditor reports 

annually and are subject to laws and 

regulations in those areas, because firmlevel metrics may effectively result in 

the disclosure of engagement-level 

information. They further noted that 

such a threshold may avoid redundant 

reporting burdens for these firms and 

disclosure of confidential information of 

specific issuers, but still achieve the 

objectives of reporting firm level metrics 

as ‘‘firm-level reporting would consist 

only of summary data’’ as proposed. 

For the engagement-level reporting 

threshold, because firms objected to any 

public reporting of engagement-level 

metrics, most firms did not comment 

further on the threshold for engagementlevel reporting except for offering some 

other suggestions. See below for other 

comments received. 

The Board adopted the thresholds for 

both firm-level and engagement-level 

reporting with one change. Firm-level 

reporting will be required of every firm 

that audits at least one company that 

has self-identified as an ‘‘accelerated 

filer’’ or ‘‘large accelerated filer’’ by 

checking the box on an SEC filing 

during the reporting period. 

Engagement-level reporting will be 

required for every audit of such an 

accelerated or large accelerated filer. 

The final threshold does not refer to 

Form 40–F filers that meet the 

definition of ‘‘accelerated filer’’ or 

‘‘large accelerated filer’’ under SEC 

rules, which were included in the 

proposal, based on the Board’s 

understanding that such companies are 

not regarded as accelerated filers or 

large accelerated filers. Companies that 

file both Form 40–F and another SEC 

annual reporting form, and that check 

the box to self-identify as an accelerated 

filer or large accelerated filer on that 

other form, will still be included. 

The Board continues to believe that 

requiring reporting for auditors and 

audits of large accelerated filers and 

accelerated filers is the most appropriate 

approach. As stated in the proposal, the 

Board estimated that the firm-level 

reporting requirements will apply to 

approximately 210 firms,158 including 

22 of the top 25 U.S. firms by total firm 

revenue,159 and all of the 2022 PCAOB 

annually inspected firms that continue 

to audit issuers,160 and that the 

proposed engagement-level reporting 

requirements would apply to 

approximately 3,400 issuer audits, 

representing 99% of the total market 

capitalization of issuers reporting on 

Form 10–K and Form 20–F.161

The Board analyzed the other 

reporting thresholds suggested by 

commenters based on the same data. 

Coverage would be significantly 

reduced if the Board required reporting 

only from annually inspected firms: 13 

firms,162 including 12 of the top 25 U.S. 

firms by total revenue compared to 22 

firms.163 Similarly, if only annually 

inspected firms were required to 

provide engagement-level reporting, it 

would apply to approximately 2,700 

issuer audits, representing 83% of the 

total market capitalization of issuers 

reporting on Form 10–K and Form 20– 

F. If only firms with 25 or more large 

accelerated or accelerated filers were 

required to report, then firm-level 

reporting would apply to 11 firms, 

including 9 of the top 25 U.S. firms by 

total revenue, and engagement-level 

reporting would apply to approximately 

2,800 issuer audits, representing 84% of 

the total market capitalization of issuers 

reporting on Form 10–K and Form 20– 

F. 

In addition to the significant coverage 

decreases, limiting metrics reporting to 

annually inspected firms would exclude 

non-US firms that audit a small number 

of non-US based issuers with substantial 

market capitalizations. If the Board 

ranks firms based on the market 

capitalization of the issuers they audit, 

the top 30 firms audited 94% of the total 

market capitalization of accelerated filer 

and large accelerated filer issuers. 

However, only five of these top 30 firms 

are annually inspected. The remaining 

25 firms are all non-U.S., and all but one 

of them audited large accelerated filers 

averaging at least $10 billion in market 

capitalization. Similarly, limiting 

metrics reporting to firms with 25 or 

more large accelerated or accelerated 

filers would result in only six of the top 

30 firms (ranked based on the total 

market capitalization of the issuers 

firms audit) reporting the metrics, and 

would exclude most non-U.S. firms that 

audit non-U.S. based issuers with 

substantial market capitalizations. 

The Board considered applying the 

reporting requirements to all registered 

firms, as one commenter suggested. 

However, the Board continues to believe 

that investors and other stakeholders 

have the greatest interest in additional 

information regarding large accelerated 

and accelerated filers and the firms that 

audit them, and the comments 

supporting the proposal that the Board 

received from investors and investorrelated groups tend to confirm that 

view. For that reason, the Board believes 

that requiring metrics reporting for all 

registered firms could impose costs that 

are not justified in light of the 

anticipated benefits. 

Regarding the concerns of privacy or 

possibly disclosing confidential or 

otherwise protected information, 

particularly for firms outside the United 

States, the Board is not aware of any 

specific issues and no commenter 

identified any particular requirements 

that would conflict with the disclosure 

of the metrics the Board adopted. See 

below for further discussion of privacy 

and confidentiality issues. 

ii. Other Commenter Feedback 

The Board solicited comment on 

whether smaller firms should have 

different reporting requirements than 

larger firms. In addition to comments 

described above, several commenters 

recommended having different reporting 

requirements for smaller firms than for 

larger firms. 

In addition, two firms requested 

clarification or application guidance 

regarding the treatment of issuers that 

change filer status into an accelerated or 

large accelerated filer during the 

reporting period. These commenters 

recommended allowing these issuers to 

have one full year of implementation 


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164Under the SEC definitions of ‘‘large 

accelerated filer’’ and ‘‘accelerated filer,’’ the 

determination that an issuer has become a large 

accelerated filer or accelerated filer is generally 

based on the public float as of the end of the issuer’s 

second fiscal quarter, to take effect as of the end of 

the fiscal year. See Exchange Act Rule 12b–2(3), 17 

CFR 240.12b–2(3). The Board notes that issuers that 

are eligible to use the requirements for smaller 

reporting companies under the revenue test in 

paragraph (2) or (3)(iii)(B) of the SEC’s ‘‘smaller 

reporting company’’ definition could cease to be 

accelerated filers based on a determination made at 

or after the fiscal year end. However, since metrics 

requirements would not apply in such a case, the 

Board does not believe any transition period is 

necessary. 

165See Letter from Center for Audit Quality (Aug. 

1, 2024) at 3 (‘‘The majority [59%] of audit 

committee members surveyed agree some standard 

information about auditors should be considered 

when making their selection and performing their 

oversight responsibilities’’). 166Exceptions to the proposed reporting period of 

firm-level metrics reported on Form FM included 

the proposed metrics for Quality Performance 

Ratings and Compensation and Audit Firms’ 

Internal Monitoring. The proposal stated that 

‘‘[these] proposed firm-level metrics relate to 

activities for which firms may already have defined 

periods or cycles that may not align with [the 

Board’s] proposed reporting date. In these cases, 

[the Board] proposes that the time period covered 

by the metrics may be tailored to a firm’s existing 

processes and procedures.’’ Neither of these metrics 

are included in the metrics the Board adopted. 

However, the Board adopted a metric related to the 

Training Hours for Audit Personnel metric which 

will permit firms to use an already-established 

training calendar cycle for calculation and reporting 

of this metric, which may not align with the Form 

FM reporting period. 

period after the changes in filer status. 

The Board notes that firm-level 

reporting will be required of all firms 

that issued an audit report for at least 

one large accelerated filer or accelerated 

filer during the reporting period, and 

that engagement-level reporting will be 

required in connection with each audit 

report issued for a large accelerated filer 

or accelerated filer. Accordingly, the 

relevant date to determine large 

accelerated filer or accelerated filer 

status will be the date the audit report 

is issued. Because SEC requirements 

regarding becoming a large accelerated 

filer or accelerated filer include at least 

six months lag time,164 the Board does 

not believe that an additional transition 

period would be necessary under the 

Board’s rules. 

The Board solicited comment on 

whether the Board should require 

engagement-level metrics for audits of 

investment companies (other than BDCs 

that are accelerated filers or large 

accelerated filers) or non-accelerated 

filers. Several commenters supported 

excluding one or more categories of 

such entities from metrics reporting 

because the proposed metrics would be 

less likely to assist in investment and 

voting decisions. On the other hand, one 

commenter recommended including 

publicly traded ‘‘closed end’’ 

investment companies, registered open 

end investment companies, and brokerdealers that are publicly traded on the 

basis that some mutual fund investors 

ratify the appointment of the auditor 

and audit committees presumably 

approve for the auditor for these 

companies. 

As proposed, the Board is not 

requiring engagement-level reporting on 

these investment companies and nonaccelerated filers. For audits of 

investment companies, the Board 

continues to believe that the arguments 

underpinning requests for additional 

information about audits and auditors 

will not apply, or apply with the same 

force, in these situations, where 

shareholder ratification of the 

appointment of the auditor may not be 

typical and the metrics would be less 

likely to assist in investment and voting 

decisions. Regarding the reporting of 

non-accelerated filers, as discussed 

above, these issuers have significantly 

smaller market capitalization per issuer 

on average, and the Board is concerned 

that the benefits associated with such 

reporting would not justify the costs. 

2. Reporting of Firm-Level Metrics 

(Form FM) 

The Board proposed that firms report 

their firm-level metrics annually on a 

new Form FM, Firm Metrics. Of those 

commenters that support reporting firmlevel metrics, some also explicitly 

expressed support for reporting 

annually on Form FM. One commenter 

recommended that Form FM be 

amended to explicitly include the 

definitions of the metrics and metric 

formulas to provide pertinent 

information to enhance the context and 

understandability for users. 

The proposal asked whether, rather 

than reporting on Form FM, firms 

should report firm-level metrics, as of 

March 31 on Form 2, which is due on 

June 30. One commenter stated that the 

firm-level metrics could be reported on 

Form 2 to simplify the reporting for 

firms and consolidate the information. 

One commenter did not support 

reporting firm-level metrics on Form 2 

stating that between issuer filings 

through March 31 and the performance 

of procedures on the first quarter filings 

through May, firms are exceptionally 

busy through the middle of May each 

calendar year. Another commenter 

questioned whether the information, 

being reported only annually, would be 

too old to assist decision-making. 

Taking into account commenter 

feedback, the Board continues to believe 

that reporting firm-level metrics 

publicly on a new Form FM filed by 

November 30 will provide investors and 

other stakeholders with timely and 

useful information about auditors and 

will provide a basis of comparison for 

the engagement-level metrics, where 

applicable. The Board does not believe 

that Form 2 would be the appropriate 

place to report the firm-level metrics 

because the due date of Form 2, June 30, 

falls after the general timing of 

shareholder meetings (typically April 

through June for issuers with a calendar 

fiscal year) and this information would 

generally arrive too late to be considered 

in deciding how to vote on ratification 

of the appointment of the auditor. The 

Board believes audit committees would 

also benefit from having this 

information earlier, since it could be 

useful when determining whether to 

reappoint the auditor.165 While firm 

metrics would be reported only once a 

year, the Board believes that the 

information they convey would still be 

useful, both to investors (who otherwise 

have access to extremely limited 

information about the auditor) and to 

audit committees (who may benefit from 

standardized firm-wide information that 

helps put their engagement in context). 

The information disclosed on Form 

FM will be available in a searchable 

database on the Board’s website, similar 

to the Form AP database. As noted 

above, in addition to the required firmlevel metrics, firms will have the option 

to provide a brief narrative to 

accompany each metric. In response to 

the commenter that emphasized the 

importance of including all definitions 

and metric formulas in Form FM, the 

Board has expanded Part III of Form 

FM, Terminology, to include all of the 

definitions used in the metrics, not just 

those used in multiple metrics. As 

proposed, the formula for each required 

metric is included in Part IV, Metric 

Calculations, Reporting and Discussion 

of Form FM. 

The proposal provided that the 

reporting period for Form FM would 

generally be the 12-month period ended 

September 30 in each year 166 and filed 

on or before November 30, 61 days after 

the end of the reporting period. 

Some commenters expressed support 

for the proposed reporting period 

ending on September 30. One of these 

commenters also suggested that 

consideration be given to allowing firms 

to pick a reporting period based on their 

firm’s cycles. A few commenters 

expressed concern with the reporting 

date of September 30 and instead 

suggested firms be permitted to choose 

their own timing for Form FM. These 

commenters expressed the following 

views: 


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167See PCAOB Rule 3211. PCAOB Rule 3211 

requires the filing of a report on Form AP regarding 

an audit report the first time the audit report is 

included in a document filed with the SEC. In the 

event of any change to the audit report, including 

any change in the dating of the report, PCAOB Rule 

3211 requires the filing of a new Form AP the first 

time the revised audit report is included in a 

document filed with the SEC. If the auditor’s report 

is reissued and dual-dated, the firm is required to 

file a new Form AP that would reflect the most 

updated information of the proposed engagementlevel metrics (e.g., total audit hours as of the latest 

audit report date based on the cumulative total 

audit hours). For most audits, Form AP is due 

within 35 days after an audit report is first included 

in an issuer SEC filing. The entire Form AP data 

set (updated daily) and data dictionary are available 

to download in CSV format under the section, 

‘‘Download the entire data set,’’ at https://

pcaobus.org/resources/auditorsearch. 

168 Information related to usage statistics can be 

found on the PCAOB’s website (https://.org//

auditorsearch). 

• The reporting date for firm-level 

metrics should not matter to investors, 

therefore the PCAOB should consider 

firm input as to the date that best aligns 

with their internal processes. 

• Concern about the amount of work 

firms will be required to do on this new 

form along with the QC 1000 

requirements and the relationship with 

information reported on Form 2 on a 

different time period. This commenter 

suggested that the Board should 

undertake a comprehensive review of all 

reporting requirements, systems, 

reporting, and dates. 

• Concern that small- and mid-sized 

firms will be particularly burdened with 

having to evaluate the quality control 

system under the newly adopted quality 

control standard, support the annual 

inspection, and assemble data for 

reporting in Form FM all at the same 

time. 

The Board does not believe that 

permitting firms to choose their own 

timing for Form FM would ultimately 

serve the users of the metrics, because 

of the enhanced comparability that a 

common measurement date and 

measurement period provide. In 

particular, audit committees, who may 

seek to consider comparative metrics 

when determining which audit firm to 

appoint, would not be served by using 

potentially outdated or non-comparable 

data from a firm. The proposed 

reporting date aligns with the date the 

firm is required to evaluate its QC 

system under QC 1000, which was 

adopted by the Board and approved by 

the SEC on September 9, 2024. While 

the Board understands that this date 

will cause some firms to have additional 

PCAOB reporting responsibilities 

simultaneously, the Board continues to 

believe that this timing is preferable 

since it is prior to the calendar year end 

and the traditional busy period for many 

firms, which the Board believes would 

reduce potential resource or time 

constraints and further benefit firms. 

Two commenters supported the 

proposed November 30 due date of 

Form FM. One commenter, who 

supported the proposed November 30 

due date, specifically found it helpful 

that the date aligned with QC 1000. 

Some firms expressed concern that the 

proposed due date would create 

challenges going forward for firms to 

support their annual inspections, 

evaluate the quality control system, and 

assemble data for reporting in Form FM 

all at the same time. One commenter 

suggested that the due date for Form FM 

should be three months from the end of 

the reporting period, or December 31. 

Another commenter expressed concern 

that a 61-day period may not be 

sufficient to allow firms to accurately 

and completely collect, assemble, and 

report the metrics and instead suggested 

that firms should be permitted to choose 

their own filing date. One commenter, 

who supported the proposed reporting 

date of September 30, suggested the 

PCAOB consider a longer period of time 

in which to submit Form FM in the 

initial years after the effective date. 

The Board believes the 61-day period 

will provide sufficient time for firms to 

accumulate data and calculate the 

metrics and report to the PCAOB. In 

addition, as discussed above, the Board 

has reduced the scope of the following 

metric areas in particular: (i) Partner 

and Manager Involvement, Workload, 

and Allocation of Audit Hours, to 

include only large accelerated filer and 

accelerated filer engagements; and (ii) 

Industry Experience, to limit the 

reporting to those firms that issued five 

or more audit reports for accelerated 

filers and large accelerated filers, 

combined, during the reporting period. 

All of these changes should further 

reduce the reporting effort and help to 

address commenter concerns. A benefit 

of aligning the Form FM reporting 

period and filing deadline with QC 1000 

is that some firms, if they choose, could 

also use these metrics in their 

monitoring and remediation process as 

part of the QC system, enabling the firm 

to use comparable information 

underlying both reporting obligations 

for Form QC and Form FM. Under the 

final rules, as proposed, reporting on 

Form FM is due on or before November 

30, 61 days after the end of the reporting 

period. In addition, see discussion of 

the effective date below. 

Form FM was adopted with the 

following modifications: 

• Making conforming revisions to 

reflect the changes to metrics discussed 

above. 

• Related to the optional narrative, (i) 

expanding the character limit to 1,000 

characters and (ii) adding additional 

instructions for firms that elect to 

provide the optional narrative 

(discussed above). 

• Rearranging instructional language 

within the form and expanding Part III 

of Form FM to include all terminology 

used in the metrics (discussed above). 

• Removing references to 40–F filers 

(see above). 

Together with new Form FM, the 

Board also proposed a new reporting 

rule, PCAOB Rule 2203C, which did not 

draw comment and was adopted 

substantially as proposed, and making 

conforming changes to Rules 2205 and 

2206. The text of PCAOB Rule 2203C; 

Form FM, together with the form 

instructions; and the conforming 

amendments are included below. 

3. Reporting of Engagement–Level 

Metrics (Form AP) 

The Board proposed to require firms 

to report engagement-level metrics on 

Form AP, along with the already 

required disclosure of the name of the 

engagement partner and information 

about other firms involved in the 

audit.167 The Board believes that Form 

AP provides an established mechanism 

for conveying engagement-level 

information that is familiar to investors 

and other stakeholders.168 Reporting on 

Form AP will allow access to the 

engagement-level metrics in a 

centralized location and will allow for 

the dissemination of the metrics through 

already established data channels. Form 

AP is also downloadable, which will 

provide users of the information the 

ability to perform comparisons across 

engagements, including analyses of the 

entire Form AP data set. 

The Board proposed adding a new 

section to Form AP for firms to report 

the required metrics. As noted above, in 

addition to the specific engagementlevel metrics, the Board proposed that 

the firm would be able to provide an 

optional narrative description to 

accompany each metric. As proposed, 

the firm would have been able to 

provide up to 500 characters as part of 

their narrative description to provide 

context to facilitate the reader’s 

understanding of the metric. To reflect 

Form AP’s broader content, the Board 

also proposed to rename it ‘‘Audit 

Participants and Metrics.’’ The text of 

the Form AP amendments and the form 

instructions are included below. 

Commenters who supported public 

reporting of engagement-level metrics 

generally agreed with reporting on Form 

AP. However, several commenters 


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169The requirements for amendment of Form FM 

are similar to those that apply to Form 2. See 

https://pcaobus.org/about/rules-rulemaking/rules/ 

form_2; see also, e.g., Staff Questions and Answers 

Annual Reporting on Form 2, at Q34, available at 

https://assets.pcaobus.org/pcaob-dev/docs/defaultsource/registration/rasr/documents/staff_qaannual_reporting.pdf?sfvrsn=5e7259ff_0. 

disagreed with public reporting of 

engagement-level metrics. The Board 

has addressed these comments above. 

One commenter suggested that the 

reporting date should be changed to 

November to align to the audit 

committee’s considerations of 

reapproving a firm and when 

considering the following year’s audit 

plan. Additionally, one commenter 

voiced their concern that there is mixed 

evidence on the influence of Form AP 

disclosures on decision-making. 

The Board adopted the requirement as 

set forth in the proposal to report 

engagement-level metrics on Form AP 

and rename the form Audit Participants 

and Metrics. Correspondingly, the Board 

has retitled PCAOB Rule 3211 as Audit 

Participants and Metrics and made a 

conforming amendment to AS 3101.20. 

The Board made certain amendments to 

the requirements for reporting on Form 

AP as follows: 

• Conforming revisions to reflect the 

changes to include the metrics 

discussed above. 

• Related to the optional narrative, (i) 

expanding the character limit to 1,000 

characters and (ii) adding additional 

instructions for firms that elect to 

provide the optional narrative. 

Form AP’s deadline of 35 days after 

the issuance of the auditor’s report 

already takes into account the timing of 

the proxy vote for most issuers. 

4. Amendments to Form FM and Form 

AP 

As is required for other PCAOB forms, 

the Board proposed that firms be 

required to amend Form FM or Form AP 

to correct inaccurate information or 

provide omitted information that should 

have been included.169

Some commenters requested that the 

Board consider adopting some level of 

materiality or de minimis threshold for 

the proposed metrics reporting and 

specifically address how firms should 

consider whether to amend their 

reporting when differences arise. These 

commenters expressed the following 

views: 

• Although a materiality concept, on 

its own, will not eliminate the 

challenges currently identified and 

those that are unknown, it may help 

reduce confusion to investors and other 

stakeholders resulting from the need to 

report amendments caused by 

immaterial changes in estimates and 

unintentional errors and to help avoid 

unnecessary penalties for materially 

correct reporting. 

• The risk of enforcement for minor, 

unintentional errors in reporting may 

also play a role in public accounting 

firms’ decision to cease auditing public 

companies. 

• Guidance would be essential for 

implementing any final standard 

effectively to balance the costs of 

compiling and reporting the information 

and this guidance should extend to the 

evaluation of differences that may arise 

in the disclosure of participating firms 

on Form AP. 

• The proposal should be amended 

for the application of materiality 

thresholds based on reasonable 

assurance. 

• The Board should consider 

revisions to PCAOB Rule 3211 to add 

materiality thresholds based on 

reasonable assurance and clarify 

whether the current guidance regarding 

amendments would extend to all 

metrics as well as how routine 

corrections and re-allocations of time 

entries and other matters affecting 

metrics reported on Forms FM are 

expected to be handled. 

• If the PCAOB does not adopt a 

materiality threshold for Form FM, 

firms may need to consider which 

controls need to operate at a level of 

absolute assurance, which the firm 

stated would add significant effort and 

cost. 

• The final rule should include a safe 

harbor for reporting that includes 

unintentional and immaterial deviations 

from an otherwise accurate reflection of 

a metric. 

• The amendments should include a 

mechanism for revisions and a statute of 

limitations, such as reporting of time, 

should be included in the final rule. The 

Board believes that the reference to 

statute of limitations is intended to 

request a specified period after filing 

beyond which no amendments would 

be required for corrections. 

One investor-related group indicated 

that they would not object if the PCAOB 

established a de minimis threshold for 

unintentional inaccuracy in reporting 

metrics. Another commenter 

recommended that the PCAOB establish 

a de minimis threshold for 

unintentional inaccuracy that applies to 

all firm reporting, not just in relation to 

the proposal. 

The Board did not adopt a materiality 

or de minimis threshold in connection 

with the obligation to amend forms to 

correct information that was incorrect at 

the time the report was filed or to 

provide information that was omitted 

from the report and was required to be 

provided at the time the report was 

filed. Historically, the Board has not 

established, and has not found 

necessary, materiality or de minimis 

thresholds in connection with form 

amendments. As a commenter 

acknowledged, a materiality or de 

minimis threshold will not necessarily 

eliminate challenges commenters have 

identified or those that have yet to be 

identified in connection with potential 

corrections. Indeed, the Board believes 

that implementing a materiality or de 

minimis threshold would introduce 

unnecessary complexity and uncertainty 

to the form amendment process and, 

further, would potentially threaten, or 

be perceived to threaten, the accuracy 

and reliability of reported information, 

thereby undermining the intended 

purpose of the amendments. 

Similarly, the Board has not 

historically provided, or believed 

necessary, a safe harbor provision for 

unintentional errors and such a 

provision would potentially 

compromise the accuracy and reliability 

of reported information. Likewise, the 

Board has not historically provided, or 

believed necessary, a ‘‘statute of 

limitations’’ to limit the time period for 

which amendments would be necessary, 

and such a provision could potentially 

compromise the value of the forms in 

conducting historical research. In the 

inspection and enforcement context, the 

Board can exercise its discretion on a 

case-by-case basis. 

Consistent with existing Form AP 

guidance, no amendments to Form FM 

or Form AP would be needed solely to 

reflect changes in the metrics that 

would result from differences between 

reasonably estimated data and actual 

data, in the event such information 

becomes available after the filing 

deadlines of the forms. As discussed 

above, in calculating both firm- and 

engagement-level metrics, actual data is 

required to be used, if available. If 

actual data is unavailable, firms may use 

a reasonable method to estimate such 

data. For example, if a firm used a 

reasonable method to estimate hours 

worked by partners and managers at the 

end of a reporting period, and those 

partners and managers subsequently 

submit timesheets for that period that 

include additional hours worked above 

the estimate used by the firm on Form 

FM or Form AP, the firm would not be 

expected to file an amended report for 

any deviations. 

At present, the Board believes 

applying the existing Form AP guidance 

is appropriate and sufficient for the final 

rules. The Board will monitor for issues 

connected to form amendments and 


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170 393 U.S. 333 (1969). 

171The purpose of these disclosures is to enhance 

transparency and accountability in the audits of 

issuers, allowing investors and other stakeholders 

to make informed decisions and hold auditors 

accountable. This aligns with the Board’s statutory 

mission to protect investors and the public interest, 

rather than to facilitate or enable competitive 

positioning among firms. Furthermore, the 

disclosure of such information by a regulatory 

authority for the purposes of transparency and 

accountability does not fall under the purview of 

antitrust concerns, as it does not facilitate collusion 

or the sharing of competitively secret information 

in a manner that would distort market dynamics. 

Instead, it ensures that all market participants and 

stakeholders have access to the same information. 

172See, e.g., AICPA Code of Professional Conduct 

1.700.001 (‘‘A member in public practice shall not 

disclose any confidential client information without 

the specific consent of the client’’). 

consider updates to implementation 

guidance as appropriate. Addressing 

issues as they arise through 

implementation guidance—as opposed 

to establishing a materiality or de 

minimis threshold in the adopting 

release or through a rule amendment— 

will help ensure that any guidance is 

informed by, and better tailored to, 

issues raised by experience under the 

final rules rather than speculative 

concerns. The Board believes 

monitoring for the need for guidance is 

a better solution than implementing a 

materiality or de minimis threshold in 

the adopting release or through rule 

amendment. 

Lastly, regarding the comment that 

the amendments should include a 

‘‘mechanism for revisions,’’ the Board is 

not aware of any deficiencies in the 

current mechanism for amending forms 

and believes it suffices. 

5. Inclusion of Metrics in the Audit 

Report 

In addition to the proposed reporting 

on Form FM and Form AP, the Board 

solicited comment on whether some or 

all of the firm-level and engagementlevel metrics, together with any 

additional narrative that the firm may 

choose to provide, should also be 

included in the audit reports the firm 

issues for audits of large accelerated 

filers and accelerated filers. While some 

commenters supported inclusion of the 

metrics in the audit report, many 

commenters disagreed with this 

approach citing that, for example, it 

could potentially detract from the 

clarity and purpose of the report, could 

result in delays in the issuance of audit 

reports, and amendments to the audit 

report for corrections to metrics could 

create unnecessary burden for issuers 

and confusion for investors. 

Taking into account commenter 

feedback, including both the potential 

benefits and unintended consequences, 

the Board did not require inclusion of 

the metrics in the audit report at this 

time. 

6. Confidential Treatment and Conflicts 

With Non-U.S. Law 

i. Requests for Confidential Treatment 

Not Permitted 

The primary objective of the Board’s 

rulemaking is to enhance public 

transparency regarding audits and 

auditors, which inherently involves the 

disclosure of new information. The 

Board did not propose to allow firms to 

request confidential treatment for the 

proposed metrics but requested 

comment on this approach and 

specifically requested that commenters 

identify any laws that realistically might 

prevent a firm from disclosing the 

information required by the metrics. In 

response, firms and firm-related groups 

expressed general concern about the 

potential for conflicts or focused on the 

proposed disclosure of engagementlevel metrics, such as hours worked per 

week on an engagement, engagement 

team tenure, and experience by 

industry, and the percentage of hours 

contributed by specialists and shared 

service centers. However, the Board 

disagrees with the assertion that all 

previously undisclosed information 

should be considered sensitive by 

default. The information called for by 

the metrics does not pertain to 

proprietary methodologies or 

operational strategies that could give 

competitive advantages if disclosed. 

Rather, the information called for is 

descriptive of the audit process itself. 

The Board believes that general claims 

of sensitivity, absent specific legal 

prohibitions or clear practical 

ramifications, are not sufficient to 

outweigh the benefits of increased 

transparency. The Board’s rulemaking is 

guided by the goal of deepening the 

public’s understanding of audit 

practices in audits of issuers, consistent 

with the Board’s statutory 

responsibilities. 

Some firms and firm-related groups 

raised concerns regarding the potential 

antitrust implications of disclosing 

detailed metrics about engagement 

staffing and workload allocations. One 

of these commenters referenced the 

Supreme Court’s ruling in United States 

v. Container Corporation of America,170

which highlights the competitive risks 

associated with the exchange of 

confidential information among 

competitors, particularly in 

concentrated industries. However, it is 

important to distinguish between the 

exchange of information directly among 

competitors—which may indeed raise 

antitrust issues—and this rulemaking’s 

mandate for public disclosure. The 

information that the PCAOB is requiring 

firms to disclose is not shared privately 

among competing firms but is made 

publicly available to all stakeholders, 

including investors, audit committees, 

and the general public. This type of 

disclosure is fundamentally different 

from the scenarios associated with anticompetitive behavior under antitrust 

laws.171 In light of these factors, the 

Board believes the metrics do not 

contravene the antitrust laws, and the 

public benefit of these disclosures 

outweighs any theoretical competitive 

risks suggested by the commenters. 

Two commenters raised concerns 

regarding Section 105(b)(5) of SarbanesOxley, which protects information 

prepared or received by or specifically 

for the Board in connection with a 

PCAOB inspection or investigation. It is 

important to note that Section 105(b)(5) 

specifically protects only information 

that is prepared or received by or 

specifically for the Board in connection 

with a PCAOB inspection or 

investigation. The metrics the Board has 

required, however, are not prepared or 

received under such confidential 

circumstances. These metrics are 

intended for public disclosure to 

enhance transparency across the audits 

of issuers and to provide stakeholders— 

including investors, audit committees, 

and the general public—with important 

insights into audit practices. Therefore, 

requiring the public disclosure of these 

metrics does not violate the provisions 

of Section 105(b)(5). 

Additionally, one firm and a firmrelated group raised concerns regarding 

the AICPA Code of Professional 

Conduct,172 which provides that a 

member in public practice shall not 

disclose confidential client information 

without the specific consent of the 

client. It is important to differentiate the 

information required by the metrics 

from the client-specific confidential 

information covered under the AICPA 

Code. The metrics require information 

such as workload data, staffing 

allocations, and experience levels of 

personnel involved in audits of issuers. 

This information does not include 

confidential client information or 

specific details about client 

engagements that would be protected 

under the AICPA Code. Instead, it 

focuses on the operational aspects of 

registered firms and the audits they 

perform that are important for the 

public to understand and assess the 

audits of issuers. The objective of this 

rulemaking is to enhance transparency 

and accountability within the audits of 


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173Similarly, some firms raised concerns about 

optional narrative disclosures, particularly 

regarding the need to maintain client 

confidentiality and protect commercially sensitive 

information. The Board has carefully designed the 

required metrics to avoid such issues. The Board 

expects firms to tailor their optional narrative 

responses in a similar manner, should they choose 

to provide them. This will enable firms to meet the 

transparency objectives of Forms FM and AP 

without compromising client confidentiality or 

disclosing sensitive commercial information. 

174See Improving the Transparency of Audits: 

Rules to Require Disclosure of Certain Audit 

Participants on a New PCAOB Form and Related 

Amendments to Auditing Standards, PCAOB Rel. 

No. 2015–008 at 37; PCAOB Rel. No. 2008–004 at 

37–38 n.38 (‘‘Rule 2207(e) preserves the Board’s 

authority to obtain information by preserving the 

possibility that, in an appropriate case involving 

sufficiently important information that is not 

otherwise forthcoming (e.g., through cooperation 

with non-U.S. regulators), the Board can ultimately 

put the firm to the choice of providing the 

information or being subject to a sanction for 

violating the Board’s rules.’’). 

175See Regulation (EU) 2016/679. The GDPR was 

passed by the European Union and became effective 

on May 25, 2018. The complete text of the 

regulation is available at https://eur-lex.europa.eu/ 

eli/reg/2016/679/oj. Section 1 of Article 2 of the 

GDPR applies to ‘‘processing of personal data 

wholly or partly by automated means and to the 

processing other than by automated means of 

personal data which form part of a filing system or 

are intended to form part of a filing system.’’ 

issuers, and the information required by 

the metrics supports this goal without 

requiring auditors to breach their 

confidentiality obligations to clients.173

Finally, although some firms raised 

generalized concerns about potential 

conflicts with foreign laws, they did not 

provide specific examples that would 

justify prohibiting the public disclosure 

of the information in the metrics or 

warranting its confidential treatment. As 

discussed more fully below, the Board 

does not believe that any law, whether 

foreign or domestic, provides a 

reasonable basis for withholding the 

information in the metrics from public 

disclosure. 

As such, the Board did not permit 

firms to request confidential treatment 

for the metrics. This approach is 

consistent with the Board’s belief that 

these metrics will provide valuable 

additional information, context, and 

perspective on audit firms and audit 

engagements, which can be used by 

investors, audit committees, and other 

stakeholders. 

However, the Board is mindful of the 

Board’s obligation to protect 

information that is confidential under 

applicable laws relating to the 

confidentiality of proprietary, personal, 

or other sensitive information. To 

balance these concerns, the final metrics 

have been specifically designed to 

exclude information that could 

reasonably qualify for confidential 

treatment protection, such as personally 

identifiable, methodological, or clientspecific information. Additionally, the 

Board provides firms the option to 

include a narrative description with 

each metric to explain or contextualize 

the disclosures, allowing firms to clarify 

any potentially misleading information 

that could be viewed as sensitive. 

By adopting this approach, the Board 

believes that prohibiting confidential 

treatment requests on Forms FM and AP 

will further the public interest while 

adhering to the Board’s obligation to 

protect certain categories of firm 

information. 

In light of the objectives of this 

rulemaking, the Board decided not to 

permit confidential treatment for the 

metrics required on Forms FM and AP. 

ii. Assertions of Conflicts With Non-U.S. 

Law 

The Board did not propose to allow 

firms the opportunity to assert conflicts 

with non-U.S. laws on either proposed 

Form FM or Form AP, as proposed to be 

amended. The proposal acknowledged 

that there may be certain limitations 

with respect to the data or information 

about a firm, its personnel, or the 

performance of the firm’s engagements 

that a firm may communicate publicly 

because it may conflict with a non-U.S. 

law, and asked commenters to describe 

any such laws and the proposed metrics 

to which it was realistically foreseeable 

that they would apply. 

Some commenters disagreed with the 

proposal not to allow firms to assert 

conflicts. One commenter strongly 

urged the Board to maintain the wellestablished rulemaking history that 

recognizes and respects non-U.S. firms’ 

distinct legal obligations and preserves 

the right for firms to assert a conflict of 

law. The Board is committed to 

cooperation and reasonable 

accommodation in its oversight of 

registered non-U.S. firms, and in the 

past has generally provided non-U.S. 

firms the opportunity to at least 

preliminarily withhold some 

information from its existing forms on 

the basis of an asserted conflict with 

non-U.S. laws. However, the Board has 

not provided for firms to assert such a 

conflict with respect to all information 

required by those PCAOB forms. 

Moreover, the Board notes that the 

Board has never permitted such 

withholding of information for Form 

AP. In addition, even where the Board 

has allowed registered firms to assert 

legal conflicts in connection with other 

forms, that accommodation does not 

entail a right for a firm to continue to 

withhold the information if it is 

sufficiently important.174

Other commenters suggested there 

were potential conflicts between 

reporting of the proposed metrics and 

current laws: 

• One commenter strongly 

recommended the Board consult with 

others, including the International 

Forum of Independent Audit Regulators 

(IFIAR), to determine whether any law 

would prohibit a firm from providing 

information requested in the proposal 

and further diminish comparability (or 

increase the risk of misuse) of affected 

metrics. 

• A commenter also asserted that 

there are laws in various jurisdictions 

(e.g., France and Switzerland) that could 

have a significant impact on crossborder transfer of data and the 

comparability of such data. 

• Other commenters stated that firms 

with a small number of relevant issuer 

engagements, for example, disclosure of 

certain engagement-level metrics may 

lead to breach of confidentiality for 

client information, issues with 

disclosure of commercially sensitive 

information (e.g., time spent) or 

disclosure of personal data in breach of 

regulations, and potentially violate laws 

and regulations within some non-U.S. 

jurisdictions. (e.g., General Data 

Protection Regulation (‘‘GDPR’’)).175

• A commenter stated that based on 

their understanding from non-U.S. firms 

(although the commenter firm itself is 

not a non-U.S. firm) some of the 

proposed new required disclosures go 

beyond what non-U.S. regulators require 

and may lead to violations of local laws 

resulting from disclosure of information 

that non-U.S. auditors are required to 

keep confidential under professional 

secrecy obligations and/or laws and 

regulations governing disclosure of 

personal information. 

• Another commenter stated that the 

proposed expansion of mandatory 

disclosures directly increases the 

likelihood that a non-U.S. firm may be 

legally barred from providing the 

relevant information. 

One commenter encouraged the Board 

to include a specific provision that 

acknowledges that any required 

disclosure by a firm would need to 

comply with applicable local laws and 

regulations, while another stated that 

allowing firms to assert conflicts with 

non-U.S. laws would still require those 

firms to obtain legal opinions to support 

withholding the information. 

One of those commenters stated that 

information published where only one 

engagement is performed will be clearly 

identifiable to an individual 

engagement, which they asserted may 

breach personal data requirements 


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176See PCAOB Rel. No. 2015–008 at 37; PCAOB 

Rel. No. 2008–004 at 36. 

177 Id. 

178 If an actual conflict were to materialize, the 

Board would have tools to address it. For example, 

Section 106(c) of Sarbanes-Oxley authorizes the 

Board to, subject to the approval of the 

Commission, exempt any foreign public accounting 

firm, or any class of such firms, from any provision 

of the rules of the Board. 

179Rule 2203C requires that firms file Form FM 

by following the instructions on Form FM. 

180A specialist, as used in this context, includes 

both auditor-employed specialists, as defined in AS 

1201.C1, and auditor-engaged specialists, as 

described in AS 1210.01. Under those definitions, 

a specialist is a person possessing special skill or 

knowledge in a particular field other than 

accounting or auditing. Specialists would generally 

not include members of the engagement team 

whose specialization is in the fields of either IT or 

income taxes (tax) because IT and tax are 

specialized areas of auditing and accounting. 

However, if IT or tax specialists are employed or 

engaged in a capacity other than specialized 

auditing and accounting as part of the issuer 

engagement, it may be appropriate to include them 

as specialists. 

181A shared service center is described as an 

associated entity of a firm, set up by a network of 

accounting firms, that, among other things, supplies 

those firms with personnel to assist in the 

performance of audits, and that is not itself an other 

under legislation such as GDPR. 

However, neither this commenter nor 

any other articulated how any of the 

required metrics could reveal 

information allowing any individual to 

be directly or indirectly identified in 

contravention of GDPR or similar laws. 

In considering whether to allow the 

opportunity to assert conflicts, the 

Board considered both whether it is 

realistically foreseeable that any law 

would prohibit providing the required 

information and, even if it were 

realistically foreseeable, whether 

allowing a firm preliminarily to 

withhold the information is consistent 

with the Board’s broader responsibilities 

and the particular regulatory 

objective.176 The comments provided on 

this subject have not identified with 

sufficient specificity a realistically 

foreseeable likelihood that a law would 

prohibit providing the required 

information. The concerns that were 

mentioned were expressed in very 

general and hypothetical terms. 

Moreover, with respect to the suggestion 

that the Board consult with IFIAR, the 

Board notes that PCAOB staff did advise 

a number of its non-U.S. counterparts 

regarding the proposal with a view to 

facilitating their participation in the 

Board’s notice and comment process if 

they so chose, and none submitted 

comment letters. 

In addition, the Board continues to 

believe that allowing a firm 

preliminarily to withhold the required 

information is inconsistent with the 

Board’s broader responsibilities and the 

particular regulatory objective of this 

rulemaking, namely public 

transparency.177 This is the case 

notwithstanding that firms, as a 

commenter observed, have to provide a 

legal opinion regarding a conflict of law 

under the Board’s rules relating to 

asserted conflicts. Accordingly, the 

Board did not permit assertions of 

conflicts for Form AP or Form FM in the 

final amendments.178

With respect to the commenter 

suggestion that the Board includes a 

specific provision that acknowledges 

that any required disclosure by a firm 

would need to comply with applicable 

local laws and regulations, the Board 

believes such a provision could be 

construed as tacit permission to 

withhold information without 

complying even with the existing 

requirements under the Board’s rules 

related to the assertion of conflicts. 

Given that this would be an even more 

permissive framework than currently 

exists for withholding information 

where assertions of conflicts are 

permitted under the Board’s rules, the 

same analysis applies with more force to 

this suggestion. 

The Board believes its notice and 

comment process, together with its 

oversight experience, sufficiently inform 

this policy choice. 

7. Structure of Metrics Data 

Several commenters suggested that 

data on Form AP and Form FM be filed 

using eXtensible Business Reporting 

Language (‘‘XBRL’’) to be consistent 

with SEC registrant filings. The Board 

notes that the data on Form AP will 

continue to be downloadable and 

machine-readable. However, making a 

change to require reporting using XBRL 

would introduce additional costs for all 

firms that file Form AP. Therefore, 

reporting on Form AP and Form FM 

will be done using the same platform as 

the Board’s other reporting forms 

(currently, the Board’s web-based RASR 

system which uses XML and, in the 

future, potentially new means of 

information exchanges as the PCAOB 

continues to modernize its reporting 

technology aimed at simplifying and 

automating data collection, processing, 

and interoperability). 

Documentation 

For firm- and engagement-level 

metrics, the Board proposed that the 

firm would be required to retain 

documentation in sufficient detail to 

enable an experienced auditor, having 

no previous connection with the 

determination of the metrics, to 

understand the calculations, the data on 

which they are based, and the method 

used to estimate data when actual 

amounts were unavailable. This is 

similar to the ‘‘experienced auditor’’ 

threshold specified in AS 1215, Audit 

Documentation. 

The Board solicited comment on 

whether the proposed documentation 

requirement was clear and appropriate. 

One commenter agreed that the 

documentation requirement was clear 

and appropriate, while another 

commenter recommended further 

clarifications. The commenter 

recommended explicitly referring to AS 

1215 as the commenter believed there 

were no explicit documentation 

requirements within Proposed Rule 

2203C and Form FM instructions related 

to firm-level metrics. 

The Board adopted the proposed 

documentation requirement as 

proposed. The Board described the 

documentation requirement for Form 

FM in General Instruction 7 that the 

firm should retain documentation in 

sufficient detail to enable an 

experienced auditor, having no previous 

connection with the determination of 

the metrics, to understand the 

computations of amounts, the amounts 

on which they are based, and the 

method(s) used to estimate the amounts 

when actual amounts were 

unavailable.179 The Board believes this 

is sufficient to introduce the concept of 

‘‘experienced auditor’’ into the 

documentation requirement for Form 

FM, similar to the ‘‘experienced 

auditor’’ threshold specified in AS 1215. 

Existing Form AP included a similar 

documentation requirement and under 

the amendments to Form AP that the 

Board has adopted, this requirement 

appears in General Instruction 10, as 

amended. 

Additional Firm and Engagement 

Metrics Considered 

In addition to the firm and 

engagement metrics the Board adopted, 

the Board considered and solicited 

comment on a number of (i) proposed 

metrics included in Section III.B.2 of the 

proposal and (ii) potential additional 

metrics included in Section III.E of the 

proposal. The Board determined not to 

adopt these additional firm and 

engagement metrics at this time. The 

additional metrics are discussed below. 

1. Proposed Firm and Engagement 

Metrics 

i. Audit Resources—Use of Auditor’s 

Specialists and Shared Service Centers 

The proposal included metrics 

relating to the use of auditor’s 

specialists 180 and shared service centers 

(‘‘SSCs’’),181 which were intended to 


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accounting firm. See PCAOB, Staff Guidance: Form 

AP, Auditor Reporting of Certain Audit 

Participants, and Related Voluntary Audit Report 

Disclosure Under AS 3101, The Auditor’s Report on 

an Audit of Financial Statements When the Auditor 

Expresses an Unqualified Opinion, (updated July 1, 

2024) (‘‘Staff Guidance on Form AP’’), at n. 24, 

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

docs/default-source/standards/documents/07-01- 

2024-transparency-implementationguidance.pdf?sfvrsn=b9753eb_2. 

help users gain a greater understanding 

of the use of these audit resources, 

including the frequency with which 

firms use specialists and SSCs on their 

engagements at the firm level generally 

and, at the engagement level, to provide 

the context required to understand the 

extent of the use of auditor’s specialists 

and SSCs on a particular issuer 

engagement. 

At the firm level, the proposal set 

forth requirements for firms to provide 

the percentages of issuer engagements 

that used auditor’s specialists and 

shared service centers, respectively. At 

the engagement level, the proposal 

provided that firms would report the 

percentage of total audit hours provided 

by auditor’s specialists and by shared 

service centers for each audit the firm 

performed of an accelerated filer and 

large accelerated filer. 

Commenters on the proposed use of 

audit resources metrics who generally 

opposed the disclosure of the metrics 

stated that the information was unlikely 

to be readily interpretable or useful 

because of comparability challenges. In 

contrast, one commenter found the 

proposed descriptions for the resource 

metrics to be appropriate. Some 

commenters who supported these 

metrics noted that challenges with 

comparability might be able to be 

overcome through use of the proposed 

voluntary narrative. Some commenters, 

who were not generally supportive of 

the proposed Audit Resources metrics, 

suggested that if they were adopted they 

should be limited to firms’ issuer audit 

practices. 

a. Use of Auditor’s Specialists 

Some commenters were generally 

supportive of the firm-level metric for 

specialists. One commenter stated it 

would be supportive of disclosure of the 

specialist metrics with modifications to 

disclose the percentage of hours 

incurred by specialists on issuer audit 

engagements. Another commenter 

suggested disaggregating time among 

independent specialists, auditoraffiliated specialists, and managementaffiliated specialists, and breaking down 

the specialist metrics by industry. 

Among the commenters that were not 

supportive of the specialist metrics, 

several concerns were raised including 

concerns with the proposed method for 

calculating auditor-engaged specialists’ 

hours when actual hours were not 

available, the lack of visibility to the 

hours incurred by specialists, the need 

to rely on information from other 

auditors, challenges with comparability 

and data collection, and the overall 

complexity of the proposed metrics. 

One commenter suggested that the 

engagement-level metric for specialists 

would be inconsistent with other Form 

AP instructions and may be misleading. 

Some commenters responded that the 

amount of specialist involvement on an 

engagement and overall at the firm level 

is highly contextual and the relationship 

to audit quality is not one dimensional. 

One commenter refuted the objective of 

providing investors a basis for 

discussion with management with 

respect to the use of specialists, stating 

that investors almost never take 

advantage of the opportunity to ask 

questions. 

Alternative approaches for specialist 

metrics were also suggested by 

commenters. One suggested an 

alternative approach for engagementlevel specialist metrics such as 

utilization metrics and qualitative 

descriptions, supported by narrative 

disclosures to provide necessary context 

and clarity. This commenter also 

suggested an alternative firm-level 

metric for specialists based on the 

average percentage of usage of 

specialists across all of the firm’s 

engagements, potentially covering only 

engagements where specialist hours 

exceeded a minimum percentage of total 

audit hours. Two commenters suggested 

the Board add an additional metric 

disclosing the percentage of audit hours 

incurred by specialists on issuer audit 

engagements (as a percentage of the total 

audit hours on issuers). Another 

commenter also suggested that using 

hours worked rather than the number of 

engagements as the basis for the 

calculation would provide more useful 

information at the firm level. This 

commenter also suggested disclosure of 

the use of specialists, and their hours on 

a CAM-by-CAM basis, as well as overall. 

Two commenters responded to the 

question in the Board’s proposal about 

including thresholds for resource 

metrics. One stated that including de 

minimis amounts would result in 

implementation challenges. The second, 

however, made the opposite argument, 

stating that including all specialist and 

SSC hours in audit resource metrics 

without a threshold would ensure that 

the metric remains straightforward and 

inclusive of all relevant contributions 

and provide a more complete picture of 

a firm’s audit processes and resource 

utilization. Most commenters that 

responded to the question as to whether 

resource metrics should be further 

disaggregated, e.g., by industry, replied 

that this would be overly burdensome 

without added value. However, another 

commented that use of auditor 

specialists would be more helpful if 

broken down by industry. 

b. Use of Shared Service Centers 

Some commenters were supportive of 

SSC metrics. One of them stated that the 

use of SSCs was growing but not well 

understood, and that narrative context 

would be necessary. 

Other commenters raised multiple 

questions with respect to SSCs. Several 

of these were in relation to the 

definition of an SSC, which was 

proposed to be consistent with the 

definition used in Form AP, stating that 

there are many different approaches to 

the use of other resources than what is 

encompassed in that definition, which 

could lead to misunderstanding and 

lack of comparability. One of these 

commenters stated that the work of 

SSCs is dependent on the structure and 

resources of each firm and its SSCs and 

the specific needs of the individual 

engagement. Another commenter stated 

that the definition proposed a shared 

service center encompassed only those 

centers that are set up by a ‘‘network’’ 

of accounting firms and would not 

encompass an outsourcing center set up 

by a single firm. This commenter 

suggested the definition be revised to 

encompass all services that are not 

under the direct supervision of the 

engagement partner. Some commenters 

were concerned that SSC metrics would 

be misinterpreted as indicating that 

greater SSC hours indicated lower 

quality. Some commenters supported 

evaluation of the use of SSCs at the 

engagement level, but did not support 

publicly disclosing this information. 

Another commenter said that, given that 

engagement team members routinely 

work remotely, there should not be a 

difference between that arrangement 

and SSCs and, as a result, the metric 

would not be meaningful. This 

commenter also stated that it would not 

be meaningful to provide an explanation 

of work performed at an SSC because it 

is all ultimately the responsibility of the 

audit partner. 

The Board has taken commenter 

input, as well as observations from 

PCAOB oversight activities and the 

relevant academic literature, into 

account, and have determined not to 

adopt the proposed firm- and 

engagement-level audit resources 

metrics at this time. In doing so, the 

Board recognized, as discussed above, 


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182As defined in paragraph .A5 of AS 2110, 

Identifying and Assessing Risks of Material 

Misstatement (‘‘risk of material misstatement that 

requires special audit consideration’’). 

183As defined in AS 1301.A4 (‘‘A company’s 

accounting policies and practices that are both most 

important to the portrayal of the company’s 

financial condition and results, and require 

management’s most difficult, subjective, or complex 

judgments, often as a result of the need to make 

estimates about the effects of matters that are 

inherently uncertain.’’). 

184As defined in AS 1301.A3 (‘‘An accounting 

estimate where (a) the nature of the estimate is 

material due to the levels of subjectivity and 

judgment necessary to account for highly uncertain 

matters or the susceptibility of such matters to 

change and (b) the impact of the estimate on 

financial condition or operating performance is 

material.’’). 

that several commenters suggested there 

would be challenges relative to 

comparability and data collection, and 

there would also be the potential for 

misunderstanding by users of the 

information. As the Board stated in the 

proposal, these are highly contextual 

measurements because the use of the 

work of specialists is generally 

performed to satisfy needs specific to an 

industry or issuer and the use of the 

work of SSCs is dependent on the 

structure and resources of both the firm 

and the SSC, as well as the specific 

needs of individual engagement teams. 

The Board acknowledges that the nature 

and uses of SSCs continue to expand. 

As they do, the Board expects to 

continue to study and focus inquiries in 

this area to better understand the impact 

of SSCs on audit quality, firm 

economics, and engagement staffing 

models. The Board anticipates these 

efforts will inform future consideration 

of whether additional guidance or other 

regulatory action is warranted. 

ii. Audit Hours and Risk Areas 

The proposed engagement-level 

metric would have required firms to 

calculate the time incurred by all 

partners and managers on the 

engagement team in auditing the areas 

of significant risks,182 critical 

accounting policies and practices,183

and critical accounting estimates,184 in 

aggregate, as a percentage of total audit 

hours incurred by partners and 

managers on the engagement team. 

Because a firm-level metric would have 

been heavily influenced by the mix of 

companies that a firm audits, the Board 

did not propose to require firms to 

report this metric at the firm level. 

Two commenters supported this 

metric as proposed, while several other 

commenters generally supported this 

metric with revisions; suggestions 

included reporting the absolute number 

of audit hours as well as the percentage, 

and adding time spent on performing 

fraud procedures. Another commenter, 

an investor-related group, supported 

this metric as proposed, but further 

suggested reporting the total audit hours 

incurred by staff on the engagement 

team in the areas of significant risks, 

critical accounting policies and 

practices, and critical accounting 

estimates because these areas are 

considered the most significant for the 

audit. This commenter also suggested 

reporting hours by specialists, senior 

professionals, and staff in connection 

with critical audit matters. 

Many other commenters criticized the 

proposed metric. These commenters 

provided the following reasons as the 

basis for their decision not to support 

this metric: 

• The metric does not consider the 

evolving role of technology in the audit 

and the use of technology can 

significantly contribute to audit effort. 

• Risk assessment is an iterative 

process throughout the audit which 

means that identifying significant risks 

and critical accounting policies, 

practices, and accounting estimates may 

change during an audit, resulting in 

changes in how auditors track their time 

for reporting under this metric. 

• An individual’s hours charged to 

auditing a particular account balance 

may include work performed that is 

unrelated to an identified significant 

risk. 

• The nature of the audit procedures 

performed could include overlap with 

other areas of the audit depending on 

discussions held and procedures 

performed. 

• Tracking time at the granular level 

needed to accurately capture hours for 

significant risks and critical accounting 

policies, practices, and accounting 

estimates would require additional 

resources, including time and costs, that 

are not directly associated with audit 

quality. 

• Reporting this information would 

require coordination across firms for 

audits involving other auditors, who 

may be using different systems to track 

the underlying information. 

• Since the risk of management 

override of controls is a presumed risk 

in all audits, how should it be 

considered since the response is 

pervasive to the audit. 

Several commenters, including firms, 

stated that firms are not currently 

tracking this information, or they 

believe that firms are not currently 

tracking this information. One 

commenter added that although they do 

not believe firms are currently tracking 

this information, it should be possible to 

extract this data from internal 

monitoring systems with considerable 

time and complexity. 

Commenter views were divided on 

whether the metric should be revised to 

also include engaged specialist hours 

given that, under the proposal, the 

definition of engagement team includes 

employed specialists, but not engaged 

specialists. Some commenters agreed 

that this metric should include engaged 

specialist hours, while other 

commenters did not. 

Taking into account commenter 

feedback as well as the fact that firms’ 

approach to identifying and classifying 

significant risks can vary greatly, the 

Board was concerned that the potential 

for misinterpretation of this metric and 

the costs associated with establishing 

systems to collect the necessary data 

may not be justified. The Board did not 

adopt the metric related to audit hours 

and risk areas at this time. 

iii. Quality Performance Ratings and 

Compensation 

The proposal set forth firm-level 

reporting requirements for firms to 

calculate (i) the distribution of quality 

performance ratings across partners and 

(ii) a comparison of average annual 

compensation adjustments (as a 

percentage of the average adjustment 

received by the highest rated group) for 

partners in each quality performance 

rating category over a one-year period. 

Overall, some commenters supported 

this metric area, agreeing with the 

proposed rationale that comparing the 

relationship between internal firm 

quality performance ratings and changes 

in compensation levels could provide 

evidence of the extent of any correlation 

between quality performance ratings 

and compensation, and thereby provide 

an important signal of the value of a 

quality commitment for the firm. 

However, other commenters did not 

support this metric area or expressed 

concerns because of the number of 

difficulties in reporting and using the 

metric. Commenters raised the 

possibility of a lack of comparability or 

consistency (e.g., differences in firm’s 

structure, strategies and systems used in 

performance evaluations, and definition 

of compensation, and inclusion of nonequity partner and directors in the 

calculation), resulting in potential 

misuse of the metrics or providing no or 

limited value to stakeholders. Many also 

pointed to variability in firms’ quality 

performance rating systems both across 

firms and within the firm over time. 

Some commenters also indicated that 

there are many factors that firms 

consider in determining compensation, 

and that firms use mechanisms to drive 

accountability of partners that would 


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Federal Register / Vol. 89, No. 238 / Wednesday, December 11, 2024 / Notices 100021 

185The term ‘‘engagement deficiency’’ as used in 

the proposal is defined in QC 1000.A4 (‘‘An 

instance of noncompliance with applicable 

professional and legal requirements by the firm, 

firm personnel, or other participants with respect to 

an engagement of the firm, or by the firm or firm 

personnel with respect to an engagement of another 

firm’’). 

186The term ‘‘applicable professional and legal 

requirements,’’ as used in this rulemaking, has the 

same meaning as defined in QC 1000.A2. 

not be taken into account in the metrics 

calculation, resulting in no direct oneon-one relationship between the 

compensation adjustments and 

performance ratings. Some commenters 

expressed a number of concerns about 

the definition of compensation, as well 

as the treatment of non-equity partners. 

Several commenters expressed 

concerns about confidential 

information. One commenter 

specifically cited the risk of disclosing 

confidential business information that is 

proprietary and protected from 

disclosure under Sarbanes-Oxley 

Section 102(e). Another commenter 

indicated (i) the possibility of 

identifying specific partners’ 

compensation at smaller firms and (ii) 

the disclosure of this metric area may be 

prohibited by laws and regulations 

outside of the United States. A 

commenter also said that PCAOB 

registered firms are for-profit entities 

that should have flexibility in designing 

a compensation strategy that is tailored 

to their business model and needs. 

Instead of the proposed metrics, 

several commenters suggested 

disclosing firms’ policies related to 

partner compensation and performance 

ratings, including how partner audit 

quality is measured and how that 

measurement influences compensation. 

Some of these commenters said that 

disclosing these policies would 

demonstrate the firms’ quality 

commitment and the value it places on 

quality while alleviating the 

comparability and confidentiality 

concerns and meeting the objective of 

this proposed metric. Some commenters 

stated that qualitative disclosures 

related to performance management and 

compensation policies are already 

disclosed in the firms’ annual 

transparency reports. One commenter 

indicated the complexity of the 

performance measurement goes beyond 

mechanical calculation. Another 

commenter indicated that the metric is 

not useful as it is an unambiguous 

indicator of audit quality and likely 

focuses on matters unrelated to audit 

quality. 

Two commenters explicitly supported 

the exemption granted to firms that are 

not within the scope of the SEC’s 

partner rotation rule. One commenter 

questioned whether this metric would 

relate to all issuer audit engagements or 

all audit engagements and another 

indicated that combining issuer and 

non-issuer information would conflict 

with proposed PCAOB Rule 2400. 

Furthermore, a commenter indicated 

that this metric encompasses all 

partners of the firm and would not be 

useful when the issuer audit practice is 

a small portion of the overall firm 

operations. 

While there was some support from 

commenters, the Board did not adopt 

this metric area at this time, primarily 

due to the challenges described by 

commenters (e.g., lack of comparability 

and variability in establishing a firm’s 

quality rating system) and the ambiguity 

in relation to audit quality, which may 

be difficult to overcome for this metric 

area to be meaningful for stakeholders. 

Because this rulemaking project is 

focused on requiring certain firms to 

report certain quantitative metrics that 

will foster comparability, the Board is 

also did not adopt the alternatives 

suggested by various commenters that 

the firms disclose policies regarding the 

partner compensation and performance 

ratings. 

iv. Audit Firms’ Internal Monitoring 

The proposal set forth firm-level 

requirements for firms to calculate the 

percentage of issuer engagements that 

were selected for internal monitoring in 

the firm’s most recently completed cycle 

(i.e., the number of completed issuer 

engagements internally monitored, 

divided by the number of total issuer 

engagements) and the percentage of 

those issuer engagements with 

engagement deficiencies.185

At the engagement level, the proposal 

set forth requirements for firms to 

disclose whether a previous engagement 

was selected for internal monitoring in 

the most recently completed monitoring 

cycle, the year-end date of the 

engagement subject to review, whether 

any engagement deficiencies were 

identified, and the nature of those 

deficiencies. The nature of the 

engagement deficiencies would be one 

of the following: (i) financial statement 

line item, (ii) disclosure, or (iii) other 

noncompliance with applicable 

professional or legal requirements.186

The Board also proposed that certain 

details be provided about the 

engagement deficiency, including the 

area of noncompliance and the type of 

deficiency. 

Some commenters, primarily investorrelated, expressed support for both the 

proposed firm- and engagement-level 

metrics. One investor-related 

commenter suggested that Part I.A 

deficiencies be included separately in 

addition to the proposed requirements. 

Other commenters stated the proposed 

metrics would provide useful 

information into understanding firms’ 

monitoring procedures and outcomes, 

facilitating comparisons regarding the 

quantity and types of engagement 

deficiencies detected, while one 

commenter stated that the monitoring 

and remediation process was an 

essential component of firms’ quality 

management systems and agreed that 

providing a certain level of transparency 

in this area could be useful for 

interested stakeholders. 

The firm-level metric was generally 

supported by some firm and firm-related 

commenters. One noted that it reports 

certain of this information in its 

transparency reports. Another 

highlighted that its internal monitoring 

was broader in scope, including targeted 

monitoring of its team’s use of certain 

tools or technologies, adding that may 

be inconsistent with the PCAOB’s intent 

with respect to firm-level reporting. 

Some of these commenters suggested 

reducing the scope by requiring 

reporting of only PCAOB Inspection 

Report Part I.A inspection findings. 

Another suggested reporting the 

percentage of compliant internal 

reviews rather than deficient 

engagements. 

Conversely, several firm commenters 

were opposed to the proposed internal 

monitoring metrics at the firm level. The 

concerns raised by these commenters 

included noting that differences in 

monitoring programs would render the 

information provided inconsistent and 

uninformative and also that it could be 

disadvantageous to smaller firms that 

may have more variability in their 

internal monitoring year over year. In 

addition, several firm and firm-related 

commenters disagreed with the 

deficiencies required to be disclosed in 

the proposed firm-level metrics being 

aligned to QC 1000. One stated that 

presentation of such a broad range of 

deficiencies into a single metric without 

distinction could lead a user to 

inappropriately conclude that the firm 

had significant quality issues, which 

could in turn negatively impact their 

confidence in the reliability of the firm’s 

audit reports. Another commenter 

expressed their belief that firm-level 

public reporting of internal inspection 

findings could be a disincentive for 

finding deficiencies. This commenter 

also stated that firms should be allowed 

to request confidential treatment for 

metrics related to internal monitoring. 

At the engagement level, virtually all 

firm commenters objected to the 

proposed internal monitoring metrics. 


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100022 Federal Register / Vol. 89, No. 238 / Wednesday, December 11, 2024 / Notices 

187The PCAOB inspects audits completed in the 

prior year, and the ensuing reports have historically 

been released a year or more after the inspection is 

completed. 

Specific objections raised included 

those related to confidentiality 

concerns, comparability challenges, and 

the potential for confusion or 

misunderstanding. Several commenters 

expressed concerns that the proposed 

metrics risked undermining internal 

inspection programs if they cause firms 

to move from broad monitoring 

processes to align more closely with 

PCAOB inspections in response to the 

proposed requirements. One commenter 

stated that once these metrics become 

public, firms could come under pressure 

from various constituencies to report 

results that are within a perceived 

acceptable range. Another commenter 

voiced concern that firms could be 

incentivized to alter their internal 

monitoring processes in a manner 

inconsistent with the objectives of the 

proposal. Some commenters suggested 

that an alternative could be to require 

communication with an issuer’s audit 

committee. 

Taking commenter input into account, 

the Board determined not to adopt the 

proposed firm- and engagement-level 

internal monitoring metrics at this time. 

2. Potential Additional Firm and 

Engagement Metrics 

In the Board’s proposal, it discussed 

three particular areas—training, access 

to technical resources, and investment 

in audit infrastructure—that it did not 

propose to require for reporting but, in 

light of the significance of these areas, 

for which the Board solicited specific 

commenter input. 

All of these potential metrics related 

to aspects of a firm’s ongoing 

investment in audit quality, which the 

Board believes is critically important. 

However, in working to develop metrics 

in these areas, the Board encountered 

challenges in defining what to measure 

and how to measure it, questions about 

whether metrics would be informative 

and appropriately free from bias, and 

concerns about potential unintended 

consequences. After considering 

commenter feedback, the Board adopted 

a modified metric related to training, 

which is discussed in detail above. 

However, the Board did not adopt 

metrics in the areas of access to 

technical resources or investments in 

audit infrastructure, as discussed further 

below. 

In addition to the metrics the Board 

considered, as noted above, some 

commenters on the proposal suggested a 

metric for PCAOB Part I.A deficiencies. 

The Board’s response to this suggestion 

is discussed further below. 

i. Access to Technical Resources 

The Board solicited comment on 

possible firm-level metrics relating to 

the relative size of a firm’s central 

personnel (or other resources engaged 

by the firm) available to provide 

engagement teams with advice on 

complex, unusual, or unfamiliar issues 

and the extent to which such resources 

were used in the firms’ engagements. 

Metrics that were considered at the 

engagement level focused on 

consultations that were performed with 

professionals outside of the engagement 

team on difficult or contentious matters. 

Commenters who responded to 

questions about the potential metric for 

access to technical resources largely 

agreed with the considerations and 

conclusions in the proposal. Some of 

those commenters replied that the 

metrics would not be useful, be difficult 

to measure, not be comparable, and 

could be seen as being biased towards 

larger firms. One commenter mentioned 

that arguments could be made for or 

against many metrics, but they broadly 

agreed access to [technical] resources 

should be dropped. One commenter 

expressed that it would be difficult to 

define national office in a way that was 

meaningful. 

After considering these comments, 

and in light of the Board’s original 

analysis, the Board did not adopt a 

metric related to access to technical 

resources. 

ii. Investment in Audit Infrastructure 

Metrics the Board considered in 

relation to investment in audit 

infrastructure were primarily at the firm 

level and were focused on the 

expenditures that firms self-identified as 

being in support of audit quality either 

in total or on a per headcount basis. 

Commenters generally stated that 

such a metric would be very facts and 

circumstances dependent, such that 

meaningful comparisons could not be 

made. One commenter suggested that 

investment in infrastructure was best 

discussed with an in-depth 

understanding of the circumstances to 

obtain appropriate context. Another 

suggested that the data would be stale 

by the time it was reported, adding to 

its lack of usefulness. One commenter 

mentioned that arguments could be 

made for or against many metrics, but 

they broadly agreed investment in audit 

infrastructure should be dropped. 

However, one commenter stated that 

they would support a metric that 

provides the percentage of firm 

revenues invested in technology 

accessible by audit teams. Similarly, 

another commenter supported including 

a metric that provides the percentage of 

firm revenues invested in technology 

and stated they believe this metric could 

offer useful information to investors 

about the firm’s ability to adapt to future 

challenges. 

After considering commenter 

feedback, the Board did not adopt a 

requirement to disclose a metric on 

investment in audit infrastructure. 

The Board considered the 

commenters that supported a metric 

related to revenue invested in 

technology, but weighing the challenges 

presented by doing so, specifically with 

respect to comparability and concerns 

in potential bias with respect to smaller 

firms, the Board continues to believe the 

unintended consequences and the costs 

would not be justified by the benefits 

such a metric might provide. 

iii. PCAOB Part I.A Deficiencies 

Some commenters recommended 

requiring a metric which the Board did 

not include as a potential additional 

metric in the proposal—a percentage of 

the PCAOB Part I.A deficiencies relative 

to ‘‘the total inspections.’’ The 

commenters acknowledged that this 

information is already publicly 

available. However, they suggested that 

including this percentage with other 

required metrics would highlight its 

importance and provide valuable 

information. One of the commenters 

went on to state that increasing the 

visibility of the PCAOB’s inspection 

results would increase the importance 

of the results of the inspection process 

to audit firms, which they believe will 

lead to an improvement in overall audit 

quality. 

After considering commenter 

feedback, the Board did not adopt a 

requirement to disclose a metric for 

PCAOB Part I.A deficiencies. 

Principally, the Board has concerns that 

the time lag implicit in such a metric 

would be potentially confusing. The 

other metrics would report as of 

September 30 or for the 12 months then 

ended, but a metric based on PCAOB 

inspection results would relate to audits 

conducted one or more years previously 

and may reflect issues that have long 

since been remediated.187 In the Board’s 

view, presenting data on inspection 

findings from previous years together 

with a suite of other metrics that all 

relate to the current period may confuse 

users. Of course, inspection reports, 

including discussion of Part I.A. 


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Federal Register / Vol. 89, No. 238 / Wednesday, December 11, 2024 / Notices 100023 

188See, e.g., PCAOB charts illustrating much of 

the data in the U.S. global network firms (‘‘GNFs’’) 

and U.S. annual non-affiliated firms (‘‘NAFs’’) 

inspection reports, available at https://pcaobus.org/ 

oversight/inspections/global-network-firmsinspection-data and https://pcaobus.org/oversight/ 

inspections/non-affiliated-firms-inspection-data, 

respectively. GNFs are the member firms of the six 

global accounting firm networks (BDO International 

Ltd., Deloitte Touche Tohmatsu Ltd., Ernst & Young 

Global Ltd., Grant Thornton International Ltd., 

KPMG International Ltd., and 

PricewaterhouseCoopers International Ltd.). NAFs 

are both U.S. and non-U.S. accounting firms 

registered with the Board that are not GNFs. Some 

of the NAFs belong to international networks. 

deficiencies, will continue to be 

available on the PCAOB website.188

Effective Date 

For firm-level metrics, the Board 

proposed an effective date beginning 

October 1 of the year after approval by 

the SEC, with the first reporting period 

ending the following September 30. The 

Board also proposed a phased 

implementation period: 

• Firms that issued audit reports with 

respect to more than 100 issuers in the 

calendar year preceding the effective 

date would begin reporting firm-level 

metrics in the first year; and 

• All other firms would begin 

reporting firm-level metrics one year 

later. 

For engagement-level metrics, the 

Board also proposed a phased 

implementation period: 

• Firms that issued audit reports with 

respect to more than 100 issuers in the 

calendar year preceding the effective 

date—for audits of companies with 

fiscal years beginning on or after 

October 1 of the year after the year in 

which SEC approval is obtained; and 

• All other firms—for audits of 

companies with fiscal years beginning 

on or after October 1 two years after the 

year in which SEC approval is obtained. 

The Board solicited comment on 

whether the proposed effective date 

would provide challenges for auditors 

and how these challenges should be 

addressed. The Board also solicited 

comment on whether the phased 

implementation period would be 

appropriate and whether the phased 

implementation should be based on the 

number of issuer audit reports issued or 

some other basis. 

One investor-related group suggested 

that extending the implementation 

period would allow smaller firms to 

adapt incrementally, ensuring they are 

not disproportionately affected by the 

new requirements. This commenter 

further suggested that the Board could 

identify and make certain metrics 

optional for smaller firms without 

making all the metrics optional. 

Primarily, firms and firm-related 

groups recommended extending the 

proposed effective date. While many 

firms did not provide a specific 

implementation time period, other than 

stating that more time is needed, other 

firms recommended an effective date at 

least three years after the SEC’s 

approval, and others recommended at 

least two years after the SEC’s approval. 

Some commenters specifically stated 

that additional time (i.e., one more year) 

would be needed for smaller firms. 

Another commenter recommended an 

effective date of at least three years after 

the SEC’s approval, if adopted as 

proposed, or shorter if engagement-level 

metrics will be communicated to the 

audit committee, rather than reported 

publicly, as proposed. These 

commenters provided reasons for 

extending the implementation period 

including more time to implement 

systems or system changes, develop 

processes, train professionals, and 

accumulate and test data and 

calculations. Some commenters 

specifically emphasized the need for 

more time to make changes in the global 

network firms or other firms who are 

participating in the audit that may or 

may not have the same systems or 

policies. Other commenters stated that 

more time would be needed to 

implement this rulemaking because of 

other recently adopted standards. 

The Board considered these 

comments and provided additional time 

before the reporting rules become 

effective. The final rules will become 

effective beginning October 1 of two 

years after approval by the SEC, with 

the first reporting period ending the 

following September 30 with a phased 

implementation period: 

• Firms that issued audit reports with 

respect to more than 100 issuers in the 

calendar year in which the effective date 

occurs will begin reporting firm-level 

metrics in the first year reporting is 

required; and 

• All other firms would begin 

reporting firm-level metrics one year 

later. 

If approved by the SEC, the effective 

date of the firm-level metrics will be 

October 1, 2027. For firms that issued 

audit reports with respect to more than 

100 issuers in 2027, the first reporting 

period would end on September 30, 

2028, with the first Form FM due by 

November 30, 2028. For all other firms, 

the first reporting period would end on 

September 30, 2029, with the first Form 

FM due by November 30, 2029. 

For engagement-level metrics, the 

Board is also adopting a phased 

implementation period: 

• Firms that issued audit reports with 

respect to more than 100 issuers in the 

calendar year preceding the effective 

date—for audits of companies with 

fiscal years beginning on or after 

October 1 of two years after the approval 

by the SEC; and 

• All other firms—for audits of 

companies with fiscal years beginning 

on or after October 1 of three years after 

the approval by the SEC. 

If approved by the SEC, reporting of 

engagement-level metrics would start 

for firms that issue audit reports with 

respect to more than 100 issuers in 2026 

for the audits of companies with fiscal 

years beginning on or after October 1, 

2027. For other firms, it will start with 

audits of companies with fiscal years 

beginning on or after October 1, 2028. 

The reporting will be on Form AP, 

which is generally due 35 days after the 

issuance of the auditor’s report. 

As discussed in earlier sections, the 

Board adopted a smaller number of 

firm- and engagement-level metrics than 

proposed. Specifically, the Board 

adopted [ten] eight metrics areas (as 

opposed to 11 proposed metric areas), 

which should reduce the administrative 

burden and cost of calculating and 

reporting the metrics. Therefore, the 

Board believes that the smaller number 

of metrics, the extension of the effective 

date, and the phased implementation 

should provide sufficient time for firms, 

including smaller firms, to implement 

new or enhanced systems and 

processes, train professionals, and 

conduct internal testing and reporting 

before reporting of the metrics. 

D. Economic Considerations and 

Application to Audits of Emerging 

Growth Companies 

The Board is mindful of the economic 

impacts of its standard setting. This 

economic analysis describes the 

economic baseline, need, and expected 

economic impacts of the final rules, as 

well as alternative approaches 

considered. Because there are limited 

data to quantitatively estimate the 

economic impacts of the final rules, 

much of the Board’s economic analysis 

is qualitative. However, where feasible, 

the economic analysis incorporates 

quantitative information, including 

analysis of internal PCAOB data, 

publicly available data, and results from 

academic literature. 

Baseline 

This section establishes the economic 

baseline against which the impact of the 

final rules can be considered. Important 

components of the baseline, specifically 

a discussion of current firm- and 

engagement-level disclosure 


lotter on DSK11XQN23PROD with NOTICES2
100024 Federal Register / Vol. 89, No. 238 / Wednesday, December 11, 2024 / Notices 

189The Board concurrently adopted new 

reporting requirements for registered firms. See 

PCAOB Rel. No. 2024–013. 

190The RASR database can be found on the 

PCAOB’s website (https://rasr.pcaobus.org/.aspx). 

The usage statistics underestimate actual public 

interest because investors, researchers, auditors, 

audit committees, and issuer management may 

source PCAOB information through external thirdparty data service providers—such as Ideagen’s 

Audit Analytics. However, they also overestimate 

actual public interest to some extent because the 

usage statistics include internal PCAOB users. 

191 Information related to usage statistics can be 

found on the PCAOB’s website (https://

pcaobus.org/resources/auditorsearch). 

192Firm inspection reports can be found on the 

PCAOB’s website (https://pcaobus.org/oversight/ 

inspections/firm-inspection-reports). 

193See, e.g., Daniel Aobdia, The Impact of the 

PCAOB Individual Engagement Inspection 

Process—Preliminary Evidence, 93 The Accounting 

Review 53 (2018) (finding that ‘‘the client is more 

likely to switch auditor’’ when offices or partners 

receive a Part I auditing deficiency). 

194See, e.g., Andrew Acito, Amir Amel-Zadeh, 

James Anderson, William L. Anderson, Daniel 

Aobdia, Francois Brochet, Huaizhi Chen, Jonathan 

T. Fluharty-Jaidee, Martin Schmalz, Manyun Tang, 

and Scott Jinzhiyang Wang, Market-Based 

Incentives for Optimal Audit Quality, SSRN 

Electronic Journal (2024) (finding that when 

PCAOB inspection reports can be easily linked to 

the issuer being audited, issuers whose audit was 

not found to be deficient significantly outperform 

issuers whose audit was found to be deficient); 

Nemit Shroff, Real Effects of PCAOB International 

Inspections, 95 The Accounting Review 399 (2020) 

(finding, using a sample of foreign companies, that 

companies enjoy greater access to capital when 

their auditor’s PCAOB inspection report does not 

include Part I deficiencies). The Board notes that 

SSRN does not peer review its submissions. 

195See, e.g., Center for Audit Quality, 

Perspectives on Corporate Reporting, the Audit, and 

Regulatory Environment Institutional Investor 

Research Findings, (Nov. 2023) (‘‘CAQ 2023 

Survey’’) (finding that most institutional investors 

interviewed were unaware of PCAOB inspections 

reports, and to the extent investors were aware, 

found the report results to be expected) and Clive 

Lennox and Jeffrey Pittman, Auditing the Auditors: 

Evidence on the Recent Reforms to the External 

Monitoring of Audit Firms, 49 Journal of 

Accounting and Economics 84 (2010) (finding that 

companies do not perceive that the PCAOB’s 

disclosed inspection reports are valuable for 

signaling audit quality). 

196See, e.g., the SEC’s Accounting and Auditing 

Enforcement Releases available at https://

www.sec.gov/divisions/enforce/friactions. 

197See, e.g., Daniel Aobdia, Do Practitioner 

Assessments Agree with Academic Proxies for 

Audit Quality? Evidence from PCAOB and Internal 

Inspections, 67 Journal of Accounting and 

Economics 144 (2019); Jere R. Francis, A 

Framework for Understanding and Researching 

Audit Quality, 30 AUDITING: A Journal of Practice 

& Theory 125 (2011); and DeFond and Zhang, A 

Review of Archival Auditing Research. 

requirements, voluntary reporting 

practices, and actions in other 

jurisdictions relevant to the final rules 

are described above. Below, the Board 

highlights information presented above 

most relevant to the economic baseline 

and provides additional academic 

references and statistics. 

Current PCAOB rules and standards 

do not require registered firms to 

publicly disclose firm or engagementlevel information like the final metrics. 

As discussed above, firms are currently 

required to publicly disclose some 

information related to the firm and its 

engagements in a variety of PCAOB 

forms (e.g., Form AP, Form 2).189 Usage 

statistics suggest that the public actively 

seeks out the information contained in 

these forms. For example, PCAOB usage 

statistics show that during calendar year 

2023, there were close to 7.4 million 

page views, and just over 23,000 unique 

visitors, for PCAOB’s RASR Web service 

that provides public access to firm 

filings, including Forms 1, 2, 3, 4, and 

AP.190 Additionally, in 2023 there were 

over 333,000 unique searches performed 

on AuditorSearch, the PCAOB’s online 

search tool, and the Form AP data set 

was downloaded over 2,000 times.191

In addition to the information that the 

firm makes public through required 

form filings, the PCAOB provides firmlevel public disclosure through firm 

inspection reports.192 For the 2023 

calendar year, firm inspection reports 

were downloaded approximately 

113,000 times. Academic research 

suggests that audit committees use the 

information contained in PCAOB 

inspection reports.193 Additionally, 

some academic research suggests that 

PCAOB inspection reports provide 

useful information to investors.194

However, some research suggests that 

institutional investors may not be aware 

of or find value in PCAOB inspection 

reports.195 One commenter noted that 

the proposal did not provide 

information on who was accessing the 

website information or why they were 

accessing it. The PCAOB does not 

collect information on who is accessing 

the website information (e.g., IP 

addresses) or why they are accessing it. 

In addition to PCAOB information, 

investors and audit committees may be 

able to obtain information related to 

audit quality from auditor legal 

proceedings—e.g., pursuant to SEC 

enforcement actions.196 However, due to 

the investigation and litigation process, 

engagement-specific information may be 

publicly available only after a 

substantial lag. Furthermore, academic 

researchers have also used a variety of 

publicly available firm and engagementlevel proxies for audit quality including 

audit firm size, issuer restatements, and 

industry specialization.197 One 

commenter noted that the auditor’s 

tenure with the company is available in 

the auditor’s report and audit fee 

information is available in the 

company’s proxy statement. 

As discussed above, some large U.S. 

audit firms voluntarily publicly disclose 

certain firm-level information through 

their firm transparency reports—e.g., 

general discussions of turnover rates, 

independence policies and practices, or 

aggregated staff headcounts. PCAOB 

staff reviewed the most recent audit 

quality report for each of the eight firms 

considered in the CAQ Report. As these 

firms’ audit quality reports generally do 

not provide quantitative engagementlevel information, the PCAOB staff’s 

analysis focused on whether they 

provide quantitative firm-level 

information substantially similar to the 

final firm-level metrics. 

Overall, the PCAOB staff’s analysis 

indicates that voluntary firm reporting 

addresses many of the areas included in 

the final metrics, though in most 

instances more narrowly. The reports 

generally provide quantitative 

information related to staff training and 

retention, which the Board believes is 

substantially similar to the final metrics 

for Training Hours for Audit Personnel 

and Retention of Audit Personnel, 

respectively. However, the Board notes 

that the reports that include a retention 

metric define it in different ways and 

report it at different levels of 

aggregation. The reports generally 

provide quantitative information related 

to staffing leverage. However, the 

quantitative information is generally at 

the head-count level and no report 

accounts for audit hours, as the final 

Partner and Manager Involvement 

metrics require. Half of the reports 

provide quantitative information related 

to the frequency of restatements which 

are similar to the final Restatement 

History metric. However, in these cases, 

the reports do not indicate whether the 

reported restatements include 

reissuance restatements, revision 

restatements, or both. Some other 

reports provide quantitative information 

related to the frequency of restatements 

associated with PCAOB-inspected 

engagements only. Half of the reports 

provide quantitative information related 

to years of experience. However, the 

quantitative information does not 

include managers’ experience as the 

final Experience of Audit Personnel 

metric requires. Some reports provide 

metrics similar to the final Workload 

metric. However, in these cases, the 

calculations may differ from the final 

Workload metric in important ways 

(e.g., they are limited to the busy season 

only or include more staff than 

required) and it is unclear whether the 

calculations include the same types of 

hours required under the final rules 

(e.g., PTO hours). The reports generally 

do not provide quantitative information 

related to the allocation of audit hours 


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198See above for additional discussion related to 

auditor communications with audit committees. 

See also Section 10A(k) of the Exchange Act, 15 

U.S.C. 78j–1(k) and 17 CFR 210.2–07. 

199See, e.g., Section 10A of the Exchange Act, 15 

U.S.C. 78j–1. 

200See Information for Audit Committees About 

The PCAOB Inspection Process, PCAOB Rel. No. 

2012–003 (Aug. 1, 2012). 

201See Elizabeth D. Almer, Donna R. Philbrick, 

and Kathleen H. Rupley, What Drives Auditor 

Selection?, 8 Current Issues in Auditing A26, A27 

(2014). 

202See, Marion Brivot, Me ́lanie Roussy, and 

Maryse Mayer, Conventions of Audit Quality: The 

Perspective of Public and Private Company Audit 

Partners, 37 Auditing: A Journal of Practice & 

Theory 51, 68 (2018). 

203The Board believes this is driven, in part, by 

variation in firms’ approaches to quality control and 

how they record information. The Board notes that, 

under Section 105(b)(5) of Sarbanes-Oxley, this 

information is only available for PCAOB regulatory 

use. 

and no report provides quantitative 

information related to industry 

experience. However, the Board notes 

that these firms generally provide 

information related to the industries 

they serve on their websites which is 

similar to the component of the firmlevel industry expertise metric that 

identifies the five top industries of the 

firm’s audit practice. 

One commenter said that, though only 

a small portion of firms voluntarily 

disclose metrics, these firms cover most 

U.S. public companies. The Board 

acknowledges that this point implies 

that most audit committees and 

investors have some information about 

topics covered by the final metrics. 

However, PCAOB staff found that the 

existing disclosures are not uniform or 

comparable across firms. Furthermore, 

PCAOB staff found that firms generally 

do not voluntarily publicly report 

engagement-level metrics and one 

investor group said that the firms’ 

transparency reports are seen as 

marketing material rather than investor 

information. One commenter 

emphasized that firms already publish 

transparency reports and urged the 

PCAOB to analyze firms’ current 

transparency reporting practices and 

solicit feedback from investors, audit 

committees, and other stakeholders on 

their contents. The Board performed 

such an analysis as described above and 

has addressed comments on the 

economic baseline that the Board 

received from stakeholders as part of the 

Board’s notice and comment process. 

The limitations of voluntary firm 

transparency reports, along with the 

related academic literature, are further 

discussed below. 

Audit committees can receive other 

information through sources not 

available to the public. Auditing 

standards and PCAOB and SEC rules 

require specific communications from 

auditors to audit committees regarding a 

variety of matters related to the audit 

engagement. For example, under AS 

1301, the auditor is required to 

communicate to the audit committee 

inter alia (i) all critical accounting 

policies and practices to be used; (ii) a 

description of the process management 

used to develop critical accounting 

estimates; and (iii) significant risks 

identified during the auditor’s risk 

assessment process.198 Moreover, audit 

committees may obtain information 

under other disclosure requirements— 

e.g., reporting under Section 10A of the 

Exchange Act, where the auditor must 

report to the issuer’s board of directors, 

in certain situations, related to illegal 

acts at an issuer.199 In exercising their 

oversight responsibilities, audit 

committees may also request more firmor engagement-specific information 

from their auditor. For example, audit 

committees may seek information from 

the auditor about PCAOB inspections, 

including information not contained in 

the PCAOB’s public inspection 

reports.200 Audit committees may also 

request information from other audit 

firms as part of a request for proposal if 

they are considering engaging a new 

auditor. 

Audit firms, partners, and engagement 

teams have developed reputations based 

on the public and non-public 

information discussed above, as well as 

audit committees’ direct experience 

with them. Through surveys and 

interviews with audit committee 

members, one study concluded that the 

firm’s reputation for industry 

experience and the audit partner’s 

accessibility, ability to address 

accounting issues on a timely basis, and 

ability to liaise with the firm’s national 

office are the key characteristics that 

audit committees consider when 

selecting an auditor.201 This finding 

suggests that audit committees currently 

receive and use information like some of 

the final metrics (e.g., Industry 

Experience and Workload). 

The Board believes many firms 

internally track some information 

related to the final metrics. One 

commenter on the Concept Release 

stated that they believe that many firms 

are using the 28 AQIs identified in the 

Concept Release at some level to (i) 

manage the firm and (ii) manage the 

quality of audits at the office level and 

at the engagement level. Three U.S. 

GNFs stated in their comments on the 

Concept Release that they track some of 

the proposed metrics discussed in the 

Concept Release for monitoring 

purposes. Information gathered by 

PCAOB staff in 2018 and 2019 pursuant 

to PCAOB oversight activities indicate 

that U.S. GNFs generally had identified 

and were tracking performance metrics 

at both the firm and engagement level. 

At the firm level, U.S. GNFs generally 

tracked PCAOB inspection history, 

restatements, voluntary turnover rates/ 

retention rates, partner to staff ratios/ 

professionals by level, average partner 

workload, and investment in audit 

quality. At the engagement level, U.S. 

GNFs generally tracked distribution of 

engagement hours during the year, 

partner workload and utilization, 

partner years of experience (by industry, 

level, or issuer), engagement leverage, 

engagement milestone compliance, 

involvement in pre-issuance review 

programs, and use of IT and other 

specialists. One firm tracked audit hours 

performed at SSCs. However, several 

commenters representing firms and 

firm-related groups explained that they 

do not currently track information in a 

form that will be required for several of 

the metrics. For example, one 

commenter said that firms have no 

internal tracking of personnel’s total 

experience prior to joining the firm. One 

commenter said that smaller and 

medium-sized firms do not track the 

industry experience of audit personnel. 

Though this information suggests that a 

significant amount of information is 

collected by the U.S. GNFs at both the 

firm and engagement levels, one 

academic study suggests that partners 

seldom use metrics related to audit 

quality when evaluating the quality of 

their work or the work of their 

colleagues.202

Commenters noted that the PCAOB 

already has access to information about 

audit firms. One commenter suggested 

that the Board describe the information 

currently requested from firms. The 

PCAOB requests a variety of information 

from firms to inform its inspections 

process, which focuses on evaluating 

whether firms are in compliance with 

PCAOB standards. Some of the 

information is related to some of the 

final metrics. However, the information 

is generally not comparable across 

firms, engagements, and time; the 

quality of the information is 

inconsistent; and the information is 

generally not available for all firms and 

engagements.203

To better understand the adequacy of 

currently available information or need 

for additional disclosures, one 

commenter suggested that the Board 

consider data on: (i) attendance at 

annual shareholder meetings; (ii) votes 

on auditor ratification; or (iii) passive 


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204See, e.g., Broadridge, 2023 Proxy Season Key 

Stats and Performance Ratings, (2023) (reporting 

that, of the votes Broadridge processed, 97% of 

shares were voted electronically by retail and 

institutional shareholders). 

205See, e.g., Yaron Nili and Megan Wischmeier 

Shaner, Virtual Annual Meetings: A Path Toward 

Shareholder Democracy and Stakeholder 

Engagement, SSRN Electronic Journal (2022) 

(discussing how ‘‘[m]eaningful participation at the 

yearly gathering of corporate shareholders has 

become a relic of the mid-twentieth century’’ and 

‘‘[l]ow retail investor attendance and participation 

is a well-documented problem in public 

corporations’’) and cites therein. The Board notes 

that SSRN does not peer review its submissions. 

206See WSJ, Investor Votes Against Big 

Companies’ Auditors Climb, (June 18, 2024). 

207See below for additional discussion. 

208See Nicolae Garleanu and Lasse Heje 

Pedersen, Active and Passive Investing: 

Understanding Samuelson’s Dictum, 12 The Review 

of Asset Pricing Studies 389 (2020). 

209See John Rekenthaler, Index Funds Have 

Officially Won, Morningstar (Feb. 13, 2024). 

210See below. 

211See, e.g., Jeffrey L. Coles, Davidson Heath, and 

Matthew C. Ringgenberg, On Index Investing, 145 

Journal of Financial Economics 665 (2022) 

(discussing how ‘‘[p]assive investors are necessarily 

freeriding on the research and effort exerted by 

active managers’’) and Ruggero Jappelli, Dynamic 

Asset Pricing with Passive Investing, unpublished 

working paper (2024) (finding that ‘‘the effect of 

standardized unexpected earnings on abnormal 

returns is significantly amplified by the wealth 

passively tracking the stock’’). 

212See PCAOB Rel. No. 2024–005, at 315. 

213See Spotlight: Staff Update and Preview of 

2022 Inspection Observations (July 2023) (‘‘2022 

Inspection Observations Preview’’), at 4, available 

at https://pcaobus.org/resources/staff-publications. 

214See above for additional discussion on the 

Board’s decision not to adopt the proposed use of 

auditor’s specialists metric. 

215The Board discussed this comment including 

the studies referred to below. 

216See J. Owen Brown and Velina K. Popova, 

How Do Investors Respond to Disclosure of Audit 

Quality Indicators?, 38 AUDITING: A Journal of 

Practice & Theory 31, 47 (2019). 

versus active investors. The Board was 

unable to identify any data sources 

regarding attendance at annual 

meetings. However, the Board notes that 

shareholder votes are typically cast 

electronically by proxy and not inperson at annual meetings.204 Moreover, 

anecdotal evidence suggests that 

attendance, particularly among retail 

investors, is generally low.205 This may 

reflect the fact that material information 

relevant to investor decision-making is 

typically provided through the proxy 

statement and annual report, rather than 

being newly disclosed at the annual 

meeting. The Board does not believe 

this provides strong evidence for or 

against the adequacy of currently 

available data or investors’ information 

preferences. Regarding votes on auditor 

ratification, the Board’s economic 

analysis is informed by and cites several 

academic studies on shareholder voting 

to ratify the appointment of the auditor. 

Additionally, data from Audit Analytics 

suggests that the proportion of investors 

opposing ratification, while still 

infrequent, has been increasing.206

Overall, the research suggests that 

investors, primarily institutional 

investors, use information related to 

audit performance. In cases where they 

do not, the Board believes this is more 

likely driven by the costs of gathering 

and understanding the information 

rather than a lack of demand.207

Regarding passive versus active 

investors, research suggests that 

household direct holdings comprise 

roughly 50% of U.S. equity capital with 

the remaining 50% held by ETFs, 

passive mutual funds, active mutual 

funds, or hedge funds.208 Among funds, 

roughly 50% are actively managed.209

Based on the Board’s review of 

academic literature and the Board’s 

consideration of costs, the Board 

believes that individual retail investors 

will be less likely to use the final 

metrics than institutional investors.210

Therefore, this research suggests that 

investors who are more likely to use the 

final metrics will use the final metrics 

to inform their capital allocation 

decision-making own or manage 

roughly 25% of U.S. equity capital. 

However, the Board notes that, by 

investing in proportion to the market 

value of a company, passive investors 

freeride on the decisions of the active 

investors, thus amplifying the effects of 

improved decision-making of the more 

active investors who are more likely to 

use the final metrics.211 Also, one audit 

committee chair said at the September 

26, 2024 IAG meeting (‘‘September 2024 

IAG meeting’’) that passive investors 

take corporate governance very 

seriously. Similarly, an investor group 

commenter said that passive portfolio 

managers’ stewardship counterparts will 

use the information in their voting 

decisions. As such, in contrast to capital 

allocation decision-making, the final 

metrics may inform passive funds’ 

governance-related decision-making. 

One commenter suggested that the 

prevalence of Part I.A deficiencies is an 

important reason for the proposal and 

recommended that the Board provide an 

analysis of the causes of Part I.A 

deficiencies to help stakeholders assess 

the benefits of the final rules. Part I.A 

deficiency trends are available in 

PCAOB Rel. No. 2024–005.212 Firms 

have recently indicated to PCAOB staff 

that unusually high staff turnover and 

use of less experienced staff may have 

contributed to rising auditing 

deficiencies. PCAOB inspection staff 

also found that utilization of individuals 

with specialized skill or knowledge and 

significant, timely, and detailed 

supervision and review were good 

practices.213 The final metrics will 

reflect several of these aspects of the 

audit (e.g., Partner and Manager 

Involvement). However, based in part 

on other comments the Board received 

on the proposal, the Board is not 

adopting metrics related to the use of 

specialists.214

One commenter said that to the extent 

investors need additional information to 

inform their voting decisions, the audit 

committee has the ability to provide that 

information in their report in the proxy 

statement, including a summary of the 

metrics they used to assess the auditor. 

However, another commenter said that 

proxy statements provide little 

information to shareholders on which 

they can base their decision to ratify the 

appointment of the auditor and no 

information related to the quality of the 

audit or the audit firm is required to be 

disclosed on the proxy statement. 

One commenter said that several 

Form AP studies were excluded from 

the Board’s baseline.215 The Board 

recognizes that some of these analyses 

detect little impact of prior PCAOB 

disclosure rules. The Board notes that 

Section IV.C.1.i. of the proposal 

described how the benefits of prior 

PCAOB disclosure rules vary by rule 

and analysis. Referring to an academic 

article, the same commenter suggested 

that the baseline section had not 

provided ample research to show that 

investors would use the proposed 

metrics.216 The proposal and the 

discussion below refer to the article 

cited by the commenter as well as 

several others regarding how investors 

may respond to the metrics. 

Lastly, as discussed above, PCAOB 

staff estimates that approximately 210 

firms will be subject to the final firmlevel disclosure requirements, including 

22 of the top 25 U.S. firms by 2023 total 

firm revenue and all of the 2022 

annually inspected firms that continue 

to audit issuers. Approximately 50 firms 

will be required to report the final firmlevel Industry Experience metrics. 

Approximately 3,400 issuer audits will 

be subject to the final engagement-level 

disclosures, covering approximately 

99% of the total market capitalization of 

issuers reporting on Form 10–K and 

Form 20–F. 

Need 

This section discusses the economic 

problem to be addressed and explains 

how the final rules address it. In 

general, two observations suggest that 

there is an economic need for the final 

rules: 


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217An efficient allocation of resources occurs 

when total surplus is maximized. Total surplus is 

maximized when the good or service in question is 

supplied until the marginal benefit is equal to the 

marginal cost. See N. Gregory Mankiw, Principles 

of Economics 146–148 (6th edition 2008). 

218 Given the considerations discussed below, it 

appears reasonable to assume that this lack of 

incentive for firms to provide such information is 

likely to cause the apparent undersupply of 

information, rather than the cost of providing the 

information being greater than the social benefit. 

219See Daniel Aobdia, Saad Siddiqui, and Andres 

Vinelli, Heterogeneity in Expertise in a Credence 

Goods Setting: Evidence from Audit Partners, 26 

Review of Accounting Studies 693 (2021) (finding 

evidence consistent with audits being credence 

goods). 

220See, e.g., Monika Causholli and W. Robert 

Knechel, An Examination of the Credence 

Attributes of an Audit, 26 Accounting Horizons 

631, 632, 633 (2012) (discussing how audits have 

attributes of a credence good, namely the outcome 

of an audit is unobservable and the auditor is best 

informed regarding how much effort is necessary to 

perform the audit). 

221See, e.g., Spotlight Staff Update and Preview 

of 2022 Inspection Observations (July 2023), 

available at https://pcaobus.org/resources/staffpublications (discussing the ‘‘concerning trend’’ in 

‘‘the percentage of audit engagements reviewed that 

are expected to be included in Part I.A of an 

inspection report’’). One commenter said that many 

audit quality studies reveal that audit quality is 

improving, deficiencies are narrowly focused, and 

financial statement restatements are down. The 

Board notes that the commenter did not provide 

support for these assertions. By contrast, and as 

stated here and in the proposal, the PCAOB has 

pointed to a concerning trend in auditing 

deficiencies. Indeed, the trend appears to be 

continuing in the aggregate. See, e.g., Spotlight Staff 

Update on 2023 Inspection Activities (Aug. 2024), 

available at https://pcaobus.org/resources/staffpublications. Furthermore, while the incidence of 

restatements has been decreasing since 2013, there 

was an uptick in 2022. See, e.g., Center for Audit 

Quality, Financial Restatement Trends in the 

United States: 2013–2022, (June 2024). The Board 

notes that the uptick in restatements could increase 

further because some financial statements that have 

not yet restated may do so in the future. 

222Companies whose securities are listed on 

national securities exchanges are generally required 

to constitute an audit committee. See Section 301 

of Sarbanes-Oxley; Section 10A(m)(2) of the 

Exchange Act. As an additional safeguard, the 

auditor is also required to be independent of the 

audit client. See 17 CFR 210.2–01; see also PCAOB 

Rule 3520, Auditor Independence. 

223Pursuant to Exchange Act Section 10A(m)(1) 

and Exchange Act Rule 10A–3, the listing rules of 

national securities exchanges generally require that 

all members of a listed company’s audit committee 

be independent. See, e.g., New York Stock 

Exchange Listing Manual Section 303a.06; Nasdaq 

Rule 5605(c). Companies that do not have securities 

listed on an exchange are not subject to such a 

requirement. 

224See, e.g., Joshua Ronen, Corporate Audits and 

How to Fix Them, 24 Journal of Economic 

Perspectives 189 (2010) (explaining that audit 

committee members are paid by the company and 

can be dependent on top company management for 

a variety of benefits, including referrals as a 

possible member on the board of directors and audit 

Continued 

• Investors and audit committees 

cannot easily observe the services 

performed by auditors. This restricts (i) 

audit committees’ ability to more 

efficiently and effectively monitor and 

select auditors as well as (ii) investors’ 

ability to more efficiently and 

effectively ratify the appointment of the 

auditor and allocate capital. As a result, 

there is a risk that auditors will not 

supply an efficient level of assurance to 

the market.217

• Furthermore, there are currently 

insufficient incentives for firms to fully 

meet the market demand for accurate, 

standardized, and decision-relevant 

information.218 There is also a challenge 

coordinating firms on a system of 

comparable disclosures. As a result of 

the lack of incentives and coordination 

challenges, the Board believes auditors 

are not supplying the market with 

additional information even when doing 

so would be efficient. Indeed, 

information about audit engagements 

and firms that would allow (i) audit 

committees to more efficiently and 

effectively monitor and select auditors 

and (ii) investors to more efficiently and 

effectively ratify the appointment of the 

auditor and allocate capital, as sought 

by the market, is often limited or 

difficult to obtain. 

The final rules will help address these 

problems in two primary ways: 

• First, the final rules will require 

certain firms to publicly report specified 

metrics relating to certain audits and 

their audit practices. Through this 

disclosure, the final metrics will aid 

investor and audit committee decisionmaking. 

• Second, the final rules will impose 

standardized calculations and require 

regular public reporting of those 

metrics. The resulting comparability 

will further aid investor and audit 

committee decision-making. 

Importantly, the Board notes that the 

final metrics are not intended to be used 

in isolation to ascertain audit quality at 

an audit firm or for an audit engagement 

because audit quality is driven by a 

complex array of factors beyond those 

that can be addressed by metrics. The 

Board believes investors’ and audit 

committees’ ability to use the metrics is 

likely to increase over time as users are 

able to aggregate multiple data points, 

make comparisons, and observe trends. 

1. Problem To Be Addressed 

i. Allocative Inefficiency in the Market 

for Audit Services 

The auditor has a responsibility to 

obtain reasonable assurance about 

whether the issuer’s financial 

statements are free of material 

misstatement. Reliable financial 

statements help investors evaluate 

issuers’ performance and monitor 

management’s stewardship of investor 

capital. However, because audits 

possess many of the attributes of a 

credence good, investors find it 

challenging to evaluate the quality of 

the services provided by auditors.219 As 

a result, the lack of transparency into 

the audit process could enable auditors 

to act on their private incentives and 

under-audit (i.e., deploy insufficient 

auditor resources) or over-audit (i.e., 

undertake procedures that do not 

efficiently contribute to forming an 

opinion on the financial statements).220

In effect, there is a risk that auditors will 

not supply an efficient level of service 

to the market. While the Board 

acknowledges that audit quality is 

difficult to observe, the PCAOB is able 

to obtain insights into audit quality 

through inspection of firms’ compliance 

with auditing standards. The results of 

recent PCAOB inspections indicate that 

room for improvement exists.221

One commenter agreed with the 

characterization of the audit as a 

credence good. Several commenters 

agreed that investors and other 

stakeholders cannot easily observe 

services performed by auditors, which 

limits their ability to make informed 

decisions about investing capital, 

ratifying the selection of auditors, and 

voting for members of the board of 

directors, including directors who serve 

on the audit committee. Several 

commenters said that the audit has 

become commodified and that firms 

compete primarily on cost due to a lack 

of information on audit quality. One 

commenter said that this results in audit 

firms ‘‘squeezing’’ professional staff for 

productivity. 

The issuer’s board of directors is 

generally required to establish an audit 

committee that is statutorily entrusted 

to appoint, compensate, and oversee the 

work of the auditor.222 One commenter 

said that audit committees of 

accelerated and large accelerated filers 

are composed entirely of independent 

directors.223 However, similar to 

investors—though to a lesser degree— 

audit committees cannot easily observe 

the services performed by auditors. 

Moreover, audit committees may focus 

on the interests of current shareholders 

rather than the broader public interest 

(e.g., market confidence, potential future 

shareholders, or investors in other 

issuers). Furthermore, there are risks 

that the audit committee may not 

monitor the auditor effectively. For 

example, the auditor may seek to satisfy 

the interests of management rather than 

investors if management is able to 

exercise influence over the audit 

committee’s supervision of the 

auditor.224 One commenter said that 


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committees of other companies); Liesbeth 

Bruynseels and Eddy Cardinaels, The Audit 

Committee: Management Watchdog or Personal 

Friend of the CEO?, 89 The Accounting Review 113 

(2014) (finding that companies whose audit 

committees have ‘‘friendship’’ ties to the CEO 

purchase fewer audit services and engage more in 

earnings management); Cory A. Cassell, Linda A. 

Myers, Roy Schmardebeck, and Jian Zhou, The 

Monitoring Effectiveness of Co-Opted Audit 

Committees, 35 Contemporary Accounting Research 

1732 (2018) (finding that the likelihood of a 

financial statement misstatement is higher and that 

absolute discretionary accruals are larger when 

audit committee co-option, as measured by the 

proportion of audit committees who joined the 

board of directors after the current CEO’s 

appointment, is higher); and Nathan Berglund, 

Michelle Draeger, and Mikhail Sterin, 

Management’s Undue Influence over Audit 

Committee Members: Evidence from Auditor 

Reporting and Opinion Shopping, 41 AUDITING: A 

Journal of Practice & Theory 49 (2022) (finding that 

greater management influence over audit committee 

members is associated with a lower propensity of 

the auditor to issue a modified going concern 

opinion to a distressed company under audit and 

with increased opinion shopping behavior). 

225Shareholder ratification of the appointment of 

the auditor is not statutorily required in the U.S. 

and in many cases the ratification vote is nonbinding. One commenter agreed with this point. 

The commenter also suggested that it is rare for 

shareholders to not ratify the audit committee’s 

selection. However, according to Audit Analytics, 

accessed on Mar. 1, 2024, in 2023, ratification votes 

were held by 2,802 distinct companies included in 

the Russell 3000 index, which comports with other 

estimates that indicate between 80 and 95 percent 

of companies hold votes on ratification proposals as 

part of their proxy voting process. See also ACAP 

Final Report, at VIII.20 (finding that 95 percent of 

S&P 500 companies and 70–80 percent of smaller 

companies put ratification proposals to an annual 

shareholder vote) and Lauren M. Cunningham, 

Auditor Ratification: Can’t Get No (Dis)Satisfaction, 

31 Accounting Horizons 159, 161 (2017) (finding 

that more than 90 percent of a sample of Russell 

3000 companies voluntarily include a ratification 

vote on the ballot). The Board notes that broker 

discretionary voting is permitted on ratification 

proposals and ratification proposals may be used as 

a mechanism by some companies to achieve a 

quorum to conduct an annual meeting as a result 

of brokers exercising discretionary votes. Although 

the ratification vote is in many cases non-binding, 

it can still be impactful as it sends a signal of 

shareholder views. Academic studies show that 

non-binding votes in other settings can pressure 

boards to reconsider its policies and are considered 

by proxy advisors in setting their recommendation 

for board members. See, e.g., Yonca Ertimur, 

Fabrizio Ferri, and Stephen R. Stubben, Board of 

Directors’ Responsiveness to Shareholders: 

Evidence from Shareholder Proposals, 16 Journal of 

Corporate Finance 53 (2010) (finding a ‘‘positive 

relation between the percentage of votes cast in 

favor of the [non-binding] proposal and the 

likelihood of implementation.’’); and Aiyesha Dey, 

Austin Starkweather, and Joshua White, Proxy 

Advisory Firms and Corporate Shareholder 

Engagement, 37 Review of Financial Studies (3877 

(2024) (showing that when non-binding Say-On-Pay 

voting support falls below 70 percent, managers 

respond by increasing shareholder engagement). 

The ability to vote on ratification of the 

appointment of the auditor is recognized by 

investor groups as an important element of 

corporate governance. See, e.g., Council of 

Institutional Investors, Policies on Corporate 

Governance, (Sept. 11, 2023) at 2.13f available at 

https://www.cii.org/corp_gov_policies. 

226The IAG indicated in their comment letter 

regarding proposed QC 1000 that investors need 

information to make better decisions when voting 

to ratify the appointment of the auditor and the 

election to the board of directors of the Chair or 

members of the audit committee. 

audit committee members are 

incentivized to ingratiate themselves to 

management and that this does not 

serve investors who need to hold the 

audit committee accountable. Such 

circumstances can lead to a de facto 

principal-agent relationship between 

company management and the auditor. 

Also, as one panelist said during the 

September 2024 IAG, there is a wide 

range of financial expertise among audit 

committees and audit committee chairs. 

As a result, investors have an 

important, albeit indirect, role 

overseeing the work of both the auditor 

and the audit committee. Indeed, while 

the audit committee more directly 

oversees the auditor, most publicly 

traded companies allow investors to 

vote to ratify the appointment of the 

auditor. This mechanism allows 

investors to voice their preferences on 

auditor selection.225 At the September 

2024 IAG meeting, one investor said 

that shareholders have an important role 

holding both auditors and audit 

committees to account. By contrast, 

another IAG member said that investors 

should not oversee the audit because 

that is the role of the audit committee 

and one commenter said that the 

proposal would challenge the legal 

structure of corporate governance. 

However, a lack of transparency into the 

audit process may leave investors 

unable to make well-informed decisions 

when voting on selections made by the 

audit committee or on re-election of 

audit committee members to the board 

of directors.226 Figure 5 illustrates 

oversight relationships pertinent to the 

final rules. The dotted line indicates 

that investors’ oversight relationship 

with the auditor is less direct than the 

audit committee’s oversight 

relationship. 

Figure 5. Oversight Relationships 

Pertinent to the Final Rules 


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Federal Register / Vol. 89, No. 238 / Wednesday, December 11, 2024 / Notices 100029 

227See, e.g., Kip W. Viscusi, A Note on ‘‘Lemons’’ 

Markets with Quality Certification, 9 The Bell 

Journal of Economics 277 (1978). 

228See, e.g., id.; Oliver Board, Competition and 

Disclosure, 57 The Journal of Industrial Economics 

197 (2009) (finding that companies may be reluctant 

to voluntarily disclose in competitive markets); and 

Daniel A. Bens, Philip G. Berger, and Steven J. 

Monahan, Discretionary Disclosure in Financial 

Reporting: An Examination Comparing Internal 

Firm Data to Externally Reported Segment Data, 86 

The Accounting Review 417 (2011) (finding that 

companies provide fewer segment disclosures due 

to proprietary costs or competitive concerns). 

229See Akerlof, The Market for ‘‘Lemons.’’ 

230There are a variety of reasons why individuals 

may choose the status quo outcome in lieu of an 

unknown outcome, including aversion to the 

uncertainty inherent in moving from the status quo 

to another option. For additional discussion on 

status quo bias, see William Samuelson and Richard 

Zeckhauser, Status Quo Bias in Decision Making, 1 

Journal of Risk and Uncertainty 7 (1988). 

231See Mankiw, Principles of Economics 196 

(‘‘An externality arises when a person engages in an 

activity that influences the well-being of a 

bystander but neither pays nor receives any 

compensation for that effect . . . . If it is beneficial, 

it is called a positive externality.’’). 

232See, e.g., Anat R. Admati and Paul Pfleiderer, 

Forcing Firms to Talk: Financial Disclosure 

Regulation and Externalities, 13 The Review of 

Financial Studies 479 (2000) (discussing how 

individual firms ‘‘internalize less than fully the 

social value of the information they release’’) and 

George Loewenstein, Cass R. Sunstein, and Russell 

Golman, Disclosure: Psychology Changes 

Everything, 6 Annual Review of Economics 391, 397 

(2014). 

233See, e.g., Nickolay Gantchev, The Costs of 

Shareholder Activism: Evidence from a Sequential 

Decision Model, 107 Journal of Financial 

Economics 610 (2013). 

234See Regulation Fair Disclosure, 17 CFR 

243.100(b)(1)(iv). 

235See Mankiw, Principles of Economics 220 and 

222 (‘‘A free rider is a person who receives the 

benefit of a good but avoids paying for it . . . . A 

free-rider problem arises when the number of 

beneficiaries is large and exclusion of any one of 

them is impossible.’’). 236See ACAP Final Report, at VIII:14. 

ii. The Market for Information Related to 

Auditors and Their Engagements is 

Inefficient 

Supply-Side Problems 

Some basic economic theories suggest 

that high-quality firms should have an 

incentive to voluntarily disclose 

information to the extent it allows them 

to differentiate themselves from lowquality competitors.227 However, 

economic theory also suggests that there 

may be countervailing incentives that 

limit voluntary disclosure in practice. 

For example, firms may be deterred by 

the costs they would incur privately, 

such as how their competitors could 

leverage the disclosures to capture 

market share.228 There may also be no 

mechanism for firms to credibly 

disclose certain non-verifiable or 

difficult to verify information, which 

can lead to the failure of such 

information markets to exist entirely.229

There could also be a status-quo bias 

whereby a firm prefers to continue a 

non-disclosure policy despite investors’ 

calls for additional information.230

Limited competition for the largest 

issuers could also reduce the largest 

firms’ incentives to voluntarily disclose 

information. Finally, firms may tend to 

underprovide information due to: (i) the 

positive externalities 231 conferred by 

comparable and uniform public 

disclosures (i.e., firms may not directly 

benefit from some of the value provided 

to investors and audit committees); and 

(ii) the challenges of coordinating on a 

single comparable and uniform 

reporting framework.232

Auditors could in principle supply 

information to investors and audit 

committees individually depending on 

their unique preferences. However, the 

costs to the firm to do so would grow 

with the number of interested investors 

and audit committees and the extent of 

information they would request. By 

contrast, under the final rules, the costs 

to produce the final metrics will not 

grow with the number of interested 

users. 

Demand-Side Problems 

While investors may seek to acquire 

information from the issuer, they could 

incur significant private costs in doing 

so.233 At the September 2024 IAG 

meeting, one investor said that her asset 

management firm is generally denied 

meetings with audit committee chairs of 

U.S. issuers. Further, the company may 

need to publicly disclose information 

provided on a selective basis.234 Indeed, 

at the September 2024 IAG meeting, 

several audit committee chairs said 

audit committees are reluctant to meet 

with shareholders individually due to 

the risk of violating disclosure laws. 

Hence the potential benefits of the 

information to an individual investor 

would be dissipated because all other 

investors would have the same 

information and any informational 

advantage would be lost. This would 

further reduce individual investors’ 

incentives to obtain the information. A 

free-rider problem thus exists among 

investors in which the costs incurred by 

one or more investors to convince firms 

to disclose information would not be 

shared by all investors who benefit from 

the disclosure.235 As a result, economic 

theory suggests there should be an 

under-provision of such information 

relevant to investors. 

As discussed above, audit committees 

are already privy to certain information 

about their auditors beyond what is 

publicly available. In particular, audit 

committees could request the final 

metrics from their auditors or other 

tendering auditors. However, that 

information would not necessarily be 

comparable with other engagements or 

other firms. Requesting comparable 

information from multiple auditors 

could be burdensome or even 

impracticable. As a result, while the 

audit committee can use information 

from their auditor to better understand 

their current engagements, the audit 

committee likely has a limited view as 

to how other engagements—such as 

those of their peers—might be 

conducted. Furthermore, less effective 

audit committees may not be aware of 

the information and therefore would not 

request it in the first instance. If audit 

committees were aware of the 

information and made such a request, 

some audit firms may resist providing it 

to avoid the costs of gathering the 

information and potential negative 

reputational effects. Firms could also 

manipulate the information. As one 

commenter said, the audit committee’s 

principal tool is that of inquiry, not 

observation, and inquiry, in audit 

parlance, is the weakest form of audit 

evidence. 

Evidence 

Due in part to the problems discussed 

above, there is currently limited 

information available to investors 

specifically related to audit 

engagements. Indeed, investors know 

the least about the audit engagement, as 

they are less involved in the issuer’s 

operations compared to management, 

the board of directors, and the audit 

committee—and are even further 

removed from the audit process. Over 

the last decade and a half, there have 

been sustained requests from investors 

for increased transparency into the audit 

process. As discussed above, investorrelated groups have requested increased 

disclosures at the firm and engagement 

levels—notably in the form of easily 

accessible and quantifiable metrics, 

potentially with accompanying context 

provided by the auditor. Furthermore, 

the ACAP Final Report recommended 

that the PCAOB, in consultation with 

auditors, investors, public companies, 

audit committees, boards of directors, 

academics, and others, ‘‘determine the 

feasibility of developing key indicators 

of audit quality and effectiveness and 

requiring auditing firms to publicly 

disclose those indicators.’’ 236

There would likely be a significant 

cost to investors to conduct an 

exhaustive search of all existing 

publicly available information related to 

audit performance. For example, 

gathering the information could require 

an investor to process various types of 


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237Some research suggests that institutional 

investors are better-informed than retail investors. 

See, e.g., Cory A. Cassell, Tyler J. Kleppe, and 

Jonathan E. Shipman, Retail Shareholders and the 

Efficacy of Proxy Voting: Evidence from Auditor 

Ratification, Review of Accounting Studies 75 

(2022) and cites therein. 

238See, e.g., Amir Amel-Zadeh, Fiona Kasperk, 

and Martin C. Schmalz, Mavericks, Universal, and 

Common Owners—The Largest Shareholders of U.S. 

Public Firms, SSRN Electronic Journal, (2022). The 

Board notes that SSRN does not peer review its 

submissions. 

239See, e.g., Cunningham, Auditor Ratification 

163. 

240Audit firm transparency reports are voluntary 

and unregulated disclosures, as they are not 

required by PCAOB standards or applicable U.S. 

law. Consequently, audit firms can disclose metrics 

of their own choosing and construction. In practice, 

as discussed in above, audit firms that do publish 

transparency reports include the disclosure of 

metrics that are required in reports pursuant to 

disclosure rules in other jurisdictions, such as in 

the European Union (i.e., EU—No 537/2014 Article 

13), or similarly adopted domestic requirements in 

the U.K. under the FRC’s authority (i.e., the 

Companies Act of 2006, and Statutory Auditors and 

Third Country Auditors Regulations of 2016). 

241Some research suggests that lack of 

comparability can be a problem even when 

disclosures are required. See, e.g., Thomas 

Bourveau, Maliha Chowdhury, Anthony Le, and 

Ethan Rouen, Human Capital Disclosures, SSRN 

Electronic Journal (2023) (finding that, after the SEC 

adopted principles-based human capital disclosure 

requirements in 2020, the resulting human-capital 

disclosures lacked comparability). The Board notes 

that SSRN does not peer review its submissions. 

242See, e.g., FRC, Transparency Reporting: AQR 

Thematic Review, (Sept. 2019) (finding that 

surveyed investors and audit committee chairs are 

either unaware of or perceive limited use in audit 

firm transparency reporting in the U.K.) Rogier 

Deumes, Caren Schelleman, Heidi V. Bauwhede, 

and Ann Vanstraelen, Audit Firm Governance: Do 

Transparency Reports Reveal Audit Quality?, 31 

AUDITING: A Journal of Practice & Theory 193, 194 

(2012) (finding that EU audit firm transparency 

reporting is not associated with proxies for audit 

quality); and Shireenjit K. Johl, Mohammad Badrul 

Muttakin, Dessalegn Getie Mihret, Samuel Chung, 

and Nathan Gioffre, Audit Firm Transparency 

Disclosures and Audit Quality, 25 International 

Journal of Auditing 508 (2021) (finding that a 

requirement for audit firm transparency reporting in 

Australia led to an improvement in audit quality for 

the impacted entities). 

243See, e.g., Sakshi Girdhar and Kim Klarskov 

Jeppesen, Practice Variation in Big-4 Transparency 

Reports, 31 Accounting, Auditing & Accountability 

Journal 261 (2018) (finding that ‘‘the content of 

transparency reports is inconsistent and the 

transparency reporting practice is not uniform 

within the Big-4 networks’’). 

244See Proposing Release at 132–134. 245See Proposing Release at Section IV.B.1. 246See Proposing Release at n. 212. 247See Brant E. Christensen, Steven M. Glover, 

Thomas C. Omer, and Marjorie K. Shelley, 

Understanding Audit Quality: Insights from Audit 

Professionals and Investors, 33 Contemporary 

Accounting Research 1648 (2016). 

data from various sources. Only the 

largest institutional investors likely 

have the economies of scale to 

profitably gather this information.237

Further still, the presence of significant 

block holdings by diversified, passive 

investment-style funds, which often do 

not hold board seats, means that such 

information may not be provided by 

audit firms to a significant control group 

in cases where the fund managers do 

not hold a board seat.238 Even proxy 

advisors rely upon relatively limited 

publicly available information in 

making voting recommendations, which 

investors may then rely upon in their 

own decision-making.239 Due to the lack 

of information currently available, it 

may be several financial reporting 

cycles before audit committees and 

investors accumulate enough 

information (e.g., through restatements, 

CAMs, audit committee 

communications, other public events 

bearing on the auditor’s reputation) to 

be able to effectively judge the auditor’s 

performance and act accordingly. 

Compared to investors, audit 

committees are better able to 

accumulate information in less time due 

to their ability to more easily request 

and receive information from their 

auditor. 

As described in the baseline, a small 

group of auditors voluntarily disclose 

some firm-level information through 

firm transparency reports.240 However, 

many smaller firms do not voluntarily 

release transparency reports and for 

those that do provide such information, 

the metrics are not uniform or 

comparable across firms.241 One 

commenter provided several examples 

of how firms’ voluntary reporting is not 

comparable across firms. Furthermore, 

PCAOB staff found that firms generally 

do not voluntarily report engagementlevel metrics publicly. Some research on 

audit firm transparency reporting in 

foreign jurisdictions suggests that the 

information is not useful while other 

research finds that disclosure 

requirements improve audit quality for 

impacted firms.242 Some academic 

studies find that, because the 

information contained in transparency 

reports is relatively unregulated, the 

disclosures and contextual discussion 

lack uniformity and comparability 

across or within audit firms.243

Pointedly, audit firms could alter the 

methodology and construction of any 

metric they voluntarily choose to 

disclose. A lack of uniformity means 

that the voluntary disclosures have 

limited comparative value, inhibiting 

their usefulness in allowing investors to 

evaluate the efficacy of their auditors. 

Two commenters said that the 

proposal cited no studies demonstrating 

that there is a lack of information about 

auditors and their engagements or 

evidence that the market is seeking 

additional information. One commenter 

said that without sufficient dialogue 

with investors, audit committees, and 

firms, it is unclear whether there are 

information gaps in what is already 

provided and whether there is any 

opportunity to expand or enhance what 

is already done today to meet their 

expectations. The proposal discussed 

evidence related to the lack of 

information despite a market demand, 

including several studies related to the 

decision-relevance of current voluntary 

firm transparency reporting.244 The 

proposal also discussed the demand 

from various investor groups for 

additional information related to the 

quality of firms and their 

engagements.245 Investor-related groups’ 

support for the proposal provides 

additional evidence that there is an 

information gap and demand for 

information like the final metrics. 

Indeed, one commenter said that 

existing information, including firms’ 

transparency reports, is insufficient and 

largely unused by the investment 

community because it is seen as 

marketing material rather than 

substantive, actionable data. According 

to the commenter, the lack of 

information leads audit committee 

members to prefer Big 4 auditors to 

protect or validate their decisionmaking in an environment where the 

audit and auditor are credence goods. 

The Board notes that transparency 

reports may also be unused because the 

information lacks standardization. 

One commenter said that the proposal 

appeared to acknowledge that there is a 

lack of market demand for the proposed 

metrics. To the contrary, as discussed in 

the proposal and again above, given the 

considerations of benefits discussed 

below, the Board believes the lack of 

incentive for firms to provide such 

information is likely the cause of the 

apparent undersupply of information 

rather than a lack of market demand.246

That is, the Board believes the limited 

availability of information is more likely 

due to the supply and demand-side 

problems discussed above rather than a 

lack of market demand. By contrast, two 

commenters agreed that certain aspects 

of the market create limited incentives 

to provide sufficient information to 

users of the financial statements 

regarding audit quality. One commenter 

said that some research suggests that 

investors want more information on the 

inputs to audit production.247

2. How the Final Rules Address the 

Need 

i. Mandatory Disclosure of Metrics 

The final rules address the need by 

requiring mandatory public disclosure 

of metrics relating to auditors and audit 


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248See, e.g., Christensen, et al. Understanding 

Audit Quality (finding that surveyed investors 

believe information similar to several of the final 

metrics [i.e., the sufficiency of engagement team 

staffing, having well-trained auditors on the 

engagement team, having auditors on the 

engagement team with appropriate expertise, and 

the lack of financial statement restatements] 

impacts audit quality). 

249See, e.g., AICPA, Hiring a Quality Auditor 9, 

(2018) (discussing how audit committees should 

obtain all necessary information from the auditor). 

250See, e.g., CAQ, 2023 Audit Committee 

Transparency Barometer, 15–18 (2023) (presenting 

examples of audit committee disclosures that 

summarize the information the audit committee 

considered when appointing the auditor). 

251See, e.g., Paul Tanyi, Dasaratha Rama, and 

Kannan Raghunandan, Shareholder Ratification of 

Auditors after PCAOB Censures, SSRN Electronic 

Journal (2021) (finding that first-time PCAOB 

censures of the largest accounting firms are 

associated with a higher percentage of shareholders 

not voting to ratify the appointment of the firm after 

the censure); Suchismita Mishra, K. Raghunandan, 

and Dasaratha V. Rama, Do Investors’ Perceptions 

Vary with Types of Nonaudit Fees? Evidence from 

Auditor Ratification Voting, 24 Auditing: A Journal 

of Practice and Theory 9 (2005) (finding that the 

SEC’s requirement for companies to disclose 

partitioned information about tax and other nonaudit fees paid to a company’s independent audit 

firm had a positive association with the proportion 

of votes against ratifying the appointment of the 

firm in 2003); Paul N. Tanyi, Dasaratha V. Rama, 

and K. Raghunandan, Auditor Tenure Disclosure 

and Shareholder Ratification Voting, 35 Accounting 

Horizons 167 (2021) (finding that in the case of 

companies with long [short] auditor tenure, the 

proportion of shareholder votes against ratifying the 

appointment of the auditor increased [decreased] 

after PCAOB mandated public disclosure of auditor 

tenure). The Board notes that research also 

indicates that retail investors may not necessarily 

use information regarding an audit firm in their 

decisions to vote on a proposal to ratify the 

appointment of the firm. See, e.g., Cassell, et al., 

Retail Shareholders (finding that, on average, 

shareholder votes against ratifying the appointment 

of the firm are not associated with audit failures but 

are associated with investment performance). 

However, the same study also suggests that nonretail investors are relatively better informed. One 

commenter said it would be useful to know whether 

the PCAOB had found any evidence of shareholders 

responding to the persistently high rates of Part I.A 

deficiencies. One study finds some evidence that 

shareholders vote against auditor ratification when 

their auditors receive unfavorable PCAOB 

inspection reports. However, the study finds the 

relationship only for the subset of companies where 

corporate governance is weak. See Myungsoo Son, 

Hakjoon Song, and Youngkyun Park, PCAOB 

Inspection Reports and Shareholder Ratification of 

the Auditor, 17 Accounting and the Public Interest 

107 (2017). The Board notes that SSRN does not 

peer review its submissions. 

252See Robert W. Knechel, Gopal V. Krishnan, 

Mikhail Pevzner, Lori B. Shefchik, and Uma K. 

Velury, Audit Quality: Insights From the Academic 

Literature, 32 Auditing: A Journal of Practice & 

Theory 385, 387–388 (2013); DeFond and Zhang, A 

Review of Archival Auditing Research; Peter Carey 

and Roger Simnett, Audit Partner Tenure and Audit 

Quality, 81 The Accounting Review 653 (2006); 

Allison K. Beck, Robert M. Fuller, Leah Muriel, and 

Colin D. Reid, Audit Fees and Investor Perceptions 

of Audit Characteristics, 25 Behavioral Research in 

Accounting 71 (2013); W. Brooke Elliott, Jessen L. 

Hobson, and Brian J. White, Earnings Metrics, 

Information Processing, and Price Efficiency in 

Laboratory Markets, 53 Journal of Accounting 

Research 555 (2015); Christensen, et al., 

Understanding Audit Quality; Eric T. Rapley, Jesse 

C. Robertson, and Jason L. Smith, The Effects of 

Disclosing Critical Audit Matters and Auditor 

Tenure on Nonprofessional Investors’ Judgments, 

40 Journal of Accounting and Public Policy 106847 

(2021); and Sarah Judge, Brian M. Goodson, and 

Chad M. Stefaniak, Audit Firm Tenure Disclosure 

and Nonprofessional Investors’ Perceptions of 

Auditor Independence: The Mitigating Effect of 

Partner Rotation Disclosure, 41 Contemporary 

Accounting Research 1284 (2024). 

253See Jenna J. Burke, Rani Hoitash, and Udi 

Hoitash, Audit Partner Identification and 

Characteristics: Evidence from US Form AP Filings, 

38 Auditing: A Journal of Practice & Theory 71 

(2019); Lauren M. Cunningham, Chan Li, Sarah E. 

Stein, and Nicole S. Wright, What’s in a Name? 

Initial Evidence of US Audit Partner Identification 

Using Difference-in-Differences Analyses, 94 The 

Accounting Review 139 (2019); Marcus M. Doxey, 

James G. Lawson, Thomas J. Lopez, and Quinn T. 

Swanquist, Do Investors Care Who Did the Audit? 

Evidence from Form AP, 59 Journal of Accounting 

Research 1741 (2021); Jeffrey Pittman, Sarah E. 

Stein, and Delia F. Valentine, The Importance of 

Audit Partners’ Risk Tolerance to Audit Quality, 40 

Contemporary Accounting Research 2512 (2023). 

254See discussion above. 

255Two investor groups generally agreed with 

this benefit. 

256For additional discussion of the role of 

mandatory disclosure as a regulatory tool, see, e.g., 

Admati and Pfleiderer, Forcing Firms to Talk; and 

John C. Coffee, Jr., Market Failure and the Economic 

Case for a Mandatory Disclosure System, 70 

Virginia Law Review 717 (1984). 

257See below for additional discussion on the 

benefits to the PCAOB’s inspection program. 

engagements. Under the final rules, 

auditors will have the opportunity to 

discuss the context of their metrics. The 

final rules could thus reduce opacity in 

the audit market and reduce frictions in 

the information market, thereby 

enhancing (i) audit committees’ ability 

to efficiently and effectively monitor 

and select auditors as well as (ii) 

investors’ ability to efficiently and 

effectively make decisions about 

ratifying the appointment of their 

auditors and allocating capital. The final 

metrics will quantify various aspects of 

firms’ audit practice as a whole and 

engagements performed. As described 

above, the collective history of these 

final metrics will be publicly available. 

Moreover, as noted above, the final 

metrics will be subject to requirements 

designed to ensure their accuracy, 

including certification by the firm and 

specific quality control requirements. 

Investors and audit committees could 

use the final metrics to better 

understand how their auditor has 

conducted their engagement and how 

that compares to how other 

engagements were conducted.248 This 

should improve their decision-making. 

Some commenters agreed that the 

information about auditors and their 

engagements required by the metrics 

would provide value to the decisionmaking process for stakeholders. For 

example, the final metrics should help 

audit committees engage in active 

discussions with their current auditors 

regarding the audit process and 

interview candidate auditors when or if 

a replacement auditor is desired.249

Audit committee disclosures indicate 

that some audit committees consider a 

variety of public and nonpublic 

information when engaging their 

auditor.250 The Board believes the 

information could also inform investors’ 

auditor appointment ratification 

decisions. Research finds that investors 

are more likely to challenge auditor 

appointments when they have access to 

information that calls into question the 

quality or independence of the firm, 

which suggests that, in some cases, 

investors will use standardized 

information across firms and over time 

to make better decisions.251 Referring to 

academic research, one commenter said 

that investors do react to audit 

outcomes, audit behavior, and 

regulatory-induced disclosures in the 

audit report. However, the commenter 

also noted that: (i) the results are 

nuanced and context-specific; and (ii) 

mixed for non-professional investors.252

Furthermore, investor-related groups 

have indicated that they use the 

information contained in Form AP. This 

suggests that they are familiar with 

Form AP and may be interested in 

reviewing additional information 

provided there. However, citing 

academic research, one commenter 

noted that the influence of Form AP on 

investor decision-making is mixed.253

By making the final metrics public 

and therefore available to all potential 

beneficiaries, the final rules should help 

ameliorate the positive externality 

problem associated with public 

disclosure.254 Moreover, because these 

final metrics will be public, the 

increased reputational risk they bring 

for auditors may, in turn, create 

incremental incentives for auditors that 

will be subject to the final requirements 

to maintain their reputation, or face a 

loss of business, thereby increasing 

accountability.255 Public disclosure also 

addresses investors’ free-rider problem 

by eliminating the need for a private 

actor to force firms to disclose.256 One 

commenter said there are several 

mechanisms already in place to hold 

auditors accountable and questioned 

whether accountability could be further 

improved. The Board acknowledges that 

such mechanisms are in place (e.g., 

PCAOB inspections). However, the 

Board believes the final rules will 

complement existing accountability 

mechanisms. For example, the final 

rules may enhance the PCAOB 

inspections approach.257 Another 


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258One commenter referred to a discussant on the 

panel who made the following statement: ‘‘My 

experience has been that investors don’t read the 

firm-level [PCAOB inspection] report. A lot of them 

don’t know they necessarily exist, right.’’ Another 

commenter did not refer to a specific discussant 

and referred to the Nov. 2, 2023 meeting of the 

PCAOB SEIAG. However, the Board believes the 

commenter intended to refer to the Nov. 2, 2022 

PCAOB SEIAG meeting because firm and 

engagement metrics were not a topic of discussion 

during the Nov. 2, 2023 meeting. 

259See CAQ 2023 Survey. The survey was 

comprised in interviews with 38 institutional 

investors working at companies with a minimum of 

$500M in assets under management. The 

participants were portfolio managers or investment 

analysts at buy side firms or research directors or 

similar roles at sell side firms. The survey did not 

describe how the participants were found or the 

questions that were asked. 

260See Glass Lewis, 2024 Benchmark Policy 

Guidelines—United States, (2024). 

261See Proposing Release at Section IV.B.2. 

262See below for a discussion of alternative 

metrics considered related to the use of technical 

resources. 

263See Brown and Popova, How do Investors 

Respond. 

264See, e.g., Ali Kakhbod, Uliana Loginova, 

Andrey Malenko, and Nadya Malenko, Advising the 

Management: A Theory of Shareholder 

commenter suggested that the Board 

consider firm incentives related to legal 

liability, damage to reputation through 

restatement and deficiencies, and 

PCAOB sanctions. The Board 

acknowledges that these forces create 

some incentive for firms to keep audit 

quality above a certain threshold. 

However, restatements are relatively 

rare events and PCAOB sanctions are 

sporadic. Furthermore, PCAOB 

inspections are constrained by existing 

PCAOB rules and standards. One 

commenter said that while enforcement 

actions and inspection reports provide 

valuable data, their extended delays 

often diminish their relevance for key 

stakeholders. 

Several commenters said that 

investors are not making use of existing 

information that is similar to the 

proposed metrics, suggesting that they 

would not make use of the proposed 

metrics either. As support, two 

commenters referred to comments made 

during the November 2, 2022 meeting of 

the PCAOB SEIAG.258 Citing a survey of 

institutional investors, another 

commenter said that most institutional 

investors are either unfamiliar with or 

unaware of firms’ current audit quality 

reports.259 Another commenter 

questioned whether investors who are 

not fully utilizing the information 

contained in inspection reports would 

also not use the proposed metrics. 

Citing a market research report, one 

commenter noted that shareholders play 

a limited role in practice when ratifying 

the appointment of the auditor.260 At 

the September 2024 IAG meeting, one 

investor said that the average investor is 

not engaging with the audit process or 

audit committees. 

The Board appreciates these 

statements and research findings and 

notes that they are consistent with some 

of the research cited in the proposal and 

above.261 However, the Board notes that 

the CAQ 2023 Survey also finds that 

almost all surveyed institutional 

investors assess audit quality by 

considering the firm’s reputation, years 

of experience, people, and technological 

resources. Apart from technological 

resources, the final metrics will provide 

investors with related information.262

The surveyed institutional investors 

also expressed an interest in learning 

more about auditor communications to 

audit committees through disclosures. 

The Board believes audit committee 

members likely do occasionally request 

information like the final metrics from 

their auditor. Indeed, one audit 

committee chair said at the September 

2024 IAG meeting that he requested 

information on industry specialization 

from his auditor. A majority of the 

surveyed institutional investors 

indicated that metrics related to the lead 

engagement partner’s background, 

engagement team tenure, and specialist 

experience or related information would 

be useful. The survey also states that 

engagement-level metrics were of 

greater interest to the surveyed 

institutional investors than firm-level 

metrics because they are specific to a 

company, objective, and measurable. 

The final metrics will provide investors 

with engagement-level metrics. 

Collectively, the Board believes this 

information supports the Board’s view 

that investors, particularly institutional 

investors, will find the final metrics 

useful and indeed an improvement in 

the quality of information over the 

limited information currently available. 

One commenter suggested that the 

PCAOB consider how much information 

investors will have about auditors 

compared to the amount of information 

they will have about issuers. The Board 

does not believe that such a comparison 

is relevant to the economic analysis and 

the commenter did not explain how it 

would be relevant. The Board 

acknowledges that, in some cases, the 

final metrics could provide investors 

information about certain aspects of 

audit firms and their engagements that 

they might not have about issuers. 

However, the Board notes that, on 

balance, there is considerably more 

public disclosure available regarding 

issuers than audit firms. 

Many commenters representing firm 

or industry groups were skeptical that 

investors could effectively use the 

information. One commenter said that 

publication of metrics alone does not 

guarantee that investors will use or be 

aware of them. Two commenters said 

that the metrics’ relationship to audit 

quality may not be clear. Several 

commenters noted that, unlike audit 

committees, investors would not be able 

to have a two-way conversation directly 

with auditors to appreciate the full 

context of the firm and its audit. One 

commenter questioned whether 

investors or audit committees would 

find the information useful. One 

commenter noted some of the proposed 

firm-level metrics (e.g., Partner and 

Manager Involvement, Workload) would 

be useful to audit committees but 

expressed doubt that others (e.g., Use of 

Auditor’s Specialists, Allocation of 

Audit Hours, Experience of Audit 

Personnel) would be useful. However, 

the commenter believed some of the 

proposed metrics (e.g., Experience of 

Audit Personnel, Industry Experience) 

could be useful at the engagement level. 

Several commenters suggested that 

some or all of the proposed metrics 

would be useless without context. 

Citing academic research that was also 

cited in the proposal, one commenter 

said that retail investors would rely on 

the proposed metrics only if they were 

clearly trending over time.263 One 

commenter expressed concern that 

investors and audit committees could 

have trouble utilizing the proposed 

metrics because there is a lack of 

benchmarks, and it will be unclear to 

them how the proposed metrics relate to 

audit quality. Two commenters said that 

tracking metrics would become a 

compliance exercise and therefore 

would not transmit useful information 

for stakeholders. One commenter said 

that there are qualitative benefits of 

being a part of a GNF that cannot be 

properly captured or measured through 

the proposed metrics. 

While most investors will not have 

the same context as audit committees, 

the Board believes that many investors, 

particularly institutional investors, do 

have sufficient context to make effective 

use of the final metrics. Indeed, 

investors have access to much of the 

contextual information that some 

commenters felt was critical, such as the 

firm’s size, the issuer’s size, network 

membership, or the issuer’s industry. 

Many companies have robust 

shareholder engagement programs, 

where managers and/or board members 

communicate directly with 

shareholders.264 These programs could 


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Engagement, 36 Review of Financial Studies 1319 

4 (2023) and cites therein (discussing how 

communication between management and 

shareholders has become increasingly prevalent). 

265Proxy voting guidelines do not currently 

appear to reference audit quality, but do refer to 

poor accounting practices. See, e.g., ISS, United 

States Proxy Voting Guidelines Benchmark Policy 

Recommendations, (Jan. 2024), 16 (listing ‘‘poor 

accounting practices’’ as a factor influencing its 

voting recommendations on members of the audit 

committee.) 

266Research shows that proxy advisor 

recommendations influence shareholder voting 

outcomes. See, e.g., Nadya Malenko, and Yao Shen, 

The Role of Proxy Advisory Firms: Evidence from 

a Regression-Discontinuity Design, 29 Review of 

Financial Studies 3394 (2016) (finding ‘‘that the 

recommendations of proxy advisory firms are a 

major factor affecting shareholder votes.’’). 

267See above for a discussion on the optional 

narrative disclosure, including commenters’ views 

and how the final rules address commenters’ views. 

268See Center for Audit Quality, Approaches to 

Audit Quality Indicators, (Apr. 2014) (‘‘2014 CAQ 

Report’’); Center for Audit Quality, Audit Quality 

Indicators: The Journey and Path Ahead, (Jan. 2016) 

(‘‘2016 CAQ Report’’); and Center for Audit Quality, 

Audit Quality Disclosure Framework (Update), 

(June 2023) (‘‘2023 CAQ Report’’). By ‘‘AQI,’’ the 

2014 CAQ Report and 2016 CAQ Report are 

referring to measures that may provide further 

insight into audit quality, as outlined in a PCAOB 

briefing paper presented to the PCAOB’s Standing 

Advisory Group Meeting on May 15–16, 2013. See 

PCAOB, Discussion—Audit Quality Indicators (May 

15–16, 2013), available at https://pcaobus.org/news/ 

events/documents/05152013_sagmeeting/audit_

quality_indicators.pdf. Most of the final metrics are 

very similar to an AQI discussed therein. 

269See below for additional discussion on the 

Board’s decision to standardize the calculation of 

the metrics. 

270See below for additional discussions on the 

Board’s decision to standardize the calculation of 

the metrics and on the potential for auditors to 

manipulate their metrics. 

raise investors’ awareness of the 

metrics, provide an opportunity for twoway conversation, and encourage them 

to vote on corporate governance matters 

or raise concerns outside of the voting 

process. Furthermore, even if investors 

decline to participate in outreach efforts 

or no shareholder engagement program 

exists, proxy advisory firms can use the 

information to inform their voting 

recommendations on both auditor 

ratification and audit committee 

members.265 Thus, the final metrics can 

still inform shareholder voting.266 Two 

investor groups agreed with the Board’s 

view that investors would use the 

proposed metrics to make better 

decisions about ratifying the 

appointment of their audit firm and 

allocating capital. Several other 

commenters said that the metrics would 

be beneficial to investors and other 

users of the audit report. 

The Board also notes that auditors 

will be able to provide investors with 

context through optional narrative 

disclosure. Commenters had mixed 

views on the usefulness of the proposed 

narrative disclosure. Some commenters 

believed the narrative disclosure would 

allow firms to provide context necessary 

for appropriate understanding and 

would allow firms to communicate 

critical context that may be beneficial. 

However, several commenters believed 

it would not be sufficient. The Board 

recognizes that the optional narrative 

disclosures may not capture all relevant 

context. In such cases, firms could 

provide additional voluntary disclosure 

(e.g., through their transparency or 

quality reports).267

One commenter suggested the Board 

had ignored significant work conducted 

by the CAQ over the past decade 

regarding AQIs. The commenter referred 

specifically to three reports published 

by the CAQ (the ‘‘2014 CAQ Report,’’ 

‘‘2016 CAQ Report,’’ and ‘‘2023 CAQ 

Report’’).268 The Board has reviewed 

each report. The 2014 CAQ Report and 

2016 CAQ Report summarize the results 

of stakeholder outreach and therefore 

inform the Board’s understanding of the 

need for standard setting and how the 

final metrics address the need. The 2023 

CAQ Report opines on transparency 

reporting best practices. 

Based on outreach to various 

stakeholders, the 2014 CAQ Report 

expresses optimism that AQIs can be 

useful to audit committees and help 

promote audit quality. For example, the 

report concludes that communication of 

engagement-level AQIs can help the 

audit committee evaluate the actions 

taken or untaken by their auditor and 

help maintain or increase audit quality. 

This is consistent with the benefits 

related to audit committee monitoring of 

their auditor discussed below. It also 

emphasizes the importance of context, 

which the Board acknowledged in the 

proposal and discuss below in this 

subsection. The report suggests a 

flexible approach to the communication 

of metrics. The Board acknowledges this 

suggestion is in tension with the 

adopted approach that specifies 

calculations for each metric.269

However, for the reasons discussed in 

this subsection and highlighted below, 

the Board believes that the current 

voluntary or flexible approach would 

not sufficiently address the need for 

comparable information. 

In the 2016 CAQ Report, the CAQ 

expressed a belief that reliable, 

quantitative metrics related to the audit 

can: (i) inform audit committees about 

matters that may contribute to the 

quality of an audit and (ii) help audit 

committees make decisions related to 

auditor appointment or reappointment 

as well as the selection of lead 

engagement partners. Based on the 

result of a pilot study with audit 

committees, and in addition to the 

findings summarized by the commenter, 

the report found that participants: (i) 

generally supported discussion of AQIs 

with the engagement team; (ii) felt that 

key aspects of audit quality cannot be 

quantified such as professional 

skepticism; (iii) acknowledge growing 

interest from investors regarding how 

audit committees are fulfilling their 

responsibilities; and (iv) recognized that 

AQIs can help audit committees oversee 

the quality of the external audit. 

The Board’s economic analysis is 

largely consistent with these views, in 

particular the Board’s discussion of 

improved monitoring of both the auditor 

and the audit committees below. 

However, participants in the CAQ’s 

pilot study also: (i) expressed a 

preference for a flexible approach to 

AQI communication; (ii) noted that they 

already have access to the information 

they need; and (iii) cautioned that 

public disclosure of engagement-level 

metrics could lead to unintended 

consequences such as benchmarking 

behavior or excessive focus on 

measurable metrics. The Board 

acknowledges that there may be some 

benefits to a more flexible approach to 

audit committee communications. 

However, the Board believes a 

completely flexible approach could 

result in audit committees having 

insufficient information or information 

with limited utility, limit PCAOB 

oversight, limit comparability of 

metrics, and exacerbate other 

unintended effects (e.g., manipulation of 

the metrics).270 The proposal 

acknowledged that audit committees 

can already seek to obtain information 

like the final metrics from their 

incumbent auditors and the Board 

acknowledges this again below. Several 

commenters agreed that audit 

committees already have access to 

information about auditors and their 

engagements. Finally, the Board notes 

that the proposal also discussed the 

potential unintended consequences 

raised by participants in the pilot study, 

and the Board discussed them again 

below. 

Two factors limit the relevance of the 

2014 CAQ Report and 2016 CAQ Report. 

First, the reports contemplate voluntary 

communications by auditors to audit 

committees rather than mandatory 

public disclosure. Second, the auditing 

environment has evolved significantly 

since then. For example, investors and 

audit committees now have access to 

Form AP information and CAMs. 

One commenter suggested that audit 

committees have access to relevant 


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271The Board’s decision not to include a metric 

related to the use of technical resources is 

explained in Section IV.D.3.iv.d of the proposal and 

below. 

272See Letter from Center for Audit Quality (Aug. 

1, 2024) available at https://pcaobus.org/about/ 

rules-rulemaking/rulemaking-dockets/docket-041. 

273See Amendments Related to Aspects of 

Designing and Performing Audit Procedures that 

Involve Technology-Assisted Analysis of 

Information in Electronic Form, PCAOB Rel. No. 

2024–007 (June 12, 2024); Proposed Auditing 

Standard—Designing and Performing Substantive 

Analytical Procedures and Amendments to Other 

PCAOB Standards, PCAOB Rel. No. 2024–006 (June 

12, 2024). The SEC approved the PCAOB’s 

amendments to auditing standards related to 

auditors’ use of technology-assisted analysis on 

Aug. 20, 2024. 

comparable data by reference to 

information firms are already currently 

required to disclose pursuant to PCAOB 

rules (e.g., Form 2). The proposal 

acknowledged the availability of this 

information and the Board 

acknowledges it again above. However, 

as described above and discussed 

further below, the final metrics will 

make new relevant information 

available in a way that is much more 

accessible and comparable than existing 

information sources. The commenter 

also said that audit committees can seek 

relevant data from potential new audit 

firms. The proposal acknowledged this 

and the Board discussed this topic again 

below. Importantly, the Board notes that 

audit committees may have trouble 

obtaining comparable information from 

potential new auditors. One commenter 

suggested that audit committees would 

likely prefer to obtain information 

through conversation with their auditor 

directly rather than refer to a database 

of metrics. Under the final rules, audit 

committees will be free to request the 

final metrics or any other related 

information from their auditor directly. 

One commenter performed a survey of 

audit committee chairs of large U.S. 

public companies. The commenter did 

not indicate the number of participants, 

how participants were selected, 

demographic information, or the 

questions they were asked. The 

participants said that they already 

receive or have access to most of the 

information in the proposal as part of 

the audit process and any other 

information would likely not be 

valuable to them. The Board discussed 

this limitation along with important 

caveats in the proposal and discusses it 

again below. The Board also notes that, 

at the same time, participants also 

expressed desire for additional 

information on artificial intelligence.271

Participants also opined on the extent to 

which investors would use the 

information. First, some participants 

said information like the proposed 

metrics is rarely requested by or 

discussed with investors. The Board 

discussed in the proposal and above the 

challenges investors face obtaining 

information through this channel. The 

Board also discussed above how 

investors may be less vocal because they 

do not believe it is possible to obtain 

useful information in the current 

environment. The Board also notes that 

commenters representing a broad array 

of investors, investment managers, 

investor advocates, and other financial 

reporting experts said that the metrics 

would be useful. Second, some 

participants noted that the information 

would only be available to investors 

annually and therefore would be stale. 

The Board acknowledges that investors 

will have access to the metrics on an 

annual basis. The Board believes that 

requiring firms to disclose the metrics 

on a more continuous basis would 

require a significantly greater 

investment in time and resources by the 

firms. The Board also notes that a broad 

range of commenters generally agreed 

that audit committees will find most or 

all of the information useful, especially 

engagement-level metrics. 

One commenter representing a firmrelated group performed a survey of 

audit committee members by way of its 

member firms. The same commenter 

also commissioned a third party to 

perform an investor survey.272 Each 

survey provides information related to 

the need for and potential benefit of the 

proposed metrics. The Board discussed 

each survey below. 

The audit committee members survey 

involved 242 participants. The 

participating audit committee members 

sit on audit committees of a range of 

companies by size and industry sector. 

The commenter did not completely 

describe the basis on which audit 

committees were invited to participate 

in the survey. The commenter did 

provide the survey questions. Fifty-nine 

percent of participants said the 

information available to them to fulfill 

their external auditor oversight 

responsibilities meets all of their needs. 

Thirty-six percent said the information 

meets most of their needs and the 

remaining 5% said the information 

meets less than most of their needs. 

These results suggest that most audit 

committees believe the current 

information environment is sufficient. 

However, the results do not imply that 

additional information cannot be useful 

to audit committee members. Indeed, 

27% of the surveyed audit committee 

members seek more information about 

how their audit engagement is being 

performed, about the audit firm, or 

about other audit firms. Furthermore, 

some participants may have been 

reluctant to say that the information 

available to them to fulfill their 

responsibilities does not meet most or 

all of their needs because it would 

imply they are not fulfilling their 

responsibilities. Other results of the 

survey are largely consistent with 

information presented in the proposal 

and above. For example, 78% of 

participants agreed that there could be 

unintended consequences and 73% said 

there would be challenges interpreting 

the proposed metrics. Eighty-two 

percent of participants said they had 

concerns about data specific to their 

audit being available publicly; however, 

the specific concerns were not raised 

and, by contrast, only 40% were 

concerned that the proposed mandatory 

reporting could increase director 

liability. Fifty-nine percent of 

participants agreed that some standard 

information about auditors should be 

considered. Eighty percent of 

participants said they rarely or never 

use PCAOB Form AP and 78% said they 

rarely or never use PCAOB registrations 

data; rather, the quality of conversation 

with the auditor is the top way audit 

committees evaluate the quality and 

reliability of the audit. Finally, 90% of 

participants said that PCAOB standards 

and rules are well-suited or have mostly 

kept up with change. Use of technology 

in the audit was more commonly ranked 

than firm and engagement metrics as an 

area where the audit committee would 

like to see the PCAOB modernize its 

auditing standards. The Board notes that 

the PCAOB recently adopted 

amendments to auditing standards 

related to auditors’ use of technologyassisted analysis and recently proposed 

a standard related to auditors’ use of 

substantive analytical procedures.273

The Board also notes that, while 

informative to the PCAOB generally, 

such comparisons are less relevant to 

the economic analysis of the final rules. 

The investor survey involved 100 

participants. Participants were screened 

to ensure they are professional 

institutional investors employed at 

companies that manage at least $500 

million in assets and have at least five 

years of experience and serve at the 

director level or higher. Besides these 

requirements, the participating investors 

cover a variety of job levels, experience 

levels, and ages, cover both genders, and 

primarily (80%) focus on both large 

accelerated filers and accelerated filers. 

The commenter did not completely 

describe the basis on which investors 

were invited to participate in the 


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274See above for a discussion on the limitations 

of voluntary auditor reporting. 

275See CFA Institute, CFA Institute Member 

Survey Report: Audit Value, Quality, and Priorities, 

(July 2017) (‘‘2017 CFA Institute Survey’’), available 

at https://rpc.cfainstitute.org/en/research/surveys/ 

audit-value-quality-priorities-survey-report. 

276 Id. at Table 1. The Board notes that the 2017 

CFA Institute Survey did not define ‘‘AQI.’’ 

277For a review of various definitions and 

discussions of the latent attributes of audit quality, 

see, Knechel, et al., Audit Quality. 

survey. The commenter did provide the 

survey questions. Eighty-six percent of 

the participants work for banks or credit 

unions, 13% for other types of funds, 

and 1% for family offices. 

Fifty-three percent of participating 

investors indicate they trust the audit of 

public company financial statements 

completely and 40% trust them a great 

deal. Furthermore, 57% of participating 

investors feel the information available 

to assess the quality of the audit meets 

all their needs and 35% feel it meets 

most of their needs. However, the Board 

believes the respondents may be 

focusing on whether information 

currently available permits them to 

fulfill their fiduciary responsibilities 

narrowly defined, similar to the audit 

committee members. First, just 17% of 

participating investors said they do not 

want to see any additional information 

about the audit to evaluate its quality. 

All others wanted additional 

information about the auditing process, 

team specifics, qualifications, and more 

generally, other information. The final 

metrics will provide such information. 

Second, almost all of the proposed 

metrics were indicated as being 

extremely helpful by between 30% and 

50% of participated investors. The 

commenter did not indicate whether the 

survey allowed less favorable responses 

and, if so, what the participants’ 

responses were. 

The commenter noted that there were 

variances between these percentages 

and the portion of participating 

investors who said they would likely 

seek out the information on the PCAOB 

website. The commenter interpreted 

these variances as being consistent with 

their view that understanding how 

investors would use the information is 

necessary. The Board agrees that 

understanding how investors would use 

the information is important. Indeed, 

the Board discussed through the 

economic analysis how the Board 

believes investors will use the 

information. However, the Board 

believes these variances are difficult to 

interpret because it is unclear what the 

practical difference is between finding a 

metric helpful and being likely to 

proactively seek it out. Therefore, the 

variances may be driven by confusion 

among respondents. 

Notably, despite broad agreement that 

engagement-level metrics would be 

helpful and 83% wanting some 

additional information about audit 

quality in the companies they invest in, 

83% of surveyed investors somewhat or 

strongly agreed with the statement that 

mandated public disclosure of 

engagement-level performance metrics 

could lead to unintended consequences 

and as such should be voluntary. The 

survey did not indicate what 

unintended consequences the surveyed 

investors thought might occur or 

whether they were aware that the final 

rules would permit firms to provide an 

optional narrative disclosure along with 

each metric.274

Other results of the investor survey 

are largely consistent with information 

presented in the proposal and above. 

For example, investors use a variety of 

publicly available information to assess 

audit quality (e.g., audit quality reports, 

inspection reports, reputation and the 

auditor’s opinion and ICFR evaluation, 

PCAOB website). Investors also agree 

that context would be important for 

understanding the proposed metrics. 

The Board notes that the views of 

participating investors were different 

from the views of audit committee 

members in two important ways. First, 

investors are more optimistic that the 

proposed metrics would be useful to 

audit committees. Indeed, 30% of 

participating investors strongly agree 

that audit committees lack access to the 

information they need to make informed 

decisions about selecting an auditor 

(39% somewhat agree) and 34% 

strongly agree that mandatory and 

standardized firm and engagement 

metrics are necessary for company 

management and audit committees to 

uphold fiduciary responsibilities to 

shareholders (47% somewhat agree). 

Second, investors more strongly believe 

that PCAOB standards and rules are in 

need of updating. Where 90% of 

surveyed audit committee members said 

that PCAOB standards and rules are 

well-suited or have mostly kept pace 

with change, just 26% of surveyed 

investors said PCAOB standards and 

regulations are well-suited for their 

intended purpose and 42% believed 

they had mostly kept up with change. 

More specifically, where 17% of 

surveyed audit committee chairs cited 

firm and engagement areas among the 

top three areas they would like to see 

the PCAOB modernize auditing 

standards, 28% of surveyed investors 

cited it among their top three areas. 

A commenter representing an 

investor-related group pointed to 

another survey of investors.275 This 

survey was conducted by the 

commenter in July 2017. The survey 

was limited to members of the 

commenter’s group and targeted 

primarily buy-side portfolio managers 

and research analysts, sell-side analysts, 

credit analysts, and corporate financial 

analysts. There were 284 initial 

respondents. The commenter did not 

completely describe the basis on which 

investors were invited to participate in 

the survey. The commenter did provide 

the questions asked. The survey’s 

finding, as highlighted by the 

commenter, underscores that (i) the 

quality of information communicated to 

investors, including AQIs, is very 

important to how investors perceive the 

value of an audit and (ii) developing 

and monitoring AQIs is a high standardsetting priority for investors.276

According to the commenter, the results 

of the survey suggest that firm and 

engagement metrics are a priority for 

investors, a viewpoint with which the 

Board agrees and that accords with 

other investor feedback the Board has 

received over the course of this project. 

The Board notes that survey 

respondents rated information like the 

final metrics (e.g., restatement of 

company financials, industry expertise 

of audit personnel, training and 

accreditation of audit personnel, tenure 

of engagement partner, number of audit 

staff per audit partner, audit firm 

recruitment and retention practices) 

between 2.71 and 3.66 in importance 

(one being ‘‘not important’’ and four 

being ‘‘very important.’’). 

While the Board believes the final 

metrics will help reduce opacity in the 

audit market and reduce frictions in the 

information market, the Board notes that 

the final metrics will not be direct 

measures of audit quality. Audit quality 

is an abstract concept, and there is no 

single comprehensive measure of audit 

quality. Audit quality is a concept 

designed to describe the characteristics 

of, and participants in, audit 

engagements in which the auditors are 

more likely to identify and report 

material misstatements. Or, more 

broadly, audit quality reflects all of the 

components of the audit that align with 

desirable outcomes.277 The desired 

outcomes of the framework depend (to 

some extent) upon the stakeholders 

involved, even if there are certain 

consistent areas of focus. As a result, the 

final metrics cannot directly measure 

audit quality. And they are not intended 

to do so, as—without additional 

context—it is unlikely they can be 

interpreted directly as measurements of 

audit quality. The final metrics are not 


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278The survey is discussed in greater detail 

above. 

intended to imply that an increase 

(decrease) in a particular metric, or a 

group of metrics, necessarily relates to 

an increase (decrease) in audit quality. 

Lastly, the Board does not believe that 

the final metrics, individually or taken 

together, could be appropriately used in 

isolation to ascertain audit quality at an 

audit firm or for an audit engagement. 

For example, some of the most 

important elements of a high-quality 

audit, such as application of due care 

and professional skepticism, are not 

capable of being entirely measured and 

quantified directly. 

Two commenters agreed that no 

single metric can be viewed as having 

a causal relationship to audit quality. 

Several other commenters agreed that 

the correlation between the proposed 

metrics and audit quality is far from 

perfect. However, two commenters 

interpreted this caveat regarding the 

relationship between the proposed 

metrics and audit quality to imply that 

the proposed metrics cannot be 

decision-relevant to investors and audit 

committees. The Board does not believe 

this to be the case. The Board continues 

to believe that certain aspects of audit 

quality cannot be measured. However, 

the Board does not believe this implies 

that the final metrics will be irrelevant 

to investors and audit committees. To 

the contrary, as said by one commenter, 

the Board believes certain aspects of the 

audit can be measured. 

One commenter said that the purpose 

and use of the metrics are not 

consistently correlated with 

stakeholders’ needs because the 

proposal lacked an explicit definition of 

audit quality. The Board does not 

believe a definition of audit quality is 

necessary for the metrics to be 

correlated with stakeholders’ needs. 

Investors’ and audit committees’ 

information needs are explicitly stated 

above. The Board believes the 

arguments made in this subsection, in 

conjunction with the discussion of 

benefits below, establish a correlation 

between the final metrics and 

stakeholders’ needs. 

ii. Uniform and Comparable Metrics 

In addition to mandating disclosure, 

the final rules will also specify the data 

sources and calculations for each final 

metric and require their disclosure in 

PCAOB forms in an electronic, 

structured data format. Collecting and 

reporting information in this manner 

will likely enhance the usefulness of the 

information to investors and audit 

committees by allowing them to more 

easily access the information and 

compare firms and engagements. 

Regular annual reporting should also 

allow investors and audit committees to 

form judgments regarding the quality of 

their auditor sooner (e.g., compared to 

restatements which may take several 

years to occur or PCAOB inspection 

reports which may be released several 

years after an audit engagement was 

performed). 

Commenters’ views on comparability 

are discussed above. Overall, 

commenters questioned whether the 

engagement-level metrics would be 

comparable due to the importance of 

company-specific context, which in 

their view is necessary for 

understanding the metrics. Two 

commenters suggested that even firmlevel metrics are not comparable. One 

commenter said that differences in the 

centralization or complexity of issuers’ 

IT infrastructures could be a reason for 

cross-sectional differences in the 

engagement-level metrics rather than 

differences in the audit. One commenter 

suggested that comparability would 

improve if the metrics would account 

for firm size, issuer size, and industry. 

One commenter suggested that the 

standardized calculations, rather than 

facilitate comparability, could reduce it 

because they would not be appropriate 

for every firm. Several commenters 

suggested that the standardized 

calculations would not be flexible 

enough to evolve over time as the 

auditing environment changes. 

Relatedly, one commenter suggested 

that the PCAOB revisit in the future the 

appropriate calculations. One 

commenter said the proposed metrics 

would be meaningless without 

sufficient context. By contrast, one 

commenter said that investors are aware 

that the metrics will not be perfectly 

comparable and that they are trained to 

analyze this type of information. 

The Board agrees that context could 

be important to understanding any 

individual metrics. As discussed above 

in this subsection, the Board believes 

that no set of metrics, individually or 

collectively, can completely measure 

audit quality. Accordingly, the Board 

has provided auditors the opportunity 

to disclose additional context for each 

metric. The Board acknowledges that 

firm size, issuer size, and industry could 

be important context when interpreting 

a metric. However, the Board notes that 

this information about issuers is already 

available to the public, and the Board 

believes that stakeholders will be better 

served by a rule that permits them to 

consider this information alongside the 

metrics as they see fit rather than by 

prescribing how they should be 

accounted for. The Board also notes 

that, under the final rules, firms will be 

free to provide additional information 

voluntarily to their stakeholders (e.g. 

through audit quality or firm 

transparency reporting) that they believe 

better captures the changing 

environment. The Board recognizes that 

the standardized calculations will not 

explicitly account for all relevant facts 

and circumstances for each firm. 

However, notwithstanding the potential 

importance of context for understanding 

any individual metric, the comparability 

of information about firms and their 

engagements will be improved overall 

compared to the current largely 

voluntary state by mandating specific 

metrics and calculations. The Board 

discussed a potential postimplementation review (PIR) below. 

Economic Impacts 

This section discusses the expected 

benefits, costs, and potential 

unintended consequences of the final 

rules. The magnitudes of the benefits 

and costs are likely to be affected by the 

degree to which firms have already 

voluntarily adopted disclosure practices 

that are similar to those required under 

the final rules or produce similar 

metrics for non-public purposes. As 

discussed above, as of the 2018 and 

2019 inspection years, the U.S. GNFs 

already track some metrics like those 

being adopted. Though their practices 

may have evolved since then, the Board 

believes they will need to gather 

additional information or adjust their 

calculations. The magnitude of the 

impacts may also vary by stakeholder 

depending on how useful the metrics 

are for the decisions they face. 

Stakeholders who find the final metrics 

more useful will be more likely to incur 

the costs and benefits of integrating the 

final metrics into their decision-making. 

The Board believes the final rules will 

have a greater impact on smaller firms 

which likely have less developed 

practices in this area. 

Several commenters suggested that 

the PCAOB should consider the 

cumulative effects of the reporting 

requirements in this rulemaking along 

with other rules and standards that have 

recently been proposed or adopted. One 

commenter reported results of a survey 

of audit committee member respondents 

in which 76 percent of 145 respondents 

indicated concern about the cumulative 

impact of PCAOB standard-setting and 

rulemaking on audit quality and 24 

percent indicated no concern.278

Consistent with long-standing practice 

and the PCAOB’s staff guidance on 

economic analysis, the Board’s 

economic analysis for each rulemaking 


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279See Staff Guidance on Economic Analysis in 

PCAOB Standard-Setting (Feb. 14, 2024) (‘‘Staff 

Guidance on Economic Analysis’’), available at 

https://pcaobus.org/oversight/standards/economicanalysis/05152014_guidance. 

280While some of the most important elements of 

high-quality audit, such as the application of due 

care and professional skepticism, cannot be fully 

measured or quantified, the final metrics provide 

proxies for certain aspects of audit quality, such as 

years of experience, auditor workload, and the 

percentage of audit hours attributable to senior 

members of the audit team. These proxies, while 

not a complete measure of audit quality, offer 

important information about auditors and the 

engagements they lead, which stakeholders can use 

to inform their decisions. 

281The Board notes several caveats. First, some 

theoretical research finds that changes to auditing 

standards can have counterintuitive effects on audit 

quality. For example, some research finds that 

increased precision in auditing standards can 

reduce audit quality. See Marleen Willekens and 

Dan A. Simunic, Precision in Auditing Standards: 

Effects on Auditor and Director Liability and the 

Supply and Demand for Audit Services, 37 

Accounting and Business Research 217 (2007). 

Other research finds that setting a higher minimum 

bar can reduce audit quality. See Pingyang Gao and 

Gaoqing Zhang, Auditing Standards, Professional 

Judgment, and Audit Quality, 94 The Accounting 

Review 201 (2019). The Board acknowledges that 

these studies examine the impacts of audit 

performance standards. By contrast, the Board 

adopted a disclosure standard. This may limit the 

relevance of these studies to the final rules. The 

Board is also unaware of empirical evidence that 

directly tests these theories. Second, the conclusion 

that financial statements that are free of material 

misstatement are more useful to investors hinges on 

the assumption that investors value compliance 

with the applicable financial reporting framework 

(e.g., U.S. GAAP). The various market reactions to 

restatements that have been documented in 

academic literature suggests that this is the case. 

Third, the conclusion that improved audit quality 

would improve financial reporting quality assumes 

that issuers would not switch to sufficiently lower 

quality auditors in sufficient number as a result of 

the final rules. Finally, one commenter said, and 

the Board agrees, that the proposed metrics cannot 

be viewed as the only proxy for measuring financial 

reporting quality. 

considers the incremental benefit and 

costs for the specific rule—i.e., the 

benefits and costs stemming from that 

rule compared with the baseline.279

There could be implementation 

activities for certain provisions of other 

rules and standards that overlap in time 

with implementation of the final rules, 

which may impose costs on resource 

constrained firms affected by multiple 

rules. This may be particularly true for 

smaller and mid-sized firms with more 

limited resources. In determining 

effective dates and implementation 

periods, the Board considered the 

benefits of rules as well as the costs of 

delayed implementation periods and 

potential overlapping implementation 

periods. The Board also considered that 

in some cases, overlapping 

implementation periods may have 

benefits because firms will not need to 

revise or redo previous process or 

system changes where rules interact 

with each other. For example, firms 

could benefit in this regard by 

implementing the final rules while also 

implementing QC 1000 and, if approved 

by the SEC, the PCAOB’s Firm 

Reporting rules because all three 

rulemakings address external reporting. 

Several investor group commenters 

stated they believe the benefits of the 

proposal would exceed the costs. In 

contrast, other commenters stated they 

believe the costs of the proposed metrics 

will not be proportionate to the benefits. 

One commenter said there was a lack of 

academic evidence about whether the 

benefits exceed the costs. One reason 

that academic evidence related directly 

to whether the benefits of the proposal 

exceed the costs is limited is likely that, 

for the reasons discussed above, the 

necessary data do not exist. However, 

the economic analysis incorporates 

where appropriate academic evidence 

related to certain impacts of the 

proposal. Furthermore, as described 

above, the Board has quantified certain 

impacts to the extent feasible. One 

commenter suggested that a more 

complete economic analysis of the 

proposal would reveal that the costs 

exceed the potential benefits. The 

commenter did not indicate a data 

source or methodology that would allow 

for a quantitative analysis of all benefits 

and costs. The commenter also did not 

indicate how they know what the 

results of such an analysis would be. 

One commenter suggested that the 

PCAOB expand the proposal to consider 

whether the benefits outweigh the costs. 

Another commenter said that they saw 

no indication that the Board had 

addressed whether investors and other 

stakeholders would place greater weight 

on the asserted benefits against 

increased audit fees. The economic 

analysis separately analyzes benefits 

and costs, and as stated above, the 

Board is not able to quantify all relevant 

benefits and costs due to data 

limitations. However, the Board notes 

that one commenter representing an 

investor-related group said that 

investors recognize they ultimately bear 

the cost of creating such information 

and metrics and are generally willing to 

pay for information and metrics. 

1. Benefits 

As discussed above, the final metrics 

could enhance (i) audit committees’ 

ability to efficiently and effectively 

monitor and select auditors as well as 

(ii) investors’ ability to efficiently and 

effectively make decisions about 

ratifying the appointment of their 

auditors and allocating capital. 

Moreover, there will likely be 

improvements to the PCAOB’s oversight 

programs (i.e., selection of firms, 

engagements, and focus areas for 

review), as well as to policy research. As 

an important indirect benefit, the final 

rules could further spur competition to 

the benefit of investors. Thus, while the 

metrics do not represent a 

comprehensive measure of audit 

quality, stakeholders may use the 

metrics in ways that could improve 

audit quality.280 Several investor-related 

groups generally agreed with these 

benefits. One commenter said that 

reporting of proposed metrics would 

improve audit quality across the 

profession. 

Auditors have a responsibility to 

obtain reasonable assurance about 

whether the financial statements are free 

of material misstatement. If use of the 

metrics leads to higher audit quality, it 

could increase the likelihood that the 

auditor will discover a material 

misstatement or will qualify its audit 

opinion when a material misstatement 

exists and is not corrected by 

management. 

The SEC does not consider the 

requirements for audited or certified 

financial statements in Rule 2–02(b) of 

Regulation S–X to be met when the 

auditor’s report is qualified. 

Furthermore, a qualified audit opinion 

may evoke negative market reactions. 

For these reasons, higher audit quality 

could incentivize issuers to take steps to 

ensure their financial statements are free 

of material misstatement. Issuers could 

take these steps proactively, prior to the 

audit, or in response to adjustments 

requested by the auditor. Financial 

statements that are free of material 

misstatement are of higher quality and 

more useful to investors.281 An investorrelated group said that investors 

demand high-quality audits because 

reliable audited financial statement are 

critical to investors in making informed 

decisions. 

In the following discussion, the Board 

discussed the direct benefits related to 

enhancing the information available to 

investors, audit committees, and other 

stakeholders and follow up with a 

discussion of the potential indirect 

benefits. The Board then reviews the 

extant literature related to the final 

metrics and examine how each final 

metric could contribute to achieving the 

final rules’ intended benefits. 

i. Direct Benefits to Investors, Audit 

Committees, and the PCAOB 

The direct benefits of the final rules 

relate to (i) improved investor and audit 

committee monitoring, (ii) improved 


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282Academic literature on how various proxies 

for the final metrics relate to various proxies for 

audit quality is summarized below. 

283For example, in the context of credit ratings, 

research has found that the introduction of 

additional credit ratings information into the 

market leads relatively higher quality borrowers to 

obtain lower borrowing costs by 20 basis points. See 

Tony Tang, Information Asymmetry and Firms’ 

Credit Market Access: Evidence from Moody’s 

Credit Rating Format Refinement, 92 Journal of 

Financial Economics 325 (2009). The Board notes 

that the relevance of this finding is limited by the 

fact that the studied disclosure relates to the 

quantity of information provided by the credit 

rating agency rather than the quality of service 

provided by the credit ratings agency. In the context 

of nursing home care, one study finds that 

mandatory disclosure of quality indices leads to 

improvement in two of the five indices. See Dana 

B. Mukamel, David L. Weimer, William D. Spector, 

Heather Ladd, and Jacqueline S. Zinn, Publication 

of Quality Report Cards and Trends in Reported 

Quality Measures in Nursing Homes, 43 Health 

Services Research 1244 (2008). For a discussion of 

potential benefits of mandatory financial reporting 

quality as well as potential unintended 

consequences, see Christian Leuz and Peter D. 

Wysocki, The Economics of Disclosure and 

Financial Reporting Regulation: Evidence and 

Suggestions for Future Research, 54 Journal of 

Accounting Research 525 (2016) and cites therein. 

However, some research also finds that mandatory 

disclosure can have little effect. For example, in the 

context of HMOs, one study finds that, following 

the introduction of public disclosure of six quality 

scores, only one—customer satisfaction— 

subsequently drove HMO market share and the 

effect was most pronounced in markets where true 

quality varied the most. See Leemore Dafny and 

David Dranove, Do Report Cards Tell Consumers 

Anything They Don’t Already Know? The Case of 

Medicare HMOs, 39 The Rand Journal of Economics 

790 (2008). 

284See, e.g., Mark L. DeFond, Xuesong Hu, 

Mingyu Hung, and Siqi Li, The Impact of 

Mandatory IFRS Adoption on Foreign Mutual Fund 

Ownership: The Role of Comparability, 51 Journal 

of Accounting and Economics 240, 241 (2011) 

(finding that greater financial reporting 

comparability leads to greater investment); Luigi 

Zingales, The Future of Securities Regulation, 47 

Journal of Accounting Research 395 (2009) 

(concluding that a more subtle benefit of disclosure 

regulation is the standardization it entails); and 

Bingyi Chen, Ahmet C. Kurt, and Irene Gunnan 

Wang, Accounting Comparability and the Value 

Relevance of Earnings and Book Value, 31 Journal 

of Corporate Accounting & Finance 82 (2020) 

(finding that ‘‘accounting comparability increases 

the value relevance of earnings, but not book 

value’’). 

285See, e.g., Michael J. Gurbutt and Wei-Kang 

Shih, Staff White Paper: Econometric Analysis on 

the Initial Implementation of CAM Requirements, 

Public Company Accounting Oversight Board 4 

(2020) (discussing how PCAOB staff did not find 

‘‘systematic evidence that investors respond to the 

information contents in CAMs’’ but nevertheless 

did find that ‘‘some investors are reading CAMs and 

find the information beneficial.’’); Kose John and 

Min Liu, Does the Disclosure of an Audit 

Engagement Partner’s Name Improve the Audit 

Quality? A Difference-in-difference Analysis, 14 

Journal of Risk and Financial Management 1 (2021) 

(suggesting that there was an increase in audit 

quality and audits costs as a result of PCAOB Rule 

3211); and Cunningham, et al., What’s in a Name? 

(finding evidence that any immediate impact of 

PCAOB Rule 3211 on audit quality or audit fees is 

limited to specific dimensions of audit quality, 

specific control groups, and/or specific company 

characteristics). 

auditor selection, and (iii) improved 

PCAOB oversight and scholarly auditing 

research. The Board believes these 

benefits will arise because the final 

metrics will significantly augment the 

information set available to stakeholders 

and thereby enhance their decisionmaking. 

Each of the final metrics and how 

they would enhance decision-making is 

discussed in detail above. To 

summarize, the final metrics relate 

broadly to audit personnel, allocation of 

audit hours, and audit outcomes. The 

final metrics related to audit personnel 

will provide information on the audit 

team’s involvement and workload (i.e., 

Partner and Manager Involvement, and 

Workload), turnover (i.e., Retention of 

Audit Personnel), experience (i.e., 

Experience of Audit Personnel), 

industry specialization (i.e., Industry 

Experience), and training (i.e., Training 

Hours for Audit Personnel). The final 

metrics related to the allocation of audit 

hours will provide information on the 

allocation of audit hours prior to the 

issuer’s year end (i.e., Allocation of 

Audit Hours). The final metrics related 

to outcomes will provide information on 

restatement trends (i.e., Restatement 

History). 

These metrics could enhance 

decision-making by helping 

stakeholders assess whether auditors are 

appropriately staffing their 

engagements, budgeting their time, and 

achieving desirable outcomes. As the 

following examples illustrate, 

stakeholders will likely make these 

judgments based primarily on their 

experience and by comparison to 

similar firms or engagements and in 

conjunction with other information 

available to them (e.g., the other metrics, 

issuer’s unique facts and circumstances, 

or research).282 These examples are 

meant as illustrations only; investors 

and audit committee members may 

interpret the final metrics differently 

depending on specific circumstances. 

• An investor may observe that one 

issuer’s auditor has more industry 

experience than a comparable issuer’s 

auditor. Depending on the magnitude of 

the difference and other information 

available to the investor, the investor 

may take this as a sign regarding the 

relative reliability of the audit and, 

consequently, the issuer’s financial 

statements. This could influence the 

investor’s voting or capital allocation 

decisions. 

• An audit committee member may 

observe that an engagement’s partners 

and managers were more involved than 

the audit committee member expected 

based on their experience. While the 

audit committee member may believe 

partner and manager involvement is, as 

a general matter, a sign of good quality 

control, the audit committee member 

may, depending on the facts and 

circumstances, suspect there was a 

problem that required the partner’s 

attention. As a result, the audit 

committee member may request 

additional information from the auditor. 

• An investor may observe that the 

auditor’s retention metric is a low 

outlier compared to prior years. This 

may lead the investor to question the 

auditor’s ability to gather sufficient 

appropriate audit evidence and, 

depending on other information 

available, may inform the investor’s vote 

on ratification of the auditor or reelection of audit committee members to 

the board of directors. 

• An audit committee member may 

observe that the auditor’s allocation of 

audit hours prior to the year’s end 

indicates, based on academic research, 

an elevated risk of audit deficiency and 

restatement. As a result, the audit 

committee member may work with the 

auditor to find ways to improve the 

planning of a future audit. 

The Board notes that the benefits of 

mandatory disclosure are well-studied 

and have been measured in other 

markets such as credit ratings, health 

care, and financial reporting.283

Likewise, the benefits of comparable 

information have been observed in 

financial reporting.284 There are 

important similarities between the 

markets for credit ratings, health care, 

and financial reporting and the audit 

market. For example, credit ratings 

services, like audit services, are opaque 

and operate under an ‘‘issuer-pays’’ 

business model. Therefore, the impacts 

of disclosure observed in those markets 

provide some indication of the potential 

impacts the final rules could have on 

the audit market. However, there are 

also significant differences. For 

example, the quality of health care 

services may, in some cases, be more 

visible than the quality of audit services. 

These differences limit the relevance of 

these studies. The disclosures studied in 

these markets may also not be directly 

comparable to the final metrics and 

therefore are less relevant. 

The Board also notes that the benefits 

of prior PCAOB disclosure rules vary by 

rule and analysis.285 Citing academic 

research, one commenter said studies 

show that, while the information 

contained in Form AP may improve the 

perception of auditors and financial 

reporting, Form AP is not influencing 

investors’ decision-making. Referring to 

research discussed above and in the 


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286See Doxey, et al., Do Investors Care; Candice 

T. Hux, How Does Disclosure of Component 

Auditor Use Affect Nonprofessional Investors’ 

Perceptions and Behavior?, 40 Auditing: A Journal 

of Practice & Theory 35 (2021); Gurbutt and Shih, 

Econometric Analysis on the Initial Implementation 

of CAM Requirements; Jenna J. Burke, Rani Hoitash, 

Udi Hoitash, and Summer Xiao, The Disclosure and 

Consequences of US Critical Audit Matters, 98 The 

Accounting Review 59 (2023). Referring to a U.K. 

auditor disclosure requirement similar to CAMs, 

another commenter said that the extent and quality 

of dialogue between investors and audit committees 

was not as expected. 

287See Center for Audit Quality, Critical Audit 

Matters Survey (July 2024). 

288For a discussion of the same principle, but in 

the context of issuer financial reporting, see, e.g., 

Leuz and Wysocki, The Economics of Disclosure 

and Financial Reporting Regulation (explaining that 

the disclosure of operating performance and 

governance arrangements by public companies can 

lower the cost of monitoring by providing investors 

with useful benchmarks that help investors evaluate 

other companies’ managerial efficiency or potential 

agency conflicts). 

289One study reviewed the comment letters to the 

Concept Release and found that audit firms agreed 

with the notion that audit committees may benefit 

from enhanced dialog between the auditor and the 

audit committee. See Kathleen M. Harris, and L. 

Tyler Williams, Audit Quality Indicators: 

Perspectives from Non-Big Four Audit Firms and 

Small Company Audit Committees, 50 Advances in 

Accounting 1 (2020). 

290See, e.g., Bengt Holmstro ̈m, Moral Hazard and 

Observability, The Bell Journal of Economics 74 

(1979) (finding that efficiency improves when 

contractable information about an agent’s 

performance is available to the agent’s principal) 

and Mai Dao, K. Raghunandan, and Dasaratha V. 

Rama, Shareholder Voting on Auditor Selection, 

Audit Fees, and Audit Quality, 87 The Accounting 

Review 168 (2012) (finding evidence that 

shareholder involvement in firm selection is 

associated with higher audit fees and improved 

audit quality). Some research suggests that audit 

committees with financial expertise are more 

effective monitors (i.e., financial reporting quality 

improves). To the extent that providing additional 

information to audit committees is analogous to 

increasing their expertise, this suggests that the 

final rules could lead to more effective audit 

committee monitoring. See Dina El Mahdy, Jia Hao, 

and Yu Cong, Audit Committee Financial Expertise 

and Information Asymmetry, Journal of Financial 

Reporting and Accounting (2022). In principle, 

improved monitoring could lead to a reduction in 

the overall quality of audit services. For example, 

some issuers may seek lower audit fees at the 

expense of audit quality. As the final disclosures 

will be public, the Board believes, in most cases, 

this would be less likely. See Section below for 

additional discussion. Some issuers may have very 

strong financial reporting quality independent of 

their auditor (e.g., they have a lender with strong 

oversight). In these cases, the most suitable auditor 

may not necessarily be the ‘‘highest quality’’ auditor 

and over-auditing may be more of a concern than 

under-auditing. 

proposal, the commenter also said that 

CAMs are not driving decision-making 

by investors.286 By contrast, a recent 

survey finds that institutional investors 

generally rely on CAMs when making 

investment decisions and read the 

CAMs section in the Form10–K.287

Approximately half said that additional 

information would be even more 

beneficial. There are important 

similarities between these disclosure 

rules and the final rules. For example, 

CAM reporting and Form AP reporting 

requirements were significant changes 

in auditor reporting and the final 

engagement-level disclosures will be 

reported on Form AP. Therefore, the 

results of these studies provide some 

indication of how the final metrics 

could impact the audit market. 

However, there are also significant 

differences between prior PCAOB 

disclosure rules and the final rules. For 

example, the final rules will likely 

require firms to gather more 

engagement-level information than 

CAM and Form AP reporting 

requirements do. These differences limit 

the relevance of these studies. 

One commenter suggested that the 

benefits of the proposed metrics would 

be limited by the fact that they are 

focused on the past and therefore may 

have limited value predicting future 

performance. The Board recognizes that 

the metrics will be computed using 

historic data and the Board believes this 

is a natural limit. The Board also 

disagrees with the premise that historic 

information, by definition, cannot have 

value predicting future performance. 

Historical metrics can inform futureoriented decisions by increasing the 

reliability of the data investors and 

audit committees use to form their 

expectations. 

One commenter suggested that 

benefits would only accrue to data 

aggregators, the plaintiff’s bar, and 

academics and not to investors. The 

Board agrees that data aggregators may 

aggregate and resell the information. 

However, the Board notes that the 

existence of such a market would be 

evidence that there is a market demand 

for the final metrics. Data aggregators 

may also allow retail investors to benefit 

more from the final metrics by making 

them even more accessible. Similarly, to 

the extent there is future reliance on the 

metrics by academics and plaintiffs’ 

lawyers, it would serve as evidence of 

their information value and, by 

extension, their relevance to investors. 

Pointing to pages 135 and 168 of the 

proposal, the same commenter stated 

that the proposal acknowledged that the 

required metrics are not likely to be 

decision-useful to retail investors. In 

fact, the proposal states on page 135 that 

‘‘[r]esearch also indicates that retail 

investors may not necessarily use 

information regarding an audit firm in 

their decisions to vote on a proposal to 

ratify the appointment of the firm.’’ The 

proposal states at p. 168 that ‘‘[d]ue to 

economies of scale, the Board believes 

institutional investors would be more 

likely to incur these costs than retail 

investors.’’ To be clear, the Board 

believes that institutional investors are 

more likely to use the final metrics than 

retail investors. 

One commenter suggested that all the 

metrics must help retail investors make 

informed decisions. The Board 

considered the benefits and costs to all 

stakeholders, not just retail investors. As 

such, the Board does not believe that a 

metric should be excluded on the basis 

that it may not help retail investors 

make informed decisions because doing 

so could deprive other stakeholders of 

useful information. Subject to this 

caveat, the Board believes some retail 

investors will use the metrics, albeit 

likely less so than institutional 

investors. Furthermore, as discussed in 

above, the Board believes more passive 

retail investors may indirectly benefit 

from the improved decision-making of 

more active institutional investors. 

a. Improved Monitoring 

The final rules will increase the set of 

information available to audit 

committees and investors regarding 

their auditor. This should improve both 

investors’ and audit committees’ ability 

to monitor their auditors.288 For 

example, an audit committee could 

engage in more meaningful discussions 

with their auditor regarding the 

auditor’s performance.289 In response to 

improved monitoring, auditors may 

improve audit efficiency as well as audit 

outcomes as they become more 

responsive to investors’ and audit 

committees’ audit service needs.290 The 

final rules could also reduce costs 

related to information gathering that are 

incurred by investors and audit 

committees when monitoring their 

auditor. Some of the cost reductions 

could reflect reductions in duplicative 

work to the extent that various investors 

or audit committees collect the same 

information. 

One commenter suggested that the 

PCAOB should not focus on overauditing or audit inefficiencies. Another 

commenter was concerned by the 

suggestion that investors should be 

expected to ratify auditor selection or 

make decisions related to capital 

allocation on the basis of auditor 

efficiency (e.g., by reviewing auditors’ 

allocation of time or resources). 

Consistent with the PCAOB’s staff 

guidance on economic analysis, the 

Board considered the most likely 

impacts. As discussed in the proposal, 

the Board believes that some reduction 

in over-auditing or some improvement 

in auditing efficiency could result from 


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291See Harris and Williams, Audit Quality 

Indicators Table 6. 

292See above for a discussion on how the final 

metrics could assist decision-making. 

293Some academic research suggests that audit 

committee effectiveness is associated with audit 

committee incentives. See, e.g., Jeffrey Cohen, 

Ganesh Krishnamoorthy, and Arnold M. Wright, 

The Corporate Governance Mosaic and Financial 

Reporting Quality, 23 Journal of Accounting 

Literature 87 (2004) and cites therein. Some 

research suggests that investors are willing to pay 

for audit committee effectiveness and hold audit 

committees accountable for negative audit quality. 

See, e.g., Ellen Engel, Rachel M. Hayes, and Xue 

Wang, Audit Committee Compensation and the 

Demand for Monitoring of the Financial Reporting 

Process, 49 Journal of Accounting and Economics 

136, 138 (2010) (suggesting a willingness by 

companies to deviate from the historically prevalent 

one-size-fits-all approach to director pay in 

response to increased demands on audit committees 

and differential director expertise) and Suraj 

Srinivasan, Consequences of Financial Reporting 

Failure for Outside Directors: Evidence from 

Accounting Restatements and Audit Committee 

Members, 43 Journal of Accounting Research 291 

(2005) (concluding that audit committee members 

bear reputational costs for financial reporting 

failure). Some research suggests that audit 

committee members without Big 4 audit experience 

are more likely to favor auditors that are rated as 

‘‘attractive.’’ See, e.g., Baugh, Matthew, Nicholas J. 

Hallman, and Steven J. Kachelmeier, A Matter of 

Appearances: How Does Auditing Expertise Benefit 

Audit Committees When Selecting Auditors?, 39 

Contemporary Accounting Research 234 (2022). 

Together, this research suggests that audit 

committee effectiveness could respond to improved 

investor monitoring. Other research suggests that 

audit committee effectiveness is positively 

associated with proxies for audit quality. See, e.g., 

Brian Bratten, Monika Causholli, and Valbona 

Sulcaj, Overseeing the External Audit Function: 

Evidence from Audit Committees’ Reported 

Activities, 41 Auditing: A Journal of Practice & 

Theory 1 (2022) (finding that the strength of audit 

committee oversight, as implied by audit committee 

disclosures, is positively associated with proxies for 

audit quality). 

294See PriceWaterhouseCoopers, 2023 Annual 

Corporate Directors Survey. 

295See Dey et al., Proxy Advisory Firms and 

Corporate Shareholder Engagement, Figure 2 

(showing a monotonic increase in the proportion of 

sampled firms reporting shareholder engagement in 

their proxy statement from 5.5% in 2011 to 36.3% 

in 2019.) 

the final rules. However, the Board does 

not believe they will be central benefits 

and the Board has emphasized other 

benefits accordingly. 

Two caveats could limit the extent to 

which improved investor and audit 

committee monitoring and reduced 

monitoring costs will lead to improved 

audit performance. First, the Board 

notes that improvements in audit 

performance will be limited by the fact 

that audit committees are able to request 

information like the final metrics from 

their auditor. Indeed, one survey of 

audit committee members from smaller 

public companies, including audit 

committee members of accelerated 

filers, reports that most of the survey 

participants believed there were no 

‘‘gaps’’ in the information they were 

receiving from their audit firms.291

Furthermore, at the September 2024 IAG 

meeting, one audit committee chair said 

that he has unfettered access to his 

auditor, has requested information 

related to industry expertise from his 

auditor in the past, and has never been 

denied access to information requested. 

As discussed above, one commenter 

provided a survey suggesting that most 

audit committees believe the current 

information environment is sufficient. 

However, the Board believes that, by 

making these disclosures mandatory 

and standardized across firms and 

engagements, the final rules will 

increase the accessibility, reliability, 

and comparability of information about 

auditors and their engagements. For 

example, audit committees will be 

better able to compare their auditors to 

peers. Moreover, at the September 2024 

IAG meeting one audit committee chair 

described how their auditor can be 

reluctant to provide information 

deemed confidential by the auditor. 

Second, the benefit of improved 

monitoring of auditors could also vary 

depending on the abilities of the audit 

committee. As one IAG member said, 

audit committee members that do not 

have a background in accounting may 

not know what questions to ask their 

auditor. For example, more proactive 

audit committees with greater financial 

or audit expertise may be able to make 

better use of the final metrics than other 

audit committees. However, under the 

final rules, investors considering votes 

for election to the board of audit 

committee members could consider 

whether they expect candidates to be 

able to effectively use the final metrics 

when executing their oversight 

responsibilities. 

In addition to helping investors 

monitor the auditor’s performance, the 

final metrics may assist investors in 

monitoring and evaluating the 

performance of the audit committee. For 

example, investors could observe audit 

committee performance and express any 

potential concerns through open 

dialogues with the board of directors or 

election of board and audit committee 

members. The audit committee is 

responsible for overseeing the auditor 

and the final metrics may assist 

investors in determining whether the 

audit committee was effective in this 

capacity (e.g., whether the audit 

committee continues to delay replacing 

the auditor despite the presence of 

metrics that suggest potential concerns 

about audit performance).292 This 

improved monitoring could improve 

audit committee effectiveness (e.g., 

more effective monitoring of the 

auditors, better selection of auditors, 

etc.) 293

One commenter supported the view 

that the metrics will help investors hold 

audit committees accountable. However, 

another commenter suggested that audit 

committees that currently execute their 

statutory mandate with an insufficient 

level of interest and attention will 

continue to do so despite the 

availability of the final metrics. Another 

commenter suggested that metrics were 

an inappropriate way for investors to 

oversee audit committees and would 

override the gatekeeping function of 

audit committees. The Board 

acknowledges that the final rules’ 

impact may vary by audit committee. 

However, for the reasons discussed 

above, the Board believes that the final 

rules will, on average, lead to a valuable 

improvement in investors’ ability to 

monitor audit committees and, by 

extension, audit committee 

performance. The Board does not 

believe the final rules will supplant 

audit committees’ gatekeeper function. 

Rather, audit committees will continue 

to play a critical corporate governance 

function. Indeed, by enabling investors 

to better monitor and evaluate audit 

committees, the Board believes the final 

metrics will enhance the audit 

committee’s role and reinforce its 

effectiveness in overseeing auditors. 

One commenter suggested that 

interaction between investors and 

directors is unlikely and directed us to 

industry research suggesting that 

engagement between directors of large 

issuers and their investors is 

decreasing.294 The Board acknowledges 

that direct interaction may occur more 

for institutional investors. However, the 

Board notes that the survey cited by the 

commenter notes that the decline 

between 2022 and 2023 was ‘‘slight’’ 

overall but larger for the largest 

companies (75% to 58%). The cited 

survey also says that ‘‘directors are 

regularly engaging with shareholders 

and the vast majority consider those 

interactions ‘productive.’ ’’ Moreover, as 

discussed in greater detail above, the 

Board notes that many public 

companies have robust investor 

outreach programs, some of which target 

retail investors. Academic research on 

the frequency of shareholder outreach 

programs shows they are increasing over 

time.295 Therefore, the Board believes 

there is no strong evidence supporting 

the comment that director engagement 

with shareholders is unlikely to occur. 

Mandatory disclosure of the final 

metrics could also improve audit firms’ 

internal monitoring of their (i) audit 


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296One recent experimental study finds that 

participants playing the role of CFO, director, or 

individual investors strongly prefer auditors that 

have stronger metrics and are willing to pay more 

for those auditors. See Dennis Ahn, Radhika 

Lunawat, and Patricia Wellmeyer, Firm and 

Engagement Performance Metrics and Auditor 

Contracting Decisions, SSRN Electronic Journal, at 

Table 1 and Table 2 (2024). The Board notes that 

SSRN does not peer review its submissions. 

297See, e.g., Gene M. Grossman and Carl Shapiro, 

Informative Advertising with Differentiated 

Products, 51 The Review of Economic Studies 63 

(1984) (finding that reduced information frictions 

(i.e., decreased informational advertising costs) 

could result in improved matching between sellers 

and buyers). 

298Some academic research finds that audit 

committees do select auditors based on observable 

aspects of the quality of their services. See, e.g., 

Vivek Mande and Myungsoo Son, Do Financial 

Restatements Lead to Auditor Changes?, 32 

Auditing: A Journal of Practice & Theory 119 

(2013). 

299See above for discussion of academic literature 

related to the benefits of comparability in financial 

reporting. 

300Some research suggests that more informed 

shareholders make better audit ratification 

decisions (e.g., auditor ratification decisions are 

more closely associated with public signals of audit 

failure). See, e.g., Cassell, et al., Retail Shareholders 

and cites therein. 

301Some experimental research suggests that 

investors are less likely to support auditor 

ratification if metrics like those discussed in the 

Concept Release are trending downward. See, e.g., 

Brown and Popova, How do Investors Respond. 

302 In principle, improved auditor selection could 

lead to a reduction in the overall quality of audit 

services. For example, some issuers may seek lower 

audit fees at the expense of audit quality. Due to 

the fact that the final disclosures will be public, the 

Board believes, in most cases, this would be less 

likely. See below for additional discussion. Some 

issuers may have very strong financial reporting 

quality independent of their auditor (e.g., they have 

a lender with strong oversight). In these cases, the 

most suitable auditor may not necessarily be the 

‘‘highest quality.’’ 

303Although investor voting on auditor 

ratification is non-binding, it could be a meaningful 

mechanism for expressing views on audit-related 

issues. If investors are dissatisfied with auditor 

selection, they can also vote against the re-election 

of board members, including those who serve on 

the audit committee, to potentially influence future 

auditor oversight. 

304See United States Government Accountability 

Office, Continued Concentration in Audit Market 

for Large Public Companies Does Not Call for 

Immediate Action 21 (Jan. 8, 2008). 

practices and related system of quality 

control, and (ii) individual 

engagements. This could improve 

governance, accountability, and overall 

quality control within the audit firm. 

The final metrics may also help auditors 

identify efficiencies or room for 

improvement in their audit approach by 

comparing their final metrics to their 

competitors. One commenter noted that 

the proposal recognized that firms may 

not find the certain metrics useful in 

monitoring their quality control 

systems. While the Board continues to 

believe that the final metrics could 

improve audit firms’ internal 

monitoring, the Board acknowledges 

that some firms, due to their unique 

facts and circumstances, may find some 

metrics less useful than others. 

b. Improved Selection 

The final rules may also enhance 

auditor selection to the extent that the 

rules improve the ability of investors 

and audit committees to compare their 

current auditor to an alternative 

auditor.296 When considering an 

alternative auditor, audit committees 

may find the auditor’s engagement-level 

metrics for similar engagements (e.g., an 

issuer of similar size and/or within the 

same industry to the audit committee’s 

issuer) most useful. As discussed above, 

investors and audit committees could 

electronically search for firm-level 

metrics and download engagement-level 

metrics when constructing rosters of 

candidate auditors. Moreover, audit 

committees will benefit to the extent 

that they are able to engage in more 

meaningful discussions and interviews 

with candidate auditors during the 

selection process—improving the 

efficiency of auditor-issuer matching.297

For example, the final metrics (e.g., 

Industry Experience and Workload) 

could help audit committees select an 

auditor that has the capacity to perform 

the audit.298 Requiring mandatory, 

comparable, and uniform disclosure of 

the final metrics—across engagement 

teams and audit firms, and over time— 

should further enhance this benefit by 

helping audit committees to compare 

auditors on a common basis.299 The 

final rules may also improve investors’ 

decision-making regarding auditor 

ratification and appointment of board 

members.300 For instance, investors may 

decide that a particular final metric is 

especially important to their views on 

the auditor’s efficacy and the quality of 

the financial statements.301 Investors 

that rely on proxy advisors for these 

decisions may also benefit from the final 

disclosures because proxy advisors 

could use the information in their 

recommendations. 

Improved auditor selection could 

improve audit efficiency as well as audit 

outcomes as incoming auditors may be 

better equipped to meet investors’ and 

audit committees’ audit service 

needs.302 The final rules could also 

reduce costs related to information 

gathering incurred by audit committees 

when selecting their auditor and by 

investors when voting to ratify the 

appointment of the auditor.303 Some of 

the cost reductions could reflect 

reductions in duplicative work to the 

extent that various investors or audit 

committees collect the same 

information. Improved investor 

decision-making regarding voting for 

members of the board of directors, 

including directors who serve on the 

audit committee, could improve audit 

committee performance as incoming 

board members may be better equipped 

to meet investors’ expectations 

regarding auditor oversight. One 

commenter said that the proposed 

metrics have the capacity to make 

investors’ vote on ratification of the 

auditor and the vote on audit committee 

members substantially more 

meaningful. 

Two caveats could limit the potential 

benefit of improved auditor selection 

and the reduction in the associated 

information gathering costs. First, the 

Board notes that the impact will be 

limited by the fact that audit committees 

could in principle request information 

like the final metrics from alternative 

auditors. However, auditors may not be 

willing to voluntarily provide an audit 

committee with engagement-level 

metrics regarding their engagements 

with other issuers, information that may 

be particularly useful to audit 

committees in selecting an auditor. 

Furthermore, while audit committees 

can currently request tailored metrics, 

this approach imposes substantial 

collective costs and limits comparability 

across firms. The Board believes that, by 

making these disclosures mandatory 

and standardized, the final rules will 

increase the accessibility, reliability, 

and comparability of information 

available and therefore help audit 

committees. Second, the Board notes 

that, to the extent that benefits are 

derived from the ability to readily 

switch between auditors based on an 

evaluation of the auditors’ metrics, 

those benefits could be limited due to 

stickiness in existing auditor-audited 

company relationships which creates 

switching costs. Furthermore, large 

multinational issuers may, as a practical 

matter, need a GNF auditor, which 

limits the pool of available 

alternatives—which may be in turn 

further limited by auditor geographic/ 

industry specialization (e.g., a need for 

financial services expertise in a 

particular office/city), or by auditor 

independence rules (e.g., the existence 

of an independence-impairing financial 

or consulting relationship between the 

issuer and a potential alternative 

auditor).304 Therefore, the benefit of 

improved auditor selection could be 

more limited for the largest issuers. 

However, the Board believes that the 

final metrics could also help the audit 

committees of the largest issuers select 


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305Some academic research suggests that PCAOB 

oversight is beneficial. For example, one study of 

audit firms in foreign jurisdictions finds that 

PCAOB inspections access is positively associated 

with proxies for audit quality. See Phillip T. 

Lamoreaux, Does PCAOB inspection Access 

Improve Audit Quality? An Examination of Foreign 

Firms Listed in the United States, 61 Journal of 

Accounting and Economics 313 (2016). 

306The IAG indicated in their comment letter 

regarding proposed QC 1000 that information 

related to audit quality would provide investors 

with ‘‘a level of confidence in the financial 

statements of companies in which they invest. 

Their level of confidence in the financial statements 

has a bearing on the prices they will be willing to 

pay or demand for investments.’’ The comment 

letters received in response to proposed QC 1000 

are available on the Board’s website in Docket 046. 

See comment No. 4 on the proposed rule from the 

IAG, available at https://assets.pcaobus.org/pcaobdev/docs/default-source/rulemaking/docket046/4_

iag.pdf?sfvrsn=1941e7c0_4. See above for a 

discussion on the association between audit quality 

and financial reporting quality. 

307There is an extensive body of academic 

literature suggesting that financial markets 

incorporate information into securities prices. See, 

e.g., Eugene F. Fama, Efficient Capital Markets: A 

Review of Theory and Empirical Work, 25 The 

Journal of Finance 383 (1970). 

specific engagement partners within the 

larger audit firms. 

c. Benefits to the PCAOB’s Inspection 

and Enforcement Programs and 

Scholarly Auditing Research 

The final metrics are expected to 

provide direct benefits to the PCAOB’s 

internal operating effectiveness. In the 

PCAOB’s oversight capacity, it engages 

in inspection and enforcement activities 

for audits of issuers and, in the course 

of doing so, it uses data from issuers and 

audit firms. The final metrics will 

expand the basis on which selections 

may be made. For example, the final 

metrics could improve the selection 

models used to aid in predicting 

negative audit outcomes, such as 

restatements or the potential for audit 

deficiencies. As discussed above, QC 

1000 will help to ensure that the final 

metrics will be reliable. Greater insight 

into audit risks could improve the 

PCAOB’s ability to select potential 

enforcement matters. Overall, improved 

PCAOB oversight may give auditors 

additional incentive to comply with 

PCAOB professional standards and 

rules.305

Moreover, the PCAOB actively 

engages in policy research related to the 

market for assurance services to further 

the PCAOB’s mission by informing the 

standard-setting and rulemaking 

agendas among other purposes. The 

additional data provided by the final 

rules could enhance the PCAOB’s 

ability to produce impactful research 

and recirculate that gained knowledge 

into improved standards and rules. 

Relatedly, the additional data could also 

provide valuable information sources 

for the public, including academic 

research. Commenters agreed that 

academics could benefit from the 

metrics. Improved research quality is an 

important element of the PCAOB’s 

standard-setting and rulemaking 

projects. 

One commenter said it was unclear 

how the PCAOB would use the 

information. As described in the 

proposal and above, the Board expects 

that the metrics will at least inform the 

PCAOB selection of engagements and 

focus areas for review and future 

academic research that utilizes the 

metrics could inform PCAOB 

rulemaking projects. Several 

commenters agreed that the information 

would be useful to the PCAOB. 

One commenter suggested that the 

PCAOB should be able to articulate 

which of the final metrics provide 

critical insights for effective monitoring 

by inspection teams using information 

obtained through PCAOB inspections. 

The PCAOB uses information like the 

final metric in various ways as part of 

its inspections approach. However, the 

Board believes the final metrics will on 

the whole provide additional value 

because they will be more comparable 

across firms, engagements, and time and 

the engagement-level metrics will be 

available to PCAOB staff at an earlier 

point in time than engagement-specific 

information provided pursuant to the 

review of an engagement. The same 

commenter said that public disclosure 

of the proposed metrics would not be 

necessary for the PCAOB to benefit from 

them. The Board agrees that some of the 

benefits to the PCAOB do not derive 

specifically from the public nature of 

the reporting. However, the PCAOB 

expects that it will benefit from 

academic research that the Board 

believes will be conducted using the 

publicly reported final metrics and 

broader stakeholder engagement. Public 

availability of the final metrics could 

also improve the quality of other 

stakeholder input received by the 

PCAOB (e.g., public comment or 

roundtable discussions). 

One commenter suggested that 

reliance on the metrics by PCAOB 

oversight could create a risk of 

enforcement for minor, unintentional 

errors in reporting. The commenter said 

this risk could manifest as a cost to 

smaller and mid-sized firms. The Board 

believes the commenter may have 

misinterpreted the benefit to PCAOB 

oversight as a suggestion that the 

PCAOB intends to make reporting of the 

final metrics an inspection focus area. 

While PCAOB inspectors may do so in 

the future, the Board is not suggesting 

this will benefit PCAOB oversight per 

se. Rather, the Board are suggesting that 

the final metrics themselves may help 

PCAOB inspections staff select firms, 

engagements, or focus areas for review. 

However, the Board acknowledges that, 

by relying on the final metrics, potential 

deficiencies in how firms are reporting 

them may become apparent to PCAOB 

staff. To the extent PCAOB oversight 

does consider firms’ compliance with 

the final rules, the Board believes the 

PCAOB would exercise appropriate 

discretion. 

Overall, the benefit to the PCAOB is 

difficult to quantify, as the social and 

economic benefits of enhanced 

regulatory oversight that is more 

efficient in its allocation of resources are 

difficult to monetize. The benefits of 

additional scholarly research are also 

difficult to quantify because there are a 

broad set of beneficiaries. 

ii. Indirect Benefits Linked to 

Competition 

Capital Market Effects 

Assuming that the additional 

information, context, and perspective on 

auditors and audit engagements helps 

investors assess audit performance, it 

may help investors assess financial 

reporting quality.306 For example, 

investors may incorporate the metrics 

into their portfolio selection 

decisions.307 One commenter said that 

the final metrics were necessary for 

auditors to have their work judged as 

something other than a commodity (i.e., 

competition on price alone). 

Issuers audited by auditors whose 

metrics capital markets associate with 

greater financial reporting quality may 

experience reduced cost of capital or 

other capital market benefits and 

investors may reallocate their capital 

accordingly. Taken in isolation, this 

would tend to result in a reallocation of 

capital from issuers with less reliable 

financial reporting quality to issuers 

with higher financial reporting quality. 

These capital market reactions could 

provide audit committees with a 

stronger incentive to appoint an auditor 

whose final metrics capital markets 

associate with greater financial 

reporting quality. These effects could 

lead to changes in audit fees as auditors 

respond to changing demand for their 

services. Facing capacity constraints, 

some audit firms may turn down 

engagements or recruit additional staff 

to expand capacity. 

Auditor Competition 

Against the backdrop of capital 

market reactions to the final metrics and 

as auditors become better able to 


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308 Improved competition following mandatory 

disclosure regimes has been observed in other 

markets. See above for additional discussion. One 

study finds that non-U.S. auditors inspected by the 

PCAOB gain market share from competing auditors 

after PCAOB inspection reports are made public, 

more so when the PCAOB inspection report has 

fewer engagement-level deficiencies. See Daniel 

Aobdia and Nemit Shroff, Regulatory Oversight and 

Auditor Market Share, 63 Journal of Accounting 

and Economics 262, (2017). 

309See above for a discussion on the relationship 

between audit quality and financial reporting 

quality. 

310Economic theory suggests that a reduction in 

search costs helps to make markets more 

competitive. See, e.g., Helmut Bester, Bargaining, 

Search Costs and Equilibrium Price Distributions, 

55 The Review of Economic Studies 201 (1988). 

There is an extensive literature in industrial 

organization economics studying the impact of 

search and advertising costs on competition. For 

example, Jean Tirole, The Theory of Industrial 

Organization, MIT Press 294 (1988) studies 

informative advertising (i.e., costs borne by sellers 

to inform buyers of the seller’s existence, product 

quality, and pricing) in a model involving 

differentiated sellers, and finds that prices fall as 

information costs fall. See also Grossman and 

Shapiro, Informative Advertising; and Glenn Ellison 

and Alexander Wolitzky, A Search Cost Model of 

Obfuscation, 43 The RAND Journal of Economics 

417 (2012). Glenn Ellison and Sarah F. Ellison, 

Search, Obfuscation, and Price Elasticities on the 

internet, 77 Econometrica 427 (2009) also show that 

reductions in search costs increase the pricesensitivity of demand, resulting in decreased prices 

for near-substitute goods, and that sellers may 

attempt to engage in obfuscation strategies to reduce 

competitive pressure. 

311The positive relationship between increased 

competition and lower audit fees is wellestablished, see, e.g., Wieteke Numan and Marleen 

Willekens, An Empirical Test of Spatial 

Competition in the Audit Market, 53 Journal of 

Accounting and Economics 450 (2012); and Andrew 

R. Kitto, The Effects of Non-Big 4 Mergers on Audit 

Efficiency and Audit Market Competition, 77 

Journal of Accounting and Economics 101618 

(2024). Other potential unintended impacts the 

proposal may have on competition are discussed 

below. 

312See Ahrum Choi, Sunhwa Choi, and Jaeyoon 

Yu, Does Internal Competition among Audit 

Partners Affect Audit Pricing Decisions?, Auditing: 

A Journal of Practice & Theory 1 (2024) (finding that 

U.S. audit partners compete for clients with other 

partners within their office who perform audits in 

the same industry). 

313See Vincent P. Crawford and Joel Sobel, 

Strategic Information Transmission, Econometrica: 

Journal of the Econometric Society 1431 (1982). 

314See below for additional discussion on how 

PCAOB oversight would mitigate potential 

manipulation of the final metrics. 

315See, e.g., Acito, et al., Market-Based Incentives 

for Optimal Audit Quality. 316See, e.g., Hanwen Chen, Jeff Zeyun Chen, 

Gerald J. Lobo, and Yanyan Wang, Effects of Audit 

Quality on Earnings Management and Cost of 

Equity Capital: Evidence from China, 28 

Contemporary Accounting Research 892 (2011); 

Richard Lambert, Christian Leuz, and Robert E. 

Verrecchia, Accounting Information, Disclosure, 

and the Cost of Capital, 45 Journal of Accounting 

Research 385 (2007) (concluding that improving the 

quality of accounting disclosures can influence the 

cost of capital and under certain conditions can 

unambiguously lower the cost of capital). 

317Cost of capital is the rate of return investors 

require to compensate them for the lost opportunity 

to deploy their capital elsewhere. Equivalently, cost 

of capital is the discount rate investors apply to 

future cash flows. Cost of capital depends, among 

others, on the riskiness of the underlying 

investment. Accordingly, the rate of return required 

by equity holders—cost of equity capital—and the 

rate of return required by debt holders—cost of debt 

capital—may differ to the extent equity and debt 

securities expose investors to different levels of 

risks. In the context of a particular company or 

portfolio of companies, the weighted average cost 

of capital is the average of the cost of equity capital 

and the cost of debt capital, weighted by the market 

values of the underlying equity and debt securities, 

respectively. See, e.g., R. A. Brealey, S. C. Myers, 

and F. Allen, Principles of Corporate Finance, 10th 

Edition McGraw-Hill 8, 90, and Chapter 7, (2011). 

For theoretical discussion on the link between 

financial reporting quality and cost of capital, see, 

e.g., Richard A. Lambert, Christian Leuz, and Robert 

E. Verrecchia, Information Asymmetry, Information 

Precision, and the Cost of Capital, 16 Review of 

Finance 1, 16–18 (2012); and David Easley and 

Maureen O’Hara, Information and the Cost of 

Capital, 59 Journal of Finance 1553, 1571 (2005). 

monetize their reputations, auditors 

could have an incentive to compete on 

the final metrics.308 For example, to win 

engagements, auditors may seek to 

manage their final metrics by 

redeploying staff resources or providing 

additional training. This competitive 

dynamic could improve audit quality 

and, by extension, financial reporting 

quality.309 Reduced search costs could 

increase auditor competition.310 In 

addition to facilitating issuers’ selection 

of a preferred auditor, the increase in 

competition could potentially reduce 

audit fees.311

The Board notes that the benefits 

linked to competition between audit 

firms could be reduced for the larger 

issuer segment of the market because 

larger issuers have fewer audit firms 

available to choose from that are able to 

perform large, complex audits, without 

violating independence rules and other 

constraints. However, the final metrics 

could help promote competition 

between partners within the larger 

firms.312 One commenter suggested that 

the ability of the proposed metrics to 

spark competition between firms is an 

important condition for rulemaking and 

one which the proposal abandons 

because the proposed metrics are 

divorced from audit quality and 

excessively burdensome. The Board 

agrees that the effect on competition is 

an important impact for the Board to 

consider, but the Board disagrees with 

the commenter’s assertions that the 

proposal abandoned it. To the contrary, 

the Board’s economic analysis 

considered all potential impacts of the 

final rules, competition among them. 

Indeed, based on the Board’s careful 

consideration of academic research, 

public comment, and the Board’s 

experience, the Board believes the final 

metrics could enhance competition and 

the Board’s economic analysis reflects 

this view. 

One commenter questioned whether 

firms’ management of their metrics to 

win market share would improve audit 

quality. As discussed in the proposal 

and below, the Board acknowledges that 

management of the final metrics may 

not always lead firms to improve their 

audit approach. However, economic 

theory suggests that if management of 

the metrics is entirely manipulatory, 

then users of the information will 

entirely discount it as ‘‘cheap talk.’’ 313

The Board believes this extreme ‘‘cheap 

talk’’ outcome is unlikely, in part, 

because the final rules will be subject to 

PCAOB oversight as well as firms’ QC 

systems, which are in turn subject to QC 

1000.314

iii. Indirect Benefits of Improved 

Financial Reporting Quality 

As described above, to the extent the 

final rules improve audit performance, 

the final rules will also improve 

financial reporting quality. More 

reliable financial information would 

allow investors 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 reallocate their 

capital accordingly).315 Investors may 

also perceive less risk in capital markets 

generally, leading to an increase in the 

supply of capital.316 An increase in the 

supply of capital could increase capital 

formation while also reducing the cost 

of capital to companies.317 A reduction 

in the cost of capital reflects a welfare 

gain because it implies investors 

perceive less risk in the capital markets. 

The Board is unaware of any literature 

that would provide a basis for 

quantifying the magnitude of financial 

reporting quality improvement 

associated with the final rules. 

However, academic literature has 

attempted to quantify the impact of 

improved financial reporting quality on 

cost of capital by measuring the 

association between various quantitative 

proxies for financial reporting quality 

and cost of capital after controlling for 

other potential drivers of cost of capital. 

Subject to the caveats discussed below, 

this literature suggests, overall, that 

even small improvements in financial 

reporting quality can result in 

reductions in issuers’ cost of capital of 

multiple basis points in magnitude. Due 

to the size of the U.S. capital markets, 

even a single basis point reduction in 

the cost of capital implies substantial 

welfare gains. 

Some studies examine the 

relationship between improved 


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318See Mary E. Barth, Yaniv Konchitchki, and 

Wayne R. Landsman, Cost of Capital and Earnings 

Transparency, 55 Journal of Accounting and 

Economics 206, 216–217 (2013). 

319See Paul Hribar and Nicole Thorne Jenkins, 

The Effect of Accounting Restatements on Earnings 

Revisions and the Estimated Cost of Capital, 8 

Review of Accounting Studies 337, 337 (2004). 

320See Jennifer Francis, Ryan LaFond, Per 

Olsson, and Katherine Schipper, The Market Pricing 

of Accruals Quality, 39 Journal of Accounting and 

Economics 295, 297 (2005). 

321See Christine A. Botosan and Marlene A. 

Plumlee, A Re-examination of Disclosure Level and 

the Expected Cost of Equity Capital, 40 Journal of 

Accounting Research 21, 22 (2002). 

322See Luzi Hail and Christian Leuz, 

International Differences in the Cost of Equity 

Capital: Do Legal Institutions and Securities 

Regulation Matter?, 44 Journal of Accounting 

Research 485, 488 (2006). 

323See Utpal Bhattacharya, Hazem Daouk, and 

Michael Welker, The World Price of Earnings 

Opacity, 78 Journal of Accounting and Economics 

641, 643 (2003). 

324See Partha Sengupta, Corporate Disclosure 

Quality and the Cost of Debt, 73 The Accounting 

Review 459 (1998). 

325See Francis, et al., The Market Pricing 297. 

326For a more general discussion of challenges 

identifying causal relationships in financial 

reporting research, see Leuz and Wysocki, The 

Economics of Disclosure and Financial Reporting 

Regulation. 

327Endogeneity occurs when an explanatory 

variable in a multiple regression model is correlated 

with unobserved factors that affect the dependent 

variable. See Jeffrey M. Wooldridge, Introductory 

Econometrics: A Modern Approach, South-Western 

Cengage Learning, 4th edition 838 (2008). 

328See David F. Larcker and Tjomme O. Rusticus, 

On the Use of Instrumental Variables in Accounting 

Research, 49 Journal of Accounting and Economics 

186, 203 (2010). 

329See, e.g., Christian Leuz and Robert E. 

Verrecchia, The Economic Consequences of 

Increased Disclosure, 38 Journal of Accounting 

Research 91, 121 (2000) (using bid-ask spreads for 

German companies as a proxy for cost of capital) 

and David A. Cohen, Does Information Risk Really 

Matter? An Analysis of the Determinants and 

Economic Consequences of Financial Reporting 

Quality, 15 Asia-Pacific Journal of Accounting & 

Economics 69, 70 (2010). 

330The authors suggest that the result may be 

attributable to increased stock price volatility 

arising from excessive focus on short-term profits. 

See Botosan and Plumlee, A Re-examination 21 and 

37. 

331See Christine A. Botosan, Disclosure Level and 

the Cost of Equity Capital, 72 The Accounting 

Review 323 (1997). 

financial reporting quality and 

companies’ cost of equity capital. For 

example, one study quantified the 

relationship between earnings 

transparency and cost of equity 

capital.318 The study found that, 

compared to a baseline of no 

transparency, companies with an 

average level of earnings transparency 

had between 1.7 and 3.4 percentage 

points lower cost of equity capital, 

depending on the estimation 

methodology. Using restatements as a 

proxy for financial reporting quality, 

another study found that a restatement 

increases the cost of equity capital by 

between six and 15 percent in the longer 

term.319 Assuming a 10 percent cost of 

capital, this result corresponds to 

between a 60 and 150 basis point 

increase in the cost of equity capital. 

One study found that companies with 

the highest accruals quality had a 210 

basis point lower cost of equity capital 

compared to companies with the lowest 

accruals quality.320 Using disclosure 

quality ratings (determined by an index 

prepared by analysts) as a proxy for 

financial reporting quality, another 

study found that companies with the 

highest disclosure quality ratings had 

roughly a 0.7 percentage point lower 

cost of equity capital compared to 

companies with the lowest.321 From an 

international perspective, one study 

found that companies in countries in 

the 75th percentile of strength of 

disclosure rules and associated 

enforcement had roughly a 200 basis 

point lower costs of equity capital than 

countries at the 25th percentile (i.e., 

countries with weaker disclosure rules 

and enforcement).322 Another study 

found that, compared to companies in 

countries at the 75th percentile of 

earnings opacity, the cost of equity 

capital for companies in the 25th 

percentile (i.e., countries with less 

opaque earnings) had a 2.8 percentage 

point lower cost of equity capital.323

While the above studies examine the 

impact of improved financial reporting 

quality on companies’ cost of equity 

capital, several studies examine instead 

the impact of improved financial 

reporting quality on companies’ cost of 

debt capital. For example, one study 

found that companies with the highest 

disclosure quality ratings (determined 

by an index prepared by analysts) have 

roughly 1.1 percentage points lower cost 

of debt capital than companies with the 

lowest disclosure quality ratings.324

Another study found that companies in 

the highest decile of accruals quality 

had a 126-basis point lower cost of debt 

capital than companies in the lowest 

decile of accruals quality.325

While the Board believes these 

studies are indicative of the potential 

impacts improved financial reporting 

quality may have on capital markets, the 

Board acknowledges that the studies are 

subject to certain caveats.326 First, the 

studies do not indicate the degree to 

which the disclosure of firm and 

engagement metrics could impact 

financial reporting quality in the first 

instance. Therefore, the magnitudes 

must be treated as illustrative examples, 

rather than point estimates, of the 

potential benefits of the final rules. 

Second, some of the studies may be 

subject to some endogeneity bias.327 For 

example, companies with high financial 

reporting quality may also be wellmanaged, a form of omitted variable 

bias. Similarly, companies that 

voluntarily provide higher quality 

information may do so because they are 

in a stronger financial position already, 

a form of self-selection bias. Due to 

these potential biases, some of the 

studies may overestimate the extent to 

which improved financial reporting 

quality reduces companies’ cost of 

capital. Controlling for endogeneity bias 

is challenging and the results of any one 

methodology may be sensitive to the 

methodology’s assumptions.328 Indeed, 

after attempting to statistically control 

for endogeneity bias, one study found 

that the association between financial 

reporting quality and cost of equity 

capital remains while another found 

that it disappears.329

Third, while most research tends to 

find positive associations between 

financial reporting quality and the cost 

of capital, some studies have found 

counterintuitive or unexpected 

associations. For example, one study 

found that the timeliness of disclosures 

is negatively associated with the cost of 

equity capital.330 The results of another 

study suggest that the association 

between improved financial reporting 

quality and reduced cost of capital may 

apply only to companies with low 

analyst following.331

Despite these caveats, the Board 

believes that the academic literature 

suggests overall that improved financial 

reporting quality results in lower costs 

of capital and, moreover, that even 

small improvements can reduce the cost 

of capital by one or more basis points. 

The studies discussed above found 

multiple percentage point reductions in 

cost of capital when companies (or 

countries) with the weakest financial 

reporting proxies are compared to the 

companies (or countries) with the 

strongest financial reporting proxies. As 

such, just one hundredth of the 

improvement in those measures could 

result in reductions in the cost of capital 

by multiple basis points. Due to the size 

of U.S. capital markets, even small 

reductions in the cost of capital, on the 

order of multiple basis points, can 

generate significant welfare gains. For 

example, using recent data on the size 

of the U.S. equity and debt capital 

markets, a single basis point reduction 

in the weighted average cost of capital 


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332 (1 basis point/(8% average cost of capital—1 

basis point)) × ($68.1 trillion in equity market 

capitalization + $11.0 trillion in debt market 

capitalization) = $99.0 billion. Source: S&P Capital 

IQ and SIFMA. The debt market capitalization 

figure reflects U.S. corporate bonds outstanding as 

of 2024 Q2. It does not include private debt. The 

Board notes several key assumptions and 

limitations of the calculation. The calculation 

assumes that debt and equity capital comprise all 

forms of capital (i.e., the calculation disregards 

other potential forms of capital) and that their total 

value is equal to the sum of all future cash flows 

discounted by the weighted average cost of capital. 

It assumes a weighted average cost of capital of 8% 

based on historic averages for the Russell 3000. See 

Michael J. Mauboussin and Dan Callahan, Cost of 

Capital: A Practical Guide to Measuring 

Opportunity Cost, Morgan Stanely Investment 

Management Counterpoint Global Insights, Exhibit 

16 (2023). The calculation does not account for the 

potential beneficial impact of changes in the 

quantity of capital supplied nor does it account for 

potential general equilibrium effects in other 

markets. As discussed above, the calculation 

pertains to weighted average cost of capital 

reductions only. It does not capture potential 

increases in total market capitalization arising from 

improved management or improved capital 

allocation. The Board acknowledges that some 

issuers that contribute to the Board’s market 

capitalization figures are not audited by firms that 

will be subject to the final requirements and 

therefore will not be impacted by the final 

requirements. However, the Board believes they 

make up a small share of total market capitalization. 

would imply at least $99.0 billion in 

welfare gains.332

One commenter suggested that a 

review of the academic literature on cost 

of capital should allow the Board to 

quantify the impact of the final metrics 

on cost of capital decisions. The 

proposal provided a review of academic 

literature on cost of capital. That review 

appears here in essentially the same 

form. As discussed above, the Board 

believes this literature does provide 

evidence of the quantitative benefits of 

improved financial reporting quality 

generally. However, the Board is 

unaware of any literature that would 

provide a basis for quantifying the 

magnitude of financial reporting quality 

improvement (and thus the magnitude 

of cost of capital reduction) associated 

with the final rules and the commenter 

did not identify such literature. 

One commenter said that the proposal 

assumed that investors have 

homogenized interests when in fact 

there will always be a buyer and a seller 

with conflicting objectives. The Board 

recognizes that, with respect to 

secondary trading of issuer securities, 

buyers and sellers have conflicting 

objectives. To the extent the final 

metrics inform traders’ perceptions of 

the value of issuer securities or 

otherwise improve financial reporting 

quality, the final metrics could in the 

short run benefit one trading 

counterparty at the expense of the other. 

However, for the reasons discussed 

above, the Board believes that more 

reliable financial reporting quality 

benefits capital markets overall in the 

long run. 

iv. Academic Literature and Comments 

Related to Specific Final Firm and 

Engagement Metrics 

In the following discussion the Board 

reviews the extant literature related to 

the final metrics. In doing so, the Board 

separates the final metrics into three 

categories: (i) metrics related to audit 

personnel; (ii) metrics related to the 

allocation of audit hours; and (iii) 

metrics related to audit outcomes. 

The Board notes three important 

caveats. First, as most of the final 

metrics are not currently publicly 

available, academic studies principally 

rely on information obtained from audit 

firms directly, surveys, or foreign 

jurisdictions. Their relevance is thus 

limited by the fact that the metrics they 

study are not equivalent to the final 

metrics and their results may not be 

directly applicable to the U.S. audit 

market more generally. Second, while 

the extant literature may draw 

conclusions regarding a particular 

metric’s relationship to publicly 

available proxies for audit quality, this 

does not imply that a final metric will 

provide any new insights to investors 

and audit committees incremental to the 

insights already provided by the 

publicly available proxies for audit 

quality. Finally, those relationships may 

be non-linear or difficult to fully 

evaluate. 

One commenter said that some 

studies cited in the proposal feature 

investors or investor groups who may 

not be representative of the broader 

population of investors. The commenter 

did not refer to any specific study. The 

Board acknowledges that the samples 

featured in some of the empirical 

studies discussed below may not be 

perfectly representative of the 

population of stakeholders that will be 

impacted by the final rules. While this 

fact limits their relevance, the Board 

believes their samples are similar 

enough to the impacted population that 

their results inform the economic 

analysis of the final rules. Consistent 

with the PCAOB’s staff guidance on 

economic analysis, the Board 

highlighted key aspects of the studies 

(e.g., the representativeness of their data 

sample) that may limit their relevance. 

Several commenters suggested that 

the PCAOB should, as a starting point, 

demonstrate that any final metric has an 

unambiguous impact on audit quality. 

One commenter suggested that the 

PCAOB obtain research suggesting that 

any behavioral change produced by a 

final metric should not harm audit 

quality. The commenter also suggested 

that the univariate disclosures should 

provide a complete picture of the 

engagement and firm. As the commenter 

acknowledged, the Board performed an 

extensive literature review, the 

substance of which the commenter did 

not dispute. The Board also considered 

all academic research provided by 

commenters. While the Board 

considered the potential effects of the 

metrics on audit quality and auditor 

behavior, the Board does not believe 

that the rigid criteria suggested by 

commenters are necessary or 

appropriate. As the Board stated above, 

and as many commenters affirmed 

including this commenter, audit quality 

is complex and requires significant 

context to fully appreciate. As such, no 

metric taken in isolation can provide a 

complete picture of a firm and its 

engagements and thus have an 

unambiguous impact on audit quality. 

Furthermore, research cannot prove that 

any future behavioral changes would 

not harm audit quality. However, in 

selecting each of the final metrics, the 

Board considered whether the evidence 

on its relationship to the quality of firms 

and their engagements, which the Board 

believes reflects the spirit of the 

selection approach suggested by the 

commenter. 

The same commenter also suggested 

that the Board consider whether the 

disclosures would meet the SEC’s goals 

for required disclosures. The SEC’s 

goals on required disclosures have 

traditionally focused on corporate 

disclosure, although they may include 

auditor disclosure in certain contexts. 

The Board has carefully considered 

whether the required disclosures would 

help the PCAOB achieve its objectives 

in furtherance of its statutory mandate. 

The same commenter also questioned 

whether many of the academic studies 

surveyed in the academic literature 

review supported the proposal because 

they use statistical methods to identify 

causal relationship that hold other 

elements of the audit process fixed. The 

Board assumes that the commenter 

intended to contrast this standard 

statistical approach with the fact that, in 

practice, investors and audit committees 

will be comparing firms and 

engagements where other elements of 

the audit process are not fixed. The 

Board agrees that no single academic 

study that the Board reviewed provides 

dispositive proof that investors or audit 

committees will be able to interpret any 

individual metric in practice without 

also understanding the full context. 

Indeed, the Board has acknowledged 

that no individual metric can measure 

audit quality and a fuller appreciation of 


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333See, e.g., Suyon Kim, Engagement Partners’ 

Effort, 9 Risks 1 (2021). 

334See, e.g., Albert L. Nagy, Matthew G. 

Sherwood, and Aleksandra B. Zimmerman, CPAs 

and Big 4 Office Audit Quality, 42 Journal of 

Accounting and Public Policy 107018 (2023). 

335Another study using Japanese data finds that 

the number of CPA holders staffed to an audit 

engagement is positively associated with audit 

quality while the number of non-CPA holders is 

not. See Hossain, et al., The Relationship. 

336See, e.g., Lo, et al., Does Availability of Audit 

Partners. 

337See, e.g., Christensen, et al., Team Workloads. 338See, e.g., Persellin, et al., Auditor Perceptions 

Table 2; Dana R. Hermanson, Richard W. Houston, 

Chad M. Stefaniak, and Anne M. Wilkins, The Work 

Environment in Large Audit Firms: Current 

Perceptions, 10 Current Issues in Auditing A38 

(2016); and John T. Sweeney and Scott L. Summers, 

The Effect of the Busy Season Workload on Public 

Accountants’ Job Burnout, 14 Behavioral Research 

in Accounting 223 (2002). 

339See, e.g., Christensen, et al., Team Workloads; 

Jun Chen, Wang Dong, Hongling Han, and Nan 

Zhou, Does Audit Partner Workload Compression 

Affect Audit Quality?, 29 European Accounting 

Review 1021 (2020); Jin Suk Heo, Soo Young Kwon, 

and Hun-Tong Tan, Auditors’ Responses to 

Workload Imbalance and the Impact on Audit 

Quality, 38 Contemporary Accounting Research 338 

(2021); Hwang and Hong, Auditors’ Workload; 

Dennis M. Lopez and Gary F. Peters, The Effect of 

Workload Compression on Audit Quality, 31 

Auditing: A Journal of Practice & Theory 139 

(2012); Persellin, et al., Auditor Perceptions; and 

Ferdinand A. Gul, Shuai Mark Ma, and Karen Lai, 

Busy Auditors, Partner-Client Tenure, and Audit 

Quality: Evidence from an Emerging Market, 16 

Journal of International Accounting Research 83 

(2017). 

340See, e.g., Sudip Bhattacharjee, Mario J. 

Maletta, and Kimberly K. Moreno, The Cascading 

of Contrast Effects on Auditors’ Judgments in 

Multiple Client Audit Environments, 82 The 

Accounting Review 1097 (2007). 341See Persellin, et al., Auditor Perceptions. 342See Goodwin and Wu, What is the 

Relationship. 

343See, e.g., Khavis and Szerwo, Audit-Employee 

Turnover, Audit Quality, and the Auditor-Client 

Relationship 27; and Christensen, et al., Team 

Workloads. 

344See Tao Ma, Chi Wan, Yakun Wang, and 

Yuping Zhao, Individual Auditor Turnover and 

Audit Quality—Large Sample Evidence from US 

Audit Offices, 99 The Accounting Review 297 

(2024). 

345See, e.g., Linden, et al., Audit Firm Employee 

Turnover and Audit Quality 4. 

346See, e.g., W. Robert Knechel, Juan Mao, Baolei 

Qi, and Zili Zhuang, Is There a Brain Drain in 

Auditing? The Determinants and Consequences of 

Auditors Leaving Public Accounting, 38 

Contemporary Accounting Research 2461 (2021). 

audit quality requires consideration of a 

broad array of factors, many of which 

are unquantifiable (e.g., professional 

skepticism). However, the Board does 

not believe this implies that the 

academic studies surveyed provide no 

support for the final rules. 

One commenter said that the proposal 

did not provide sufficient evidence that 

public disclosure of the proposed 

metrics would meaningfully impact 

audit quality. Given that data using the 

specific final metrics is not currently 

available, evidence of their effects on 

audit quality is necessarily limited. 

Nevertheless, the Board believes the 

academic literature discussed below and 

the analysis discussed throughout this 

section provide evidence that the final 

metrics, taken as a whole, could have 

meaningful impacts to audit quality, 

which the Board believes could lead to 

significant benefits to investors, audit 

committees, and other stakeholders. 

a. Metrics Related to Audit Personnel 

The Partner and Manager Involvement 

metrics will indicate the hours worked 

by senior professionals relative to more 

junior staff across the firm’s large 

accelerated and accelerated filer 

engagements and on the specific 

engagement. Investors and audit 

committees could use this information 

to evaluate whether partners and 

managers are giving their engagement 

appropriate attention. Although the 

academic literature related to audit 

partner and manager involvement is 

limited, one study using Korean data 

suggests that audit partner involvement 

is positively associated with audit 

quality.333 Another study finds that the 

offices of U.S. Big 4 audit firms with 

relatively more CPAs tend to provide 

higher audit quality.334 While the 

number of staff with CPAs is not 

equivalent to the share of senior staff 

hours reflected in the metric, the finding 

does suggest that greater involvement of 

experienced staff is beneficial to audit 

quality.335 Another study using Chinese 

data finds that a greater partner to staff 

ratio is positively associated with audit 

quality.336 However, using U.S. data, 

another study finds partner time spent 

concurrently on other audits is not 

associated with audit quality.337

The Workload metrics will indicate 

the average weekly hours worked on a 

quarterly basis by senior professionals, 

including time attributable to 

engagements, administrative duties, and 

all other matters, both firm-wide and on 

the core engagement team. Investors and 

audit committees could use this 

information to evaluate whether 

partners and managers are overworked 

or potentially distracted by other 

responsibilities. In certain 

circumstances, higher workloads could 

indicate that partners and managers are 

working longer to ensure audit quality 

is high. While there is no established 

optimal workload level for audit teams 

or their staffing components, academic 

literature suggests that auditors have 

high workloads, particularly during the 

busy season.338 Furthermore, several 

academic studies, primarily using 

international data, find that high 

workload levels (e.g., workloads that 

exceed 60 hours per week), particularly 

during the busy season, negatively 

impact audit quality.339 Auditors that 

work on multiple engagements in 

different environments and scopes may 

also experience issues with memoryrelated errors.340 However, the impacts 

of workload may depend on the 

auditor’s ability to handle such normal 

workloads.341 Furthermore, one study 

finds that audit partner busyness is not 

related to audit quality under 

equilibrium market conditions.342

The Retention of Audit Personnel 

metrics will indicate the continuity of 

senior professionals (through 

departures, reassignments, etc.) across 

the firm. Discontinuity of senior 

professionals at the firm could be a 

signal of dysfunction within the firm 

and a loss of valuable issuer and firmspecific human capital. Some research 

suggests that excessive levels of 

turnover, particularly at the staff level, 

could lead to a deterioration in audit 

quality.343 One study finds that auditor 

turnover at U.S. Big 4 firms has a 

significant negative effect on audit 

quality as measured by the prevalence 

of restatements.344 Using Belgian data 

collected from private and public 

companies, another study finds that 

abnormal turnover is more likely to 

affect audit quality than expected (i.e., 

normal or average) levels of turnover, 

and the negative consequences of 

turnover impact existing clients more 

than new clients.345 Firms with larger 

internal labor pools may be better 

positioned to mitigate the negative 

consequences of turnover. For example, 

using data from Chinese audit firms on 

auditor departure from public 

accounting, one study finds that the 

negative effect of departure on audit 

quality is stronger for non-Big 4 

firms.346

The Experience of Audit Personnel 

metrics will indicate the average 

number of years worked at a public 

accounting firm (whether or not 

PCAOB-registered) by senior 

professionals across the firm and on the 

engagement. Greater experience of audit 

personnel metrics may indicate to 

investors and audit committee members 

that senior professionals are more 

effective and efficient auditors. The 

extant academic literature shows mixed 

results regarding the association 

between auditor experience and audit 

quality. One study of U.S. audit partners 

finds that absolute discretionary 

accruals, a proxy for audit quality, is 

increasing (decreasing) in the number of 

years the partner has been a CPA 


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347See Chenyong Liu and Chunhao Xu, The 

Effect of Audit Engagement Partner Professional 

Experience on Audit Quality and Audit Fees: Early 

Evidence from Form AP Disclosure, 29 Asian 

Review of Accounting 128 (2021). 

348See, e.g., Bennett and Hatfield, The Effect of 

the Social Mismatch 46–47. 

349See, e.g., Hye Seung Lee, Albert L. Nagy, and 

Aleksandra B. Zimmerman, Audit Partner 

Assignments and Audit Quality in the United 

States, 94 The Accounting Review 297 (2019). 

350See, e.g., Chi, et al., The Effects of Audit 

Partner 363. 

351See Steven F. Cahan and Jerry Sun, The Effect 

of Audit Experience on Audit Fees and Audit 

Quality, 30 Journal of Accounting, Auditing & 

Finance 78 (2015). 

352See, e.g., Ferdinand A. Gul, Donghui Wu, and 

Zhifeng Yang, Do Individual Auditors Affect Audit 

Quality? Evidence from Archival Data, 88 The 

Accounting Review 1993, Table 6 (2013). 

353See, e.g., Craswell, et al., Auditor Brand Name 

(finding, using a sample of Australian firms, that 

industries that require greater specialization are 

associated with greater audit fees, consistent with 

‘‘demand for audit quality’’); Mark L. DeFond, Jere 

R. Francis, and T. J. Wong, Auditor Industry 

Specialization and Market Segmentation: Evidence 

from Hong Kong, 19 AUDITING: A Journal of 

Practice & Theory 49 (2000) (finding, using a 

sample of publicly listed Hong Kong companies, 

that industry specialization, as proxied by being 

among the top three firms in an industry by market 

share, is associated with greater audit fees among 

Big 6 auditors but lower audit fees among non-Big 

6 auditors); Balsam, et al., Auditor Industry 

Specialization and Earnings Quality 95 (finding 

audit quality proxies are positively associated with 

the auditor being the largest auditor in an industry); 

Gopal V. Krishnan, Does Big 6 Auditor Industry 

Expertise Constrain Earnings Management?, 17 

Accounting Horizons 1, 3 (2003) (finding that a 

firm’s audit fee share within an industry is 

associated with higher audit quality [lower absolute 

discretionary accruals]); and Knechel, et al., Does 

Auditor Industry Specialization Matter? (finding 

that issuers that switch to auditors that have at least 

a 30% market share in the issuer’s industry 

experience significant positive anormal returns). 

354See Jennifer J. Gaver and Steven Utke, Audit 

Quality and Specialist Tenure, 94 The Accounting 

Review 113 (2019). 

355See, e.g., Low, The Effects of Industry 

Specialization 202. 

356See, e.g., Jere R. Francis, Kenneth Reichelt, 

and Dechun Wang, The Pricing of National and 

City-Specific Reputations for Industry Expertise in 

the U.S. Audit Market, 80 The Accounting Review 

113, 114 (2005) and Aobdia et al., Heterogeneity in 

Expertise in a Credence Goods Setting. 

357See, e.g., Terry L. Neal and Richard R. Riley, 

Auditor Industry Specialist Research Design, 23 

AUDITING: A Journal of Practice & Theory 169 

(2004); Steven F. Cahan, Debra C. Jeter, and Vic 

Naiker, Are All Industry Specialist Auditors the 

Same?, 30 AUDITING: A Journal of Practice & 

Theory 191 (2011); and Miguel Minutti-Meza, Does 

Auditor Industry Specialization Improve Audit 

Quality?, 51 Journal of Accounting Research 779, 

813 (2013) (finding that ‘‘auditor industry 

specialization, measured using the auditor’s withinindustry market share, is not a reliable indicator of 

audit quality’’ and that ‘‘these findings do not imply 

that industry knowledge is not important for 

auditors’’). 

358See Hossein Nouri and Robert J. Parker, Career 

Growth Opportunities and Employee Turnover 

Intentions in Public Accounting Firms, 45 The 

British Accounting Review 138 (2013). 

359See Limei Che, John Christian Langli, and 

Tobias Svanstro ̈m, Education, Experience, and 

Audit Effort, 37 Auditing: A Journal of Practice & 

Theory 91 (2018). The study judged the accuracy of 

the auditor’s going concern evaluation by reference 

to subsequent bankruptcy of the audited company. 

Note that there are several limitations to this proxy. 

See Marshall A. Geiger, Anna Gold, and Phillip 

Wallage, Auditor Going Concern Reporting: A 

Review of Global Research and Future Research 

Opportunities (2021). 

360See Tobias Svanstro ̈m, Time Pressure, 

Training Activities and Dysfunctional Auditor 

Behaviour: Evidence from Small Audit Firms, 20 

International Journal of Auditing 42 (2016). The 

study defines ‘‘dysfunctional behaviors’’ as: (1) 

making superficial reviews of client documents; (2) 

incorrectly signing off on an audit step; (3) 

prematurely signing-off on an audit step; (4) 

accepting weak client explanations; or (5) putting 

a greater level of trust in the audit client than is 

reasonable. 

361See Josep Garcı ́a-Blandon, Josep Marı ́a 

Argile ́s-Bosch, and Diego Ravenda, Learning by 

Doing? Partners Audit Experience and the Quality 

of Audit Services, 23 Revista de Contabilidad 

(Spanish Accounting Review) 197 (2020). 

362See Ira Solomon, Michael D. Shields, O. Ray 

Whittington, What Do Industry-Specialist Auditors 

Know?, 37 Journal of Accounting Research 191 

(1999). 

363See Sarah E. Bonner and Barry L. Lewis, 

Determinants of Auditor Expertise, 28 Studies on 

Judgment Issues in Accounting and Auditing 1 

(1990) 16. 

licensee early (late) in their career.347

One experimental study from the United 

States found that less-experienced 

auditors may be less willing to request 

additional evidence from company 

controllers.348 However, another U.S. 

study finds that audit partner 

experience is not associated with audit 

quality.349 Using data from Taiwan, one 

study finds that an auditor’s experience 

is positively associated with proxies for 

audit quality.350 One study on Chinese 

audit firms finds that the number of 

years that the partner has been engaged 

in audit work is negatively associated 

with absolute discretionary accruals, a 

proxy for audit quality.351 However, 

another study using data from Chinese 

audit firms finds that the an auditor’s 

birth year, a proxy for total experience, 

is not associated with several proxies for 

audit quality.352

The Industry Experience metrics will 

indicate the average years of career 

experience of senior professionals in 

key industries audited by the firm at the 

firm level and the audited company’s 

primary industry at the engagement 

level. The academic literature shows 

that industry experience, primarily 

using market share proxies, are related 

to audit quality.353 One study of U.S. 

Big 4 firms finds that audit quality is 

positively associated with the number of 

years that the auditor is an industry 

specialist (i.e., it has the largest market 

share in an industry and at least 10% 

more market share than the next-largest 

competitor).354 One experimental study 

finds that auditor participants that have 

experience in an industry are more 

likely to understand the specific 

financial reporting requirements and 

risks that issuers in those industries 

face.355 However, some research 

suggests that the impact of industry 

specialization on audit quality may 

depend on other contextual factors (e.g., 

whether the auditor is local to the client 

or the difficulty of the audit).356 The 

Board also notes that some studies 

indicate that research on experience and 

industry specialization may be sensitive 

to design, proxy, and stratification level 

(i.e., office-level and national-level). 

However, as one of the studies notes, 

the Board believes these findings do not 

imply that industry expertise is 

unrelated to audit quality.357

The Training Hours for Audit 

Personnel metrics would indicate 

average annual training hours for 

partners, managers, and staff of the firm, 

combined, both firm-wide and on the 

core engagement team. Overall, the 

academic literature provides mixed 

evidence regarding how auditor training 

relates to audit quality, but provides 

some evidence to support the 

association between specialized training 

and audit quality. Some studies find 

that certain proxies for auditor training 

are positively associated with some 

proxies for audit quality. For example, 

one survey of junior auditors at large 

U.S. public accounting firms found that 

the perceived effectiveness of training 

was associated with lower turnover 

intentions.358 A study on Norwegian 

audit partners found that CPE hours 

were positively associated with audit 

effort and going concern opinion 

accuracy.359 A survey of auditors 

working in small audit firms in Sweden 

found that participation in four or more 

training activities or 50 or more hours 

of education per year were negatively 

associated with self-reported 

‘‘dysfunctional’’ behaviors.360 However, 

other studies suggest that the benefits of 

training are driven primarily by 

specialized training. For example, one 

study on the Spanish audit market 

found that only partners’ specialized, or 

non-generic audit knowledge (as 

proxied by industry-specific 

experience), was significantly positively 

associated with audit quality.361 An 

older experimental study found that 

specialized indirect experience (i.e., 

training), resulted in a stronger 

understanding for the auditor, but had 

a greater impact of knowledge unrelated 

to financial statement errors.362 Another 

experimental study found that 

specialized training and experience 

were more strongly associated with 

improved audit outcomes than general 

knowledge.363


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364See, e.g., Monika Causholli, W. Robert 

Knechel, and Haijin Lin, and David E. M. 

Sappington, Competitive Procurement of Auditing 

Services with Limited Information, 22 European 

Accounting Review 573, 576–578 (2013). 365 Id. 366See Jeffrey L. Hoopes, Kenneth J. Merkley, 

Joseph Pacelli, and Joseph H. Schroeder, Audit 

Personnel Salaries and Audit Quality, 23 Review of 

Accounting Studies 1096 (2018); Brandon Gipper, 

Luzi Hail, and Christian Leuz, On the Economics of 

Mandatory Audit Partner Rotation and Tenure: 

Evidence from PCAOB Data, 96 The Accounting 

Review 303 (2021); Christensen, et al., Team 

Workloads. 

367See Joshua Khavis et al., Manager Staffing 

Leverage. 368See Kenneth L. Bills, Quinn T. Swanquist, and 

Robert L. Whited, Growing Pains: Audit Quality and 

Office Growth, 33 Contemporary Accounting 

Research 288 (2016); Christensen, et al., Team 

Workloads. 

369See above for a more general discussion of 

commenters’ concerns regarding comparability of 

the final metrics. 

370See above for a more general discussion of 

commenters’ concerns regarding the relationship 

between the proposed metrics and audit quality. 

371See below for a more general discussion of 

commenters’ concerns regarding potential 

misinterpretation by investors, audit committees, 

and auditors. 

By requiring auditors to disclose these 

personnel related metrics, investors and 

audit committees could, for example, 

identify auditors with sustainable 

workloads, with the implicit outcome 

that sustainable workloads could 

improve auditor attentiveness and 

reduce error rates. Additionally, 

investors and audit committees may 

find the final metrics to be useful in 

evaluating the risk that the auditor has 

overlooked errors or material 

misstatements due to overworked 

partners or managers or that the 

engagement team was not sufficiently 

qualified or specialized. Moreover, 

investors may find the final metrics 

beneficial in understanding whether the 

engagement, and therefore the issuer, 

had significant risks or the issuer’s 

operations were particularly complex 

compared to peer issuers. For example, 

if there was a significantly higher 

workload across partners, managers, and 

staff—or excessive turnover—compared 

to another investment opportunity of 

similar issuer size, the investor may 

then infer that the issuer had unique 

risks that necessitated increased audit 

effort. Such a signal may be particularly 

useful if the investor could ascertain 

whether peer issuers were more, or less, 

complex compared to the issuer under 

consideration. The investor may also be 

reasonably assured if there were 

positive audit outcomes as it may signal 

to the investor that the auditor exerted 

considerable or appropriate effort in 

obtaining a reasonable level of 

assurance on the issuer’s financial 

statements in the context of their peers 

for that issuer’s complexity and risk 

level. 

Audit committees may also find these 

final metrics to be beneficial, as the 

audit committee may view them as 

confirming that the auditor is 

appropriately staffing the engagement. 

In addition, during the selection process 

for a new auditor, the audit committee 

may review the final metrics of potential 

candidate auditors in the context of 

peer-group engagements, thereby using 

the final metrics to make auditor 

selection decisions more effectively. By 

selecting an auditor based on their 

experience or industry-specific 

knowledge, audit committees could be 

better able to choose the preferred 

candidate auditor for their 

engagement—thereby improving the 

matching efficiency of human capital 

within and across firms by helping to 

align the demand for resources with the 

supply. 

Audit firms may find the final metrics 

beneficial as they may be better able to 

monitor whether they are 

unintentionally over- or under-auditing, 

as they will be able to compare their 

audit personnel metrics to other firms’ 

metrics. Audit firms may also benefit 

from identifying lead industry-specialist 

auditors and improve their own audit 

services to compete with these industry 

specialists on the quality of those 

services. Importantly, incumbent 

auditors (i.e., current auditors of an 

issuer) know more about the issuer’s 

operations than rival competitor 

auditors.364 The disclosure of the final 

metrics could provide these competitor 

auditors with the ability to observe 

signals regarding the effort and 

experience required on the engagement, 

and those auditors may be able to use 

that information to compete against the 

incumbent auditor for the issuer’s 

prospective engagement more 

effectively.365

The final metrics related to audit 

personnel and commenters’ views are 

discussed and summarized above. Here 

the Board highlighted the comments 

that are most relevant to the economic 

analysis. Citing academic research, one 

commenter said that human capital 

inputs to audit production are crucial to 

audit quality.366 The same comment 

letter referred to a working paper 

written by the letter’s authors which 

finds the manager-to-employee ratio at 

the audit office level is positively 

associated with audit quality.367 The 

commenter cited two academic studies 

that suggest audit offices are core 

functional units.368 Several commenters 

expressed concern that the benefits to 

reporting partner and manager 

involvement may be dampened by the 

fact that greater partner and manager 

involvement is not necessarily 

correlated with greater audit quality. 

Some of these commenters pointed out 

that partner and manager involvement is 

likely to vary with the complexity of the 

audit. For example, one commenter 

suggested that a less complex audit may 

require little additional supervision 

while a more complicated audit may 

require more supervision. One 

commenter said that the firm-level 

workload metric would not be 

comparable across firms due to variation 

in the size of each firm’s issuer practice. 

Another commenter suggested that 

presenting firm-level average experience 

will be difficult to interpret because the 

distribution of personnel experience 

varies vastly. Several commenters 

agreed that defining a training metric 

that would provide decision-useful 

information would be challenging. One 

commenter said they think training 

increases technical competence. 

Another said that training builds 

awareness and on-the-job training is 

invaluable. However, the same 

commenter said that on-the-job-training 

could not be quantified. Another 

commenter supported a training metric 

but preferred an alternative calculation. 

The Board acknowledges that the final 

metrics are imperfect proxies for audit 

quality.369 For example, the Board 

recognizes that average experience only 

partially describes the distribution of 

experience within a firm and, by 

extension, two firms with the same 

average experience could have quite 

different experience distributions. 

However, the Board believes that the 

final metrics will, on average, improve 

investors’ decision-making.370 The 

Board agrees that the partner and 

manager involvement metric may vary 

with the complexity of the audit. The 

Board also agrees that the firm-level 

workload metric may vary by the size of 

the firm’s issuer practice. However, the 

size of the firm’s issuer practice and 

other proxies for the complexity of the 

audit are public information so 

stakeholders can adjust for any 

systematic variation in the partner and 

manager involvement and workload 

metrics. The Board also agrees that 

stakeholders may misinterpret the 

experience of audit personnel or 

training metrics. While some 

misunderstanding may reduce the 

usefulness of the final metrics, the 

Board believes that reporting the 

experience of audit personnel and 

training metrics will likely still be 

beneficial to investors.371


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372See, e.g., Aobdia, et al., The Economics of 

Audit Production 1, 6 and 11. 

373See id. at 12. 

374See Christensen, et al., Archival Evidence. 

375See, e.g., Causholli, et al., Competitive 

Procurement (for an economic model describing the 

intersection of efficiency, quality, and competition 

in the market for audit services). See also Aobdia, 

et al., The Economics of Audit Production. 

376See above for a more general discussion of 

commenters’ concerns regarding the relationship 

between the proposed metrics and audit quality. 

377See, e.g., DeFond and Zhang, A Review of 

Archival Auditing Research (specifically, the 

discussion marked Section 2.3.1 Output-based audit 

quality measures). The Board notes that ‘‘little r’’ 

restatements are a less-widely used proxy for audit 

quality than ‘‘Big R’’ restatements. See Jayanthi 

Krishnan and Mengtian Li, Are Referred-to Auditors 

Associated with Lower Audit Quality and 

Efficiency?, 42 Auditing: A Journal of Practice & 

Theory 101 (2023) for one study that uses ‘‘little r’’ 

restatements as a proxy for audit quality. By 

contrast to ‘‘Big R’’ restatements, one study found 

muted or absent market reactions to ‘‘little r’’ 

restatements. See Daniel Aobdia, Vincent 

Castellani, and Paul Richardson, Do Investors Care 

Who Led the Audit in the U.S.? Evidence from 

Announcements of Accounting Restatements, SSRN 

Electronic Journal (2024). The Board notes that 

SSRN does not peer review its submissions. 

378See, e.g., Karen M. Hennes, Andrew J. Leone, 

and Brian P. Miller, Determinants and Market 

Consequences of Auditor Dismissals after 

Accounting Restatements, 89 The Accounting 

Review 1051 (2014); and Li-Lin Liu, K. 

Raghunandan, and Dasaratha Rama, Financial 

Restatements and Shareholder Ratifications of the 

Auditor, 28 Auditing: A Journal of Practice & 

Theory 225 (2009). 

379See, e.g., Chi, Wuchun and Chien-min Kevin 

Pan, How Do Auditors Respond to Accounting 

Restatements? Evidence on Audit Staff Allocation, 

58 Review of Quantitative Finance and Accounting 

1 (2022). 

380See, e.g., Stephen P. Rowe and Padmakumar 

Sivadasan, Higher Audit Quality and Higher 

Restatement Rates: An Examination of Big Four 

Auditee Restatements, SSRN Electronic Journal, 

(2021). The Board notes that SSRN does not peer 

review its submissions. 

381See above for a more general discussion of 

commenters’ concerns regarding the relationship 

between the proposed metrics and audit quality. 

b. Metrics Related to the Allocation of 

Audit Hours 

The Allocation of Audit Hours metric 

would indicate the percentage of hours 

incurred prior to and following an 

issuer’s year end across the firm’s large 

accelerated and accelerated filer 

engagements and on the specific 

engagement. This metric may provide 

insight into whether the audit team is 

being efficiently and effectively 

deployed. Generally, the academic 

literature related to the allocation of 

audit hours is limited, as information 

pertinent to studying this topic is nonpublic. However, one recent study used 

PCAOB inspections data and found that 

audit engagements in which relatively 

more audit effort was spent prior to the 

issuer’s fiscal year end had overall 

improvements in audit effectiveness and 

a lower likelihood of negative audit 

outcomes.372 As noted in that study, 

other researchers have identified that 

work conducted earlier in the audit 

process may lead to an earlier 

identification of issues that could 

improve the possibility those issues 

would then be corrected.373 Another 

study, using data from one global 

accounting firm, also finds that a greater 

proportion of audit work performed 

earlier in the audit is associated with 

improved audit outcomes.374

The final Allocation of Audit Hours 

metric could allow investors and audit 

committees to better evaluate how their 

auditor plans its audit and compare 

their audit and auditor to peers. For 

example, it could indicate that their 

auditor has left substantial issues to the 

end of the engagement. The effective 

deployment of resources is of critical 

importance to a well-planned audit.375

The final metric may also help auditors 

understand whether they are effectively 

planning their audit. Auditors may 

compare their allocations of audit hours 

to those of other firms and adjust 

accordingly. The final Allocation of 

Audits Hours metric could also provide 

supplemental value to the final 

Workload and Partner and Manager 

Involvement metrics. 

The final metrics related to allocation 

of audit hours and summarizes 

commenters’ views are discussed above. 

Here the Board highlighted the 

comments that are most relevant to the 

economic analysis. Several commenters 

cautioned that allocation of audit hours 

may not be a useful signal of audit 

quality because circumstances outside 

of the auditor’s control may influence it 

(e.g., significant unusual, and 

unanticipated, transactions near the 

balance sheet date, going concern issues 

that arise after the balance sheet date, 

other unforeseen company delays). One 

commenter said that for the largest 

firms, individual issuer circumstances 

may not be significant enough to move 

the firm-level metric, but for smaller 

firms, individual issuer circumstances 

could impact the overall results. The 

Board recognizes that the allocation of 

audit hours will be an imperfect proxy 

for audit quality. However, the Board 

believes the academic literature 

provides evidence that the final metrics 

will likely be associated with audit 

effectiveness and audit outcomes and 

thus aid decision-making.376

c. Metrics Related to Audit Outcomes 

The Restatement History metrics will 

summarize restatements of financial 

statements and management reports on 

internal control over financial reporting 

(‘‘ICFR’’) that were audited by the firm 

over the past three years. In the 

academic literature, restatements are 

widely regarded as the strongest 

indicator of poor audit quality.377

Restatements have been shown to result 

in auditor dismissal or increased 

resources committed by the auditor to 

the issuer.378 Using data from Japanese 

audit firms, one study finds that 

auditors devote additional resources to 

companies the year they restate their 

financial statements.379 However, it is 

important to note that restatements are 

often observed after a significant lag 

following the restatement event—which 

causes a reduction in the 

informativeness of the restatement 

event, if such information is viewed as 

stale by investors and audit committees. 

Furthermore, the absence of a 

restatement does not imply audit quality 

was high and the occurrence of a 

restatement identified by a successor 

auditor may signal improved audit 

quality when the auditor increases audit 

effort to identify errors in the work of 

prior auditors.380 The Board 

acknowledges that the incremental 

value of the final metric will be limited 

by the fact that restatements are public 

information already (e.g., U.S. issuers 

must file Form 8–K when they 

materially restate their financial 

statements and the public financial 

statements themselves indicate when a 

restatement has occurred). However, the 

Board believes that there is value in 

having the restatements aggregated and 

presented along with the other metrics. 

The final metrics related to 

restatement history and commenters’ 

views are discussed and summarized 

above. Overall, commenters were 

supportive of the proposed metrics 

related to restatement history. Two nonU.S. firm-related groups suggested that 

financial reporting quality is complex, 

and restatements are not a perfect proxy 

for audit quality. The Board agrees that 

it is not a perfect indicator. However, as 

the Board noted in the proposal, 

restatements are a widely-used proxy for 

audit quality. The Board agrees that 

context will be important to understand 

the final metrics, including the final 

Restatement History metric.381 Two 

commenters said that restatements are 

already publicly available and therefore 

the metric would not be useful. The 

Board noted this in the proposal. The 

Board continues to believe that 

providing information on restatement 

history in Form FM would make the 

information more accessible to 

stakeholders. 


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382See, e.g., Michael Minnis and Nemit Shroff, 

Why Regulate Private Firm Disclosure and 

Auditing?, 47 Accounting and Business Research 

473, 498–499 (2017) (explaining that increased 

financial reporting regulation is disproportionately 

costly for smaller companies because complying 

with regulation has large fixed costs, and unlike 

larger companies, smaller companies do not benefit 

from economies of scale). 

383Among the firms that will be impacted by the 

final rules approximately 41%, 19%, and 11% had 

a total of one, two, or three accelerated filer or large 

accelerated filer engagements, respectively, during 

the 12-month period ending September 30, 2023. 

384See U.S. Securities and Exchange 

Commission, Office of the Advocate for Small 

Business Capital Formation, Annual Report Fiscal 

Year 2023. 

385Source: S&P and Audit Analytics. The Board’s 

calculations use market capitalization data as of the 

second quarter of 2024. ‘‘Non-affiliated firms’’ are 

firms not affiliated with BDO International Limited, 

Deloitte Touche Tohmatsu Limited, Ernst & Young 

Global Limited, Grant Thornton International 

Limited, KPMG International Cooperative, or 

PricewaterhouseCoopers International Limited. 

386See PCAOB Rel. No. 2024–007, 35 and cites 

therein for additional discussion on this topic. 

387See Michael J. Gurbutt, Wei-Kang Shih, Carrie 

von Bose, and Tasneem Raihan, Staff White Paper: 

2. Costs 

In the following discussion, the Board 

considered direct and indirect costs 

related to the final rules. The Board has 

attempted to quantify certain costs 

where possible. However, most of the 

costs are intractable to quantify, 

particularly the indirect costs. 

• First, auditors may incur direct 

costs building an appropriate reporting 

infrastructure or updating existing 

infrastructure. 

• Second, auditors may incur direct 

costs producing the firm and 

engagement metrics. 

• Third, auditors, investors, and audit 

committees may incur indirect costs 

understanding and integrating the final 

metrics into their current decisionmaking frameworks. 

• Fourth, auditors may incur indirect 

costs revising their audit approaches. 

• Fifth, investors, audit committees, 

and auditors may incur indirect costs to 

the extent that issuers switch auditors 

more frequently as a result of the final 

rules. 

• Sixth, issuers and investors may 

bear indirect costs to the extent that 

costs incurred by auditors are passed on 

in the form of higher audit fees. 

Larger firms should be able to take 

advantage of economies of scale by 

distributing any fixed costs over a 

higher number of audit engagements. 

Smaller firms will likely distribute any 

fixed costs over a lower number of audit 

engagements, which, taking fixed costs 

as given, would make implementation 

relatively more costly for smaller 

firms.382 Many commenters agreed that 

smaller firms, including non-U.S. firms, 

could be disproportionately impacted. 

However, the fixed costs may also be 

less for smaller firms than for larger 

firms (e.g., they may not require 

significant IT systems if they need to 

track only a few engagements).383

Referring to research from the SEC, 

one commenter noted that 99.9% of 

businesses are small businesses, 43.5% 

of the U.S. GDP is created by small 

businesses, and 63% of net new jobs are 

created by small businesses.384 The 

commenter did not discuss what portion 

of these figures would be impacted by 

the proposal. The Board notes that the 

final rules will apply only to the 

auditors and audits of accelerated filers 

and large accelerated filers. However, 

the Board recognizes that some 

accelerated filers and larger accelerated 

filers may not be audited by the largest 

audit firms. For example, 24.0% of 

accelerated filers (representing 19.3% of 

total accelerated filer market 

capitalization) and 4.5% of large 

accelerated filers (representing 0.3% of 

total large accelerated filer market 

capitalization) are audited by nonaffiliated firms.385

Several commenters said that the 

proposal did not fully consider the costs 

and complexities associated with 

complying with the proposed rules. 

Two commenters said that the 

proposal’s economic analysis largely 

disregards costs and does not attempt to 

quantify the related costs of some 

requirements. To the contrary, the 

proposal’s economic analysis included 

both a discussion of the available 

evidence about costs and PCAOB staff’s 

attempt to quantify costs of the proposal 

to the extent feasible. The Board has 

carefully reviewed stakeholders’ input 

regarding the potential costs of the 

proposal. Based on outreach to audit 

firms, one commenter agreed that firms’ 

processes and systems would need to be 

established or updated. 

One commenter suggested that the 

PCAOB should, as a starting point, 

consider whether the metrics would 

require additional systems, processes, or 

procedures. The Board considered these 

costs and quantified several of them in 

the proposal and, with modification to 

account for stakeholder feedback, 

address them again below. 

One commenter suggested that it 

would be helpful if the Board could 

match each cost to each benefit. The 

Board does not believe such an analysis 

is feasible or reasonable. For example, it 

is not possible to match fixed costs (e.g., 

IT investments) to a particular benefit 

because they do not drive the benefit 

alone. Furthermore, the variable cost 

categories (e.g., gathering, calculating, 

and disclosing the metrics) cannot be 

matched to specific benefit categories 

(e.g., competition). Rather, these 

variable cost categories are each 

associated with producing the metrics, 

while disclosing the metrics drives all 

the benefits. Where feasible and 

reasonable, the Board highlighted in the 

proposal and below connections 

between certain qualitative cost 

categories and certain qualitative benefit 

categories. For example, the Board has 

highlighted that audit switching costs 

may arise from improved competition. 

The Board also acknowledges how 

certain metrics may be more costly or 

beneficial than others to allow the Board 

and commenters to consider each metric 

individually (e.g., by surveying 

academic literature by metric and 

highlighting challenges gathering data 

required for certain metrics). 

One commenter noted that the use of 

data analytics at firms should enable 

them to more efficiently implement the 

final rules. The Board has observed that 

firms are increasingly using data 

analytics in their audits.386 However, 

the extent to which these capabilities 

lend themselves to regulatory 

compliance and management of the 

audit practice itself is less clear. 

i. Direct Costs To Comply With the 

Final Rules 

a. Modifying or Building a System To 

Produce the Final Metrics 

Auditors may incur certain initial 

fixed costs (i.e., costs that are generally 

independent of the number of audits 

performed) related to modifying existing 

systems or building new systems that 

could collect the relevant data that is 

needed to generate the final metrics and 

produce compliant filings. The Board 

believes most firms will likely modify 

existing systems rather than build 

entirely new systems. These costs may 

include acquiring necessary IT 

infrastructure, establishing an 

appropriate system of controls, creating 

system documentation, and conducting 

system testing (e.g., with historical data 

or by conducting dry runs before the 

effective date of the final requirements). 

There could also be costs related to 

training personnel in how to use the 

new or modified system. This could 

include training: (i) engagement-level 

personnel on how to collect and 

document information relevant to the 

final metrics; (ii) centralized personnel 

on how to aggregate and produce the 

final metrics; and (iii) administrative 

personnel on how to create filings and 

ensure proper control over the system; 

all in compliance with QC 1000.387


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Second Stakeholder Outreach on the Initial 

Implementation of CAM Requirements, Public 

Company Accounting Oversight Board 11 (2022). 

388See, e.g., Ideagen Audit Analytics, 20-Year 

Review of Audit Fee Trends 2003–2022, (July 2023) 

at 2. 

389The Board identified two publicly available 

reports related to the costs of implementing ERP 

systems. Referring to the experiences of over 1,000 

client and non-client companies that had 

implemented a digital transformation effort in the 

past twenty years, one consulting firm estimated 

that implementation costs for companies with 

revenues under $1 billion were approximately 3– 

5% of annual revenue, and implementation costs 

for companies with revenues over $1 billion were 

approximately 2–3% of annual revenue (The 2020 

ERP Report, Third-Stage Consulting Group, (2020)). 

Each of the U.S. Big 4 firms had over $1 billion of 

revenue for the 2023 issuer fiscal year, while all 

other firms that will be impacted had less than $1 

billion. Using the midpoint of the ranges, 2.5% for 

U.S. Big 4 firms and 4% for all other firms, 

implementation costs related to building a new 

system to produce the final metrics will be 

approximately $12.7 billion × 2.5% + $4.8 billion 

× 4% = $512 million. The Board notes that 13 firms, 

which had a combined $22 million in audit fees in 

2022, had zero audit fees in 2023. Using 

information on client implementation projects 

active between January 2021 and December 2021, 

another consulting firm reported that companies 

having over 500, between 50 and 499, or less than 

50 employees project spent $11,000, $9,000, or 

$8,571 per ERP system user over a 5-year ERP 

implementation period and that 7.27%, 20.13%, 

and 34.8% of employees used the ERP system, 

respectively (2022 ERP Software Report, Software 

Path, (2022)). Information provided by registered 

firms that will be impacted by the final 

requirements on Form 2 indicates that, for the 2023 

reporting year, 130, 58, and 19 firms employed over 

500, between 50 and 499, or less than 50 

accountants, employing a total of 431,680, 14,274, 

and 474 accountants, respectively. Using the 

number of accountants employed by a registered 

firm as a proxy for the number of employees, 

implementation costs related to building a new 

system to produce the final metrics would be 

approximately 430,074 × 7.27% × $11,000 + 14,142 

× 20.13% × $9,000 + 444 × 34.8% × $8,571 = $371 

million. Source: Audit Analytics and RASR. 

The fixed costs associated with these 

efforts will likely depend on the extent 

to which firms already have automated 

systems in place that may be adapted to 

comply with the final requirements. As 

discussed above, the Board believes 

many firms track much of the 

information that would be required to 

calculate the final metrics. In particular, 

information gathered by PCAOB staff in 

2018 and 2019 pursuant to PCAOB 

oversight activities indicates that U.S. 

GNFs generally track some metrics 

similar to the final metrics and 

voluntarily provide quantitative 

information that is similar to many of 

the final metrics. With respect to 

roughly half of the engagements that 

will be subject to the final engagementlevel reporting requirements, firms are 

already gathering total audit hours 

information from other auditors 

pursuant to Form AP reporting 

requirements. Furthermore, firms 

should be tracking CPE credits pursuant 

to licensing requirements and 

restatements pursuant to QC 1000. The 

Board believes firms likely have systems 

in place to help them track this 

information. As a result, these firms 

may be able to leverage their existing 

internal systems to comply with the 

final rules. Moreover, firms may be able 

to leverage existing systems related to 

their compliance with other PCAOB 

reporting requirements (e.g., QC 1000 

and Form AP). Indeed, one GNF 

commenter, in response to the Concept 

Release, noted that some of the metrics 

discussed therein and included in the 

final rules would be ‘‘easy to compute.’’ 

However, the Board has also 

considered that existing systems may 

not be functionally joined together, and 

that systems designed and operated for 

internal monitoring or informal 

reporting purposes may need to be 

enhanced to meet the needs of public 

reporting. There are, therefore, likely to 

be costs associated with integrating the 

various reporting systems and 

enhancing or updating current systems 

to comply with the final requirements. 

One GNF commenter on the Concept 

Release suggested that this would likely 

be especially true for NAFs. The 

required changes would depend on a 

firm’s size and the nature of their 

engagements. 

Depending on their facts and 

circumstances, some firms may avoid 

the costs associated with modifying or 

building an automated system by opting 

for a more manual approach. Larger 

firms are more likely to build automated 

systems, or increase automation in 

existing systems, given the scale of their 

operations and the scope of data that 

will need to be collected to calculate the 

final metrics (i.e., they have a larger 

number of employees and engagements). 

Smaller firms may choose to build or 

expand upon existing manual systems 

(e.g., collecting information in 

spreadsheets or simple databases) 

because, for these firms, the scope of 

information to be collected and 

processed may be effectively collated in 

a spreadsheet-based tool. Firms may 

also opt for automated systems to the 

extent that the final metrics will require 

a larger number of individual 

components, a broader pool of 

individuals, or more complicated 

calculations (e.g., the final metrics 

related to audit-team retention, auditor 

experience, or industry expertise). The 

fixed costs to build or modify existing 

automated systems are likely to be 

greater than manual systems. However, 

automated systems should reduce 

variable costs in the long run. 

The Board is unaware of any data or 

research relevant to the potential costs 

of modifying firms’ existing automated 

systems, which the Board believes 

would be the most likely scenario for 

many firms, particularly the largest 

firms which audit a significant majority 

of the audit market.388 However, the 

costs to build an automated system from 

the ground up—that is, if a firm did not 

have any existing systems that track the 

inputs to the final metrics—could be 

comparable to the costs to implement an 

enterprise resources planning (ERP) 

system (but such costs are not exactly 

analogous). Using surveys of companies 

that have implemented ERP systems, 

some studies find that ERP system 

implementation costs scale with the 

company’s revenues and staff count. 

Using audit fees as a proxy for revenue 

and number of accountants as a proxy 

for staff count, an illustrative 

calculation suggests that the total costs 

(e.g., adding over all impacted firms), if 

every such firm were to implement an 

automated system from the ground up, 

could range from approximately $371 

million to $512 million.389 This would 

represent a one-time cost of 

approximately 2% to 3% of audit fees 

paid by issuers to covered firms in a 

year. However, as discussed in more 

detail below, the fixed costs associated 

with modifying or building a system to 

produce the final metrics are likely to be 

a fraction of this amount given that the 

Board expects most firms would modify 

existing systems rather than build 

entirely new systems. For this reason, 

this range likely represents an upper 

bound of the potential costs. 

There are several reasons to expect 

the implementation costs will be 

substantially less than the cost of 

building a new ERP system. First, as 

noted above, the Board believes it is 

likely that firms, particularly the largest 

firms with the greatest market share, are 

already gathering much of the 

information that would be required to 

calculate the final metrics. For example, 

roughly half of the engagements that 

will be subject to the final engagementlevel reporting requirements are already 

gathering total audit hours information 

from other auditors pursuant to Form 

AP reporting requirements. 

Furthermore, firms should be tracking 

CPE credits pursuant to licensing 

requirements and restatements pursuant 

to QC 1000. Second, the Board believes 

most larger firms have automated 

systems in place that could be leveraged 

to comply with the final rules. Third, 

smaller firms could opt for a manual 

approach. Indeed, firms are only 

expected to invest in an automated 

system if it would be efficient to do so. 


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390Commenters’ concerns about the cumulative 

impacts of multiple PCAOB standards and rules 

with overlapping implementation periods including 

potential benefits are discussed above. 

391See Memorandum from Division of Risk, 

Strategy, and Financial Innovation (now, Division 

of Economic and Risk Analysis) and Office of the 

General Counsel to Staff of the Rulewriting 

Divisions and Offices re: Current Guidance on 

Economic Analysis in SEC Rulemakings (Mar. 16, 

2012) (SEC Staff Guidance), 12. 

392See Kathleen M. Bakarich and Patrick E. 

O’Brien, The Robots are Coming . . . But Aren’t 

Here Yet: The Use of Artificial Intelligence 

Technologies in the Public Accounting Profession, 

18 Journal of Emerging Technologies in Accounting 

27, (2021) and Dereck Barr-Pulliam and Amanda 

Carlson, Breaking Barriers to Change: The COVID– 

19 Pandemic’s Impact on Attitudes Toward and 

Willingness to Pay for Audit Innovation, SSRN 

Electronic Journal (2024). The Board notes that 

SSRN does not peer review its submissions. 

Fourth, ERP systems possess many 

features that would not be necessary in 

an automated system for compliance. 

Finally, audit firms are likely to need to 

make similar investments in their 

internal systems in the near term, owing 

to the rapid pace of technological 

advancement and other rules and 

standards currently being adopted, thus 

potentially reducing the incremental 

costs attributable to the final rules. 

However, at the same time, and as 

suggested by commenters, the Board 

recognizes that implementing new 

systems may be especially costly for 

audit firms if staff resources are strained 

due to the need to comply with other 

standards being implemented in the 

same time period, such as QC 1000.390

The Board’s estimate does not account 

for these capacity constraints. Overall, 

for these reasons, the Board believes 

these figures likely reflect an upper 

bound on the potential implementation 

costs and the actual implementation 

costs will likely be significantly less. 

One commenter suggested that the 

Board’s cost estimates are strawmen 

because they have too many caveats. 

The PCAOB’s staff guidance on 

economic analysis recommends 

quantifying impacts to the extent 

feasible. However, it also notes that 

reliably quantifying impacts can be 

difficult. The SEC’s current guidance on 

economic analysis in SEC rulemakings 

recommends ‘‘identify[ing] and 

discuss[ing] uncertainties underlying 

the estimates of benefits and costs.’’ 391

Consistent with these recommendations, 

the Board has provided an exhaustive 

discussion of uncertainties in the 

Board’s cost estimates because the 

Board believes it provides commenters 

with important context necessary to 

understand the economic analysis. 

One commenter apportioned the 

Board’s quantitative estimate of the cost 

to implement an automated system from 

the ground up to their firm by market 

share. Using this approach, the 

commenter estimated the cost would be 

between $7 million and $10 million. 

The commenter said that they believe 

their estimate is low because larger 

firms have greater economies of scale. 

The commenter also said that this cost 

could increase the audit fees they charge 

their issuer clients by between $50,000 

and $70,000 per issuer assuming they 

pass through the entire implementation 

cost and raise each issuer’s audit fee by 

the same amount. The Board notes some 

limitations to applying its numerical 

illustration in this way. First, as 

discussed in the proposal and again 

above, the Board’s methodology 

assumes costs are a non-linear function 

of revenue which the commenter did 

not account for. Second, the Board notes 

that the commenter’s estimate is subject 

to the same caveats described above 

regarding the Board’s quantification 

methodology. Finally, the Board also 

notes it would not expect that the cost 

of implementing a new system would be 

passed through to issuers in the form of 

a permanent audit fee increase, both 

because it is a one-time cost and 

because it is a fixed rather than a 

variable cost. It also overestimates the 

true pass through to the extent the 

commenter is unable to pass through 

100% of the implementation cost. 

One commenter provided academic 

research that finds the costs to 

implement new systems is 

proportionally lower for larger firms.392

The Board agrees, and the Board’s 

quantification methodology reflects this. 

The same commenter also noted that the 

press has reported that larger firms have 

already invested significantly into their 

IT systems. As discussed above, the 

Board recognizes that larger firms likely 

already have systems in place that they 

would be able to leverage when 

implementing the final rules. 

Finally, the Board also notes the 

implementation costs could be offset in 

part by benefits to auditors. For 

example, technological enhancements to 

auditors’ systems may, in the long run, 

increase operational efficiency and 

profitability. 

b. Producing the Final Metrics 

Auditors may incur engagement-level 

and firm-level variable costs related to 

producing the final metrics. For 

example, the final rules may lead 

auditors to spend additional time 

recording, collating, and reporting 

information for relevant engagementlevel, and then aggregated firm-level, 

metrics. As discussed above, the final 

rules do not impose new performance 

requirements other than the calculation 

and disclosure of metrics. In addition, 

reviews by others, such as the 

engagement quality reviewer or the 

national office, may result in additional 

recurring costs. Audit firms are also 

likely to experience costs, or 

administrative time, related to legal 

review and quality control for the final 

metrics. 

Specifically, variable costs may arise 

from the following activities related to 

producing the final metrics: 

Recording & Collecting Information 

Audit firms may incur variable costs 

recording the necessary information and 

collecting it in a centralized location. 

The magnitude of the costs will likely 

depend on the extent to which existing 

practice differs from the final 

requirements. As discussed above, the 

Board believes many firms already 

internally track information related to 

the final metrics. This will reduce the 

variable costs attributable to the final 

rules. 

The magnitude of the variable costs 

may also depend on the size of the firm. 

As discussed, based on information 

obtained through inspections and 

oversight activities, the Board believes 

that the final rules will likely affect 

engagements performed by all firms but 

may have a greater impact on 

engagements performed by NAFs. 

However, NAFs that choose to use a 

manual recording system may face 

recurring costs associated with the 

continued collection of data and 

reporting of the final metrics. These 

costs likely will vary with the size of the 

audit team. 

Finally, the magnitude of the variable 

costs to record and collect information 

may depend on the final metric. For 

example, collecting the information 

needed to calculate the final Workload 

metrics will likely be relatively 

straightforward as such information is 

likely already stored in firms’ extant 

timekeeping systems. One commenter 

said that the proposed engagement-level 

Workload metric would take 

considerable effort to compile and 

calculate. The commenter did not 

articulate a basis for their conclusion. 

To the contrary, the Board believes the 

final Workload metric area will not be 

burdensome to calculate for several 

reasons. First, based on commenters’ 

views, the Board decided to exclude 

staff from the final Workload metric 

calculations. The Board believes this 

should reduce the effort required by 

firms to compile and calculate the 

metrics. Second, firms that use other 

auditors or serve as an other auditor 

should already be tracking partner and 

manager hours in order to calculate total 


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393See William M. Docimo, Joshua L. Gunn, Chan 

Li, and Paul N. Nichas, Do Foreign Component 

Auditors Harm Financial Reporting Quality? A 

Subsidiary-Level Analysis of Foreign Component 

Auditor Use, 38 Contemporary Accounting 

Research 3113 (2021). 

394See, e.g., Michael J. Gurbutt, Wei-Kang Shih, 

Carrie von Bose, Staff White Paper: Stakeholder 

Outreach on the Initial Implementation of CAM 

Requirements, PCAOB 1, 8 (2020). 

395 Id. The ‘‘next four largest firms’’ refers to BDO 

USA LLP, Crowe LLP, Grant Thornton LLP, and 

RSM US LLP. See Gurbutt et al., Stakeholder 

Outreach at n. 4. 

396See Gurbutt, et al., Staff White Paper: Second 

Stakeholder Outreach on the Initial Implementation 

of CAM Requirements 1, 13. ‘‘Smaller audit firms’’ 

refers to Marcum LLP; Moss Adams LLP, Baker 

Tilly US LLP; BKD LLP; CohnReznick LLP; Dixon 

Hughes Goodman LLP (DHG); EisnerAmper LLP; 

Mayer Hoffman McCann P.C. (MHM); Plante & 

Moran, PLLC; and WithumSmith + Brown, PC. 

397As an example, aggregating these costs across 

active firms in the market implies roughly $6.5 

million in procedures and training for the largest 

four audit firms ($4.4 million for processes and 

procedures and $2.1 million for training), $1.045 

million for the next four largest firms, and $185,000 

for 202 smaller impacted firms, would amount to 

a combined $67.0 million in costs to produce the 

final metrics outside of implementation costs 

associated with the systems ($6.5 million × 4 larger 

firms + $1.045 million × 4 next-largest firms + 

$0.185 × 199 smaller firms = $67.0 million). 

398See Gurbutt and Shih, Econometric Analysis 

on the Initial Implementation of CAM Requirements 

4. 

399See Gurbutt and Shih, Econometric Analysis 

on the Initial Implementation of CAM Requirements 

4. 

400See Jonathan T. Fluharty-Jaidee, Michael J. 

Gurbutt, and Wei-Kang Shih, Staff White Paper: 

Second Econometric Analysis on the Initial 

Implementation of CAM Requirements, Public 

Company Accounting Oversight Board, (2022). 

401See, e.g., Interim Analysis Report: Further 

Evidence on the Initial Impact of Critical Audit 

Matter Requirements, PCAOB Rel. No. 2022–007 

(Dec. 7, 2022). 

audit hours pursuant to Form AP 

reporting. PCAOB staff analysis of 

AuditorSearch data finds that 

approximately 48% of audits of 

accelerated filers or large accelerated 

filers involved other auditors. Third, 

firms that track time electronically 

should be able to access hours 

information by staffing level and time 

period and make the required 

calculations electronically. The Board 

believes most larger firms track their 

time electronically already. However, 

the Board recognizes that some of the 

smaller firms may not. Indeed, one 

commenter said that many firms have 

moved away from the burden of time 

reporting. As discussed above, some of 

these smaller firms may choose to build 

a system that would track the 

information needed to efficiently 

produce the final metrics, including in 

the final Workload metric area. Finally, 

the Board also notes that firms will be 

permitted to use a reasonable method to 

estimate the components of a 

calculation when actual amounts are 

unavailable. 

One commenter said that there could 

be costs associated with coordinating 

data collection efforts across firms. The 

Board recognizes that such costs would 

likely arise. However, the Board notes 

that the adjustments the Board has made 

to the set of required metrics and their 

calculations should alleviate this 

burden. Furthermore, firms should 

generally already be coordinating data 

collection efforts for Form AP reporting 

purposes and this data will be subject to 

quality controls over firm reporting. To 

the extent such coordination is 

necessary, academic research finds that 

94% of component auditors identified 

on Form AP are associated with the lead 

auditor.393 This provides additional 

evidence there is a strong existing 

relationship between these firms which 

should facilitate any additional transfer 

of information required to implement 

the final rules. 

Aggregating & Calculating Firm and 

Engagement Metrics 

Once the information is collected, it 

will need to be aggregated and the final 

metrics will need to be derived 

following the calculation requirements 

discussed above. Costs will likely be 

incurred to make those calculations and 

to make and validate the filing. 

Moreover, these costs will be greater for 

firms that will use manual systems than 

firms that will use automated systems. 

Making the Filing 

Once collected, aggregated, and 

calculated, the final metrics will then 

need to be filed with the PCAOB. There 

will be costs associated with developing 

the filing, validating the information, 

and drafting any voluntary textual 

disclosures. This could entail 

administrative costs such as legal 

review of the textual disclosures. Firms 

may also need to extend their existing 

quality control processes around 

PCAOB filings to cover these new 

filings. 

Overall, it is difficult to estimate the 

potential costs that audit firms will 

incur to produce the final metrics owing 

in part to the variability in firms’ 

current systems (e.g., automated versus 

manual) and the extent to which firms 

already produce similar metrics for 

internal reporting to national offices or 

external reporting in firm transparency 

reports. However, the Board may 

extrapolate from the economic impacts 

of prior PCAOB disclosure rules. For 

example, as a result of the 

implementation of AS 3101 in 2019, the 

largest four audit firms surveyed 

through the PCAOB’s outreach activities 

indicated they incurred, on average, 

23,000 hours to develop the processes 

and procedures to support the 

implementation of CAMs. The PCAOB 

staff monetized the economic impact to 

those largest four audit firms to be 

approximately $4.4 million dollars 

each.394 Those audit firms also each 

reported 14,600 hours of training, 

estimated at $2.1 million dollars. The 

next four largest audit firms reportedly 

incurred 3,700 hours, on average, to 

develop processes and procedures, and 

3,100 hours in training their personnel 

to support the implementation of 

CAMs—estimated at $610,000 and 

$435,000, respectively, on average for 

each firm.395 As estimated through 

April 2021, the smallest of audit firms, 

after excluding outliers, reported only 

400 hours implementing the CAM 

requirements, with 600 hours associated 

with CAM related training. The average 

implementation costs for these smallest 

of firms was estimated to be 

approximately $185,000 per firm.396

Extrapolating these data points to the 

population of firms expected to be 

impacted by the final requirements 

implies a total cost of approximately 

$67 million.397

Following the implementation of 

processes, procedures, and training, 

surveyed audit partners report that 1% 

of total audit engagement hours were 

spent identifying, developing, and 

communicating CAMs.398 PCAOB staff 

research found no systematic evidence 

of increased engagement hours for 

audits of large accelerated filers 399 and 

a statistically significant 6.6% increase 

in engagement hours for audits of nonlarge accelerated filers.400 The findings 

suggest that there could potentially be 

variable costs associated with the final 

requirements that persist after the 

implementation phase. 

Auditors of large accelerated filers 

realized efficiencies in developing and 

communicating critical audit matters in 

the second year of implementation, 

reporting that they generally spent the 

same or less time on critical audit 

matters compared to the initial year of 

implementation.401 Accordingly, the 

Board expects that the costs to produce 

the final metrics will be most significant 

for the initial filings under the final 

rules because firm personnel will need 

to familiarize themselves with new 

reporting requirements and forms. In 

subsequent reporting periods, the Board 

anticipates that firms will incur lower 

costs as personnel become more familiar 

with the reporting requirements. 

As noted above, AS 3101 and the final 

rules are different in ways that may 


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402See below for additional discussion of 

attention diversion of audit committees. 

403For example, some literature suggests that the 

implications of staff turnover are better understood 

in the context of accounting labor supply. See 

Khavis and Szerwo, Audit-Employee Turnover, 

Audit Quality, and the Auditor-Client Relationship 

2. 

limit the relevance of the costs of AS 

3101 to the potential costs of the final 

rules. For example, as discussed above, 

the final metrics will require the 

collection of a broader array of 

engagement-level information whereas 

CAM requirements focus more on 

narrative description. However, the 

processes, procedures, and training 

aspects are likely more comparable. 

One commenter agreed with the 

Board’s caveat that the CAMs 

requirements are not a perfect analogy 

for the proposed metrics. More 

specifically, the commenter said that the 

proposal would require significantly 

more effort to implement than AS 3101 

due, in part, to the need to update QC 

policies and procedures. Furthermore, 

commenters pointed to specific facts 

and circumstances that could exacerbate 

the costs of the final metrics (e.g., 

coincidence with other new PCAOB 

standards). One commenter asserted, 

incorrectly, that the proposal included 

no quantification of costs associated 

with reporting. 

One commenter suggested that the 

Board perform further analysis of the 

firms’ current data collection efforts and 

the data collection efforts that will be 

required under the final requirements. 

As part of the Board’s economic 

analysis, the Board considered all 

relevant information available to the 

Board including information gathered 

through the Board’s oversight activities, 

academic research, and comments 

received on the proposing release. 

Commenters agreed that firms will 

incur some costs to report the final 

metrics. Two commenters said 

validating personnel’s total experience 

prior to joining the firm will be 

challenging and expensive because 

firms do not generally track this 

information. Another commenter said 

that reporting industry experience of 

audit personal would be costly because 

sufficient information to report this 

metric is not usually held in the human 

resources administration of firms. One 

commenter said the proposed 

engagement-level Workload metrics 

were very complicated and would take 

considerable effort to prepare. One 

commenter said that many firms do not 

track non-chargeable hours. 

Commenters also said that they do not 

usually track restatements of former 

clients’ financial statements. The Board 

considered these costs and have made 

several modifications to the required 

calculations which the Board believes 

will help mitigate them. The Board also 

notes that, under the final rules, firms 

would be permitted to use a reasonable 

method to estimate the components of a 

calculation for which data are 

unavailable. 

One commenter said that producing 

some of the proposed firm-level metrics 

(e.g., Partner and Manager Involvement 

and Allocation of Audit Hours) would 

be challenging because it would require 

aggregation of engagement-level data, 

including data from other auditors, for 

a period different from that required for 

the corresponding proposed 

engagement-level metrics. The Board 

agrees there could be some incremental 

costs associated with collecting and 

validating data from other auditors. 

However, when producing the final 

firm-level metrics, firms would be able 

to leverage the audit hours information 

they already collected and validated 

pursuant to Form AP reporting for audit 

reports issued during the 12-month 

period ended September 30. Therefore, 

the Board does not believe the 

difference between the period covered 

by the firm-level metric and the period 

covered by Form AP presents unique 

challenges. To the contrary, the Board 

believes that adopted approach is an 

efficient way to provide information to 

stakeholders while minimizing costs to 

firms. The adjustments the Board has 

made to the calculations (e.g., reducing 

the scope of the Partner and 

Management Involvement, Workload, 

and Allocation of Audit Hours 

calculation to large accelerated and 

accelerated filers only) and the Board’s 

decision not to adopt the proposed Use 

of Shared Service Centers metric should 

attenuate any concerns like those raised 

by this commenter. 

Several commenters said that there 

could be costs associated with 

correcting immaterial errors, 

particularly with regard to engagementlevel metric reporting on Form AP. The 

Board agrees cost related to this aspect 

of the final rules could arise, either 

though extra up-front quality control 

costs or costs associated with amending 

an inaccurate Form AP. However, the 

Board believes investors and audit 

committees need reliable information, 

and correction of errors is an important 

part of ensuring the reliability of the 

information. 

ii. Indirect Costs Arising From Market 

Reactions to the Final Metrics 

The Board also reviewed and 

considered costs that could arise from 

how investors, audit committees, and 

auditors may react to the final metrics. 

For example, improved decision-making 

on the part of audit committees could 

lead to costs from switching auditors. 

Most of these costs are not feasible to 

quantify. However, they are likely to be 

incurred only to the extent that they are 

deemed reasonable from a business 

perspective. 

a. Understanding the Final Metrics 

Investors that use the metrics will 

incur costs to understand the final 

metrics and incorporate them into their 

decision-making. Investors will choose 

to bear these costs only if they 

anticipate that the costs are outweighed 

by the benefits of using the metrics. Due 

to economies of scale, the Board 

believes institutional investors will be 

more likely to incur these costs than 

retail investors. Audit committees may 

incur costs to understand the final 

metrics because their fiduciary duties 

may prompt them to do so. Moreover, 

audit committees may spend additional 

time discussing the final metrics with 

their auditor, which would require both 

audit committees’ and auditors’ time.402

Auditors may spend time and resources 

developing materials to explain or 

contextualize their metrics for the audit 

committee (e.g., presentations and 

decision aids). 

Furthermore, investors and audit 

committees may incur costs in 

monitoring the final metrics and 

learning to extract decision-making 

information from them. Investors may 

incur costs incorporating the final 

metrics into their investment decisions 

or exercising oversight over issuers and 

audit committees. Audit committees 

may incur costs to review the final 

metrics in support of their auditor 

oversight responsibilities. 

There may also be costs associated 

with interpreting certain final metrics in 

relation to final metrics across other 

firms and engagements. For example, 

partner and manager involvement on an 

engagement may be more informative 

when considered in the context of the 

firm’s overall partner and manager 

involvement or other firms’ partner and 

manager involvement metrics. 

Moreover, investors and audit 

committees may spend time researching 

the state of the market for assurance 

services to provide more context to the 

final metrics.403

Auditors may also incur costs to 

monitor how their final metrics compare 

to those of their competitors. GNFs, in 

particular, could deploy significant 

resources in this way. NAFs may have 

less ability to fully evaluate the 

information contained in the final 


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404See, e.g., Charles M.C. Lee and Qinlin Zhong, 

Shall We Talk? The Role of Interactive Investor 

Platforms in Corporate Communication, 74 Journal 

of Accounting and Economics 101524 (2022). 

405Economic theory suggests that fixed costs are 

less likely to be passed on. Only changes to variable 

costs are generally expected to impact sellers’ 

pricing decisions. See, e.g., Mankiw, Principles of 

Economics 284 and 307 (showing that the profitmaximizing price is a function of marginal cost 

rather than fixed costs). 

406See, e.g., Erich Muehlegger and Richard L. 

Sweeney, Pass-Through of Own and Rival Cost 

Shocks: Evidence from the U.S. Fracking Boom, 104 

Review of Economics & Statistics 1361 (2022). 

407See Gurbutt and Shih, Econometric Analysis 

on the Initial Implementation of CAM 

Requirements; and Fluharty-Jaidee, et al., Staff 

White Paper: Second Econometric Analysis on the 

Initial Implementation of CAM Requirements. 

408See Gurbutt, et al., Staff White Paper: Second 

Stakeholder Outreach on the Initial Implementation 

of CAM Requirements 21. 

409See Cunningham, et al., What’s in a Name? 

141 and 156 (finding no statistically significant 

increase in fees following the implementation of AS 

3211, Form AP, in 2017). 

410See, e.g., John and Liu, Disclosure of an Audit 

Engagement Partner’s Name. 

411See SEC Final Rules on Private Fund Advisers: 

Documentation of Registered Investment Advisers 

Compliance Reviews, SEC Rel. No. IA–6383 (Aug. 

23, 2023). See also SEC Proposed Rule on 

Safeguarding Advisory Client Assets, SEC Rel. IA– 

6384 (Mar. 9, 2023). 

412SEC rules require the use of PCAOB-registered 

or PCAOB-registered and inspected audit firms by 

entities other than issuers and registered brokerdealers, including certain investment advisers, 

pooled investment vehicles, security-based swap 

data repositories, and clearing agencies. See, e.g., 17 

CFR 275.206(4)–2 (custody of funds or securities of 

clients by investment advisors); 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 and 

clearing agencies); 17 CFR 240.15c3–1g (conditions 

for ultimate holding companies of certain brokers 

and 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). 

metrics and choose instead to retain 

outside experts to provide such 

research. Firms may also use the final 

engagement-level metrics to inform their 

acceptance and continuance policies 

(e.g., by considering industry 

experience). 

Referring to academic research on 

information processing costs, one 

commenter incorrectly stated that the 

Board had not considered the costs 

incurred understanding the proposed 

metrics.404 The commenter also said 

there would be costs associated with 

misunderstanding the metrics. The 

Board discussed such costs in the 

proposal and again below. 

b. Revising Audit Approaches 

Armed with the new information 

discussed above, audit committees may 

question their auditor’s audit approach. 

This may prompt auditors to make 

changes to their audit approaches. For 

example, an audit committee may come 

to the belief that the audit partners have 

too many other duties and may express 

this concern to the auditor. This may 

prompt auditors to adjust how they are 

staffing the audit. Similarly, audit firms 

could incur costs making those changes. 

Some of these costs may be greater than 

others. For example, reducing excessive 

turnover and workloads, to the extent 

they exist, could require a significant 

investment in resources. 

As discussed above, the final rules 

may lead audit firms to compete on the 

final metrics. This could lead some 

firms to update their audit approaches, 

provide additional training, or increase 

their specialization. For example, 

auditors may increase training in 

industry-specific areas or hire 

additional individuals with specialized 

knowledge. As another example, to the 

extent issuer preferences show an 

increased demand for auditors with 

lower workloads, firms may increase 

staffing. Such an increase in humancapital investment will likely increase 

labor and overhead costs for audit firms. 

Auditors may also increase the quality 

review of their work to reduce the 

likelihood of restatements or enhance 

their audit procedures to compete on 

the basis of higher-quality audit 

services. 

c. Switching Auditors 

As discussed above, the final rules 

could result in increased auditor 

switching as investors and audit 

committees compare and evaluate 

current and alternative auditors. Should 

audit committees ultimately choose to 

change auditors, there may be switching 

costs, both to the issuer and the auditor. 

For example, an auditor’s work may be 

less efficient or less effective in the first 

years of auditing a new issuer as the 

auditor works to build an understanding 

of the issuer’s business and financial 

reporting risks. There would likely be a 

transitory period of increased auditor 

switching, after which auditor switching 

would stabilize as the audit market 

reaches a new equilibrium. 

iii. Other Indirect Costs 

Economic theory suggests that 

auditors may pass on to issuers costs 

incurred as a result of the final rules in 

the form of higher audit fees.405 In 

addition, the degree to which increases 

in variable costs, such as certain firm 

compliance costs, are expected to be 

passed on will vary based on how 

widespread the costs are across 

competitors. Increases in variable costs 

that impact all sellers in an imperfectly 

competitive market are more likely to be 

passed on than cost increases that 

impact only a subset of sellers.406 If 

compliance costs have a greater impact 

on a subset of firms, such as smaller 

firms, those firms may be less inclined 

to pass on the incremental costs in order 

to stay competitive with larger firms. 

Accelerated filers and large accelerated 

filers may be disproportionately 

impacted by a cost passthrough because 

(i) auditors that do not audit accelerated 

filers or large accelerated filers would be 

out of scope and (ii) accelerated filer 

and large accelerated filer engagements 

would require additional data collection 

efforts. 

Evidence from the PCAOB’s PIR of AS 

3101 suggests that there was no 

statistically significant increase in audit 

fees for the audits of large accelerated 

filers but a statistically significant 3.0% 

increase for the audits of non-large 

accelerated filers.407 Financial statement 

preparers and audit committees 

interviewed during the PCAOB’s 

investor outreach efforts indicated that 

there were minimal or immaterial 

costs.408 One academic study found a 

small, statistically insignificant audit fee 

increases as a result of PCAOB Rule 

3211.409 Another study found that audit 

fees increased by a statistically 

significant 7.9 percentage points.410

One commenter noted that the 

proposal failed to consider impacts on 

entities that are neither issuers nor 

broker dealers but are required or may 

be required under SEC rules to use a 

PCAOB-registered and inspected firm. 

The Board notes that the commenter 

provided just two examples of such SEC 

rules. One rule was recently vacated and 

the other is a proposal.411 The Board 

acknowledges that, to the extent any 

such entities are required under SEC 

rules to obtain an audit from a PCAOBregistered firm, they could be indirectly 

impacted by the final rules if their 

auditor is both (I) subject to the final 

requirements and either (ii) chooses to 

pass on to these entities any part of the 

costs associated with the final rules or 

(iii) exits the market as a result of final 

rules.412 Any passthrough of cost will 

likely be limited by the fact that the 

engagement-level reporting 

requirements will not apply to the 

audits of these entities and most of the 

firm-level metrics will not require 

information from their audits. This 

means that the final rules should have 

little or no effect on the cost of their 

audits. Furthermore, the Board notes 

that any costs to such entities could be 

offset by benefits. For example, 

stakeholders in the audit of these 

entities may use the final metrics to 

inform their decision-making. 


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413See above for a discussion on the benefits 

linked to competition. 414See Xiaohong Liu and Dan A. Simunic, Profit 

Sharing in an Auditing Oligopoly, 80 The 

Accounting Review 677 (2005); Mark L. DeFond 

and Clive S. Lennox, The Effect of SOX on Small 

Auditor Exits and Audit Quality, 52 Journal of 

Accounting and Economics 21 (2011); Vincent 

Rylan, The Big Four Continue to Dominate 

Auditing: Weekly Stat, CFO Magazine, (June 29, 

2022) available at https://www.cfo.com/news/thebig-four-continue-to-dominate-auditing-weekly-stat/ 

; Brant Christensen, Kecia Williams Smith, Dechun 

Wang, and Devin Williams, The Audit Quality 

Effects of Small Audit Firm Mergers in the United 

States, 42 Auditing: A Journal of Practice & Theory 

75 (2023). 

415See Michael Ettredge, Juan Mao, and Mary S. 

Stone, Small Audit Firm De-Registrations From the 

PCAOB-Regulated Audit Market: Strategic 

Considerations and Consequences. 

416Citing the result of the survey provided by this 

commenter, another commenter said that nearly 

75% of respondents would consider eliminating 

their public company audit process as a result of 

the proposal. However, this is not what the survey 

found. Rather, the survey found that 50% of 

respondents would at least consider getting out of 

the public company market. 

417See Neil L. Fargher, Alicia Jiang, and Yangxin 

Yu, Further Evidence on the Effect of Regulation on 

the Exit of Small Auditors from the Audit Market 

and Resulting Audit Quality, 37 Auditing: A Journal 

of Practice & Theory 95 (2018). 

418See DeFond and Lennox, The Effect of SOX on 

Small Auditor Exits and Audit Quality. 

419See DeFond and Zhang, A Review of Archival 

Auditing Research. Though firm size is widely 

accepted as a proxy for audit quality, it is not a 

3. Unintended Consequences 

In addition to the benefits and costs 

discussed above, the final rules could 

have unintended consequences. The 

following discussion describes potential 

unintended consequences the Board 

considered and, where applicable, any 

mitigating or countervailing factors. 

i. Auditors May Exit the Market for 

Accelerated Filers and Large 

Accelerated Filers Due to Increased 

Competition and Costs 

The final rules may lead auditors to 

compete on the final metrics. The Board 

believes this new competitive dynamic 

will be beneficial.413 However, firms 

that are less able to compete on the final 

metrics could lose market share or be 

forced to lower their audit fees, 

resulting in strains on their profitability. 

Profitability could also be negatively 

impacted by the costs of the final rules. 

In some cases, these auditors may exit 

the public audit market for accelerated 

filer and large accelerated filer audits. 

This could reduce the number of 

potential auditors some accelerated 

filers or large accelerated filers may 

consider thereby reducing competition. 

One commenter noted that (i) the Big 4 

firms already audit over 88% of the 

large accelerated filers and (ii) research 

shows that the population of firms with 

less than 100 clients has decreased by 

over 50% in recent years.414

Many commenters said that the 

proposal could lead smaller firms to exit 

the market for accelerated filer or large 

accelerated filer audits and increase 

concentration. One commenter said that 

the proposed reporting requirements 

would be particularly onerous on nonU.S. firms that carry out only one or a 

small number of relevant PCAOB 

engagements. One commenter suggested 

that smaller firms may exit the public 

company audit market as a result of the 

proposed requirements, in conjunction 

with other standards recently issued 

and proposed by the PCAOB, and this 

could negatively impact smaller public 

companies that are seeking a smaller 

audit firm. The commenter referred to a 

working paper on smaller firm exits to 

support their view. However, the cited 

paper finds the opposite result, namely 

that changes in PCAOB regulations play 

little if any role in a firm’s decision to 

deregister.415 One commenter noted that 

smaller firm exit could also reduce the 

benefits associated with firms 

competing on the proposed metrics. One 

mid-sized firm said that smaller firms 

would have fewer issuers to spread their 

fixed costs over. The same commenter 

said the proposal would put 

considerable strain on firms that 

provide audit services to the 40% of 

issuers that represent the remaining, at 

most, 2% of capital markets. The 

commenter did not indicate how they 

believe these issuers would be impacted 

by the proposal. 

One commenter who represents CPAs 

said that the costs of the proposal could 

disproportionately impact smaller firms 

which could lead to the exit of some of 

the smaller firms. The commenter 

provided additional comments based on 

the results of a survey of small and midsized firms administered by the 

commenter. The commenter’s survey 

was distributed to the 500 largest CPA 

firms in the United States. Eighty-eight 

firms responded. The respondent firms’ 

revenues range from less than $10 

million to greater than $500 million. 

The commenter provided the survey 

questions. All respondents that perform 

U.S. public company audits reported 

that the proposal would require a very 

heavy or substantial effort and would 

strain resources, driven in part by 

economies of scale. The Board notes 

that this data point is based on 36 

survey participants, some of whom do 

not perform audits of accelerated filers 

or large accelerated filers and therefore 

would not be subject to the final 

requirements. The survey reports that 

23% of respondents (approximately 

eight or nine respondents) would 

definitely or strongly consider exiting 

the public company audit market 

entirely.416 However, the survey 

provides no information that would 

help the Board assess the significance of 

these firms to the overall audit market 

or whether they even audit accelerated 

filers or large accelerated filers, and 

therefore would be impacted by the 

final requirements. The survey also 

reports that another 25% of respondents 

(9 respondents) that perform U.S. public 

company audits would eliminate or 

manage their client base of accelerated 

filers. However, in addition to the lack 

of information that would help the 

Board assess the significance of these 

firms to the overall audit market, the 

relevance of this result is obscured by 

the conflation of ‘‘elimination’’ and 

‘‘management’’ of accelerated filers. 

Finally, the commenter provided little 

detail on how the survey was performed 

(e.g., how the proposal was described to 

the survey participants). 

The potential negative consequences 

of firm exit could be mitigated by 

several factors. First, exit may be limited 

primarily to the smaller firms among 

those that would be impacted by the 

final rules, since smaller firms may be 

disproportionately impacted by the 

fixed costs of complying with the final 

rules. Reduced competition will thus 

tend to impact smaller accelerated filers 

rather than larger large accelerated 

filers, which typically require larger 

auditors. Second, there is little reason to 

expect exit from the market for nonaccelerated filer audits. In fact, 

competition may increase in the nonaccelerated filer issuer audit market to 

the extent firms exiting the accelerated 

filer and large accelerated filer issuer 

markets redeploy capacity to the nonaccelerated filer issuer audit market. 

Finally, firms that remain profitable in 

the accelerated filer and large 

accelerated filer issuer audit markets 

could expand their market share, 

perhaps by acquiring additional 

capacity from exiting firms. 

One commenter provided research 

suggesting that firms that exited the 

market following the Sarbanes-Oxley 

Act were not of lower quality than firms 

that remained.417 The Board believes 

the commenter implied that issuers or 

broker-dealers may not necessarily 

obtain a higher quality audit after 

switching to a new auditor that has 

remained in the market. The study 

acknowledged that prior research using 

other audit quality proxies finds the 

opposite result, namely, that exiting 

firms indeed have lower audit 

quality.418 Firm size is a widely 

accepted proxy for audit quality.419 The 


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perfect predictor of audit quality. Some large firms 

may provide low quality audits and some small 

firms may provide high quality audits. 

420See, e.g., Spotlight Staff Update on 2023 

Inspection Activities (Aug. 2024), available at 

https://pcaobus.org/resources/staff-publications 

and PCAOB Rel. No. 2024–005 at Figure 1. 

421See Alastair Lawrence, Miguel Minutti-Meza, 

and Ping Zhang, Can Big 4 Versus non-Big 4 

Differences in Audit-Quality Proxies be Attributed 

to Client Characteristics?, 86 The Accounting 

Review 259 (2011); Mark DeFond, David H. Erkens, 

and Jieying Zhang, Do Client Characteristics Really 

Drive the Big N Audit Quality Effect? New Evidence 

from Propensity Score Matching, 63 Management 

Science 3628 (2017). 

422See U.S. Securities and Exchange 

Commission, Office of the Advocate for Small 

Business Capital Formation, Annual Report Fiscal 

Year 2023 citing an earlier working paper version 

of Michael Ewens, Kairong Xiao, and Ting Xu, 

Regulatory Costs of Being Public: Evidence from 

Bunching Estimation, 153 Journal of Financial 

Economics 103775 (2024). 

423See Ideagen Audit Analytics, 20-Year Review 

of Audit Fee Trends 2003–2022, (July 2023) at 16. 

424See Ewens, et al., Regulatory Costs of Being 

Public (explaining that non-regulatory factors—such 

as decline in business dynamism, shifting 

investment to intangibles, abundant private equity 

financing, changing economies of scale and scope, 

and changing acquisition behavior—are likely to 

play a more important role than regulatory cost in 

the decline of IPOs). 

425PCAOB staff obtained data on accounting fees 

and legal fees from Audit Analytics and investment 

bank underwriting fees from a PwC market research 

report. See PwC, Considering an IPO? First, 

Understand the Costs, available at https://

www.pwc.com/us/en/services/consulting/deals/ 

library/cost-of-an-ipo.html and Audit Analytics, 

2018–2019 IPO Accounting and Legal Fees, (Feb. 

20, 2020). PCAOB staff calculated deal proceeds by 

multiplying the quantity of shares issued by their 

price at issue. PCAOB staff calculated the 

accounting fee share of proceeds as the proceedsweighted average accounting fee share of proceeds 

across all deals in the Board’s sample. The Board 

notes that the accounting fee share of proceeds is 

decreasing in deal proceeds. PCAOB staff calculated 

the accounting fee share of IPO costs as the ratio 

of all accounting fees to all IPO costs across all 

deals in the Board’s sample. The PCAOB staff’s 

analysis assumes IPO costs are equal to the sum of 

accounting, legal, and investment bank 

underwriting fees. The PwC market research report 

indicates that there are other IPO cost categories, 

but they are relatively small. 

426See PwC, Considering an IPO?. 

427See Jonathan Lewellen and Katharina 

Lewellen, The Ownership Structure of U.S. 

Corporations, SSRN Electronic Journal (2022), at 

Table 3. The Board notes that SSRN does not peer 

review its submissions. 

428 Id. 

Board’s oversight activities indicate that 

noncompliance with auditing standards 

is higher among smaller firms.420

Therefore, to the extent smaller firms 

tend to exit rather than larger firms, as 

commenters contended, then audit 

quality could improve on average as 

issuers switch to larger firms. The Board 

recognizes there is currently some 

debate on the extent to which the largefirm audit quality effect is driven by 

correlated issuer characteristics rather 

than auditor effects.421 The Board 

believes compliance with auditing 

standards is less sensitive to issuer 

characteristics than other audit quality 

proxies (e.g., absolute discretionary 

accruals). After assessing the available 

evidence, the Board believes it is likely 

that the firms that any issuers or brokerdealers would switch to would likely 

not provide lower quality audits. 

Two commenters said that the final 

rules would disproportionately impact 

smaller firms, leading them to increase 

their audit fees. Several commenters 

suggested that regulatory burdens 

incentivize companies to go or remain 

private. Referring to the SEC Office of 

the Advocate for Small Business Capital 

Formation Fiscal Year 2023 annual 

report as support (‘‘SEC Small Business 

Advocate Annual Report’’), one 

commenter highlighted that: (i) in 2022, 

the number of exchange-listed IPOs 

dropped to its lowest point since 2009; 

(ii) small exchange-listed companies 

accounted for the vast majority of the 

decline; and (iii) smaller companies are 

disproportionately impacted by 

regulatory costs because a large portion 

of regulatory costs are fixed.422 The 

Board agrees that the final rules could 

disproportionately impact the smaller 

in-scope firms. However, smaller 

issuers—those that the commenter 

contended are most sensitive to 

regulatory burden and at greatest risk of 

eschewing the capital markets—would 

be minimally impacted by the final 

rules for several reasons. First, firms 

that do not audit accelerated filers or 

large accelerated filers (that is, all but 

approximately 207 firms) would be out 

of scope and therefore there would be 

no effect on audit fees for their nonaccelerated filer issuers. Second, to the 

extent in-scope firms choose to pass 

through all or part of the cost of the final 

rules, they would be less likely to do so 

for their non-accelerated filer issuers 

because their audits will not be subject 

to the engagement-level reporting 

requirements. Third, the Board does not 

believe issuers will incur any significant 

fixed costs, which the commenter 

asserted disproportionately impact 

smaller companies. Therefore, any 

disincentive among smaller companies 

to participate in capital markets arising 

from increased audit fees would likely 

be minimal. Among accelerated filer 

and large accelerated filer issuers, the 

Board notes that audit fees, on average, 

comprise roughly 0.15% to 0.2% of 

issuer revenue and any increase in audit 

fees attributable to the final rules would 

be a fraction of this.423 Therefore, any 

disincentive among larger companies to 

participate in capital markets arising 

from increased audit fees would also 

likely be minimal. Fourth, while the 

SEC Small Business Advocate Annual 

Report demonstrates that smaller 

exchange-listed companies accounted 

for the vast majority of the decline in 

exchange-listed companies, the report 

also cites a paper that concludes 

regulatory cost itself is unlikely to 

explain the full magnitude of IPO 

decline in the United States over the 

past two decades.424 Indeed, PCAOB 

staff analysis finds that accounting fees 

typically comprise roughly 4.5% of the 

costs of an initial public offering (0.3% 

of the proceeds).425 With respect to the 

recurring costs of remaining a public 

company, one market research report 

indicates that accounting fees comprise 

32% of the costs.426 Any incremental 

costs associated with IPOs or remaining 

a public company attributable to the 

final rules would be a fraction of these 

costs. 

In connection with their concerns 

regarding potential disproportionate 

costs to smaller firms, one commenter 

said the PCAOB should evaluate and 

identify the characteristics of investors 

in smaller companies and determine if 

the needs of investors in those 

companies are the same as the potential 

needs of investors in large companies. 

The Board notes that one recent working 

paper finds that institutional ownership 

is, on average, lower for smaller 

companies.427 Since institutional 

investors may be more likely to use the 

metrics, these data suggest that investors 

in smaller public companies may, on 

average, be less likely to use the metrics. 

However, the Board believes that 

investors in smaller companies could 

still benefit from the metrics because: (i) 

retail investors could benefit from the 

improved accessibility and 

comparability of information about 

firms and their engagements; and (ii) 

institutional ownership in smaller 

companies, though less than larger 

companies, is not trivial (41.6% for the 

lowest quintile of companies by market 

capitalization).428 Furthermore, as the 

Board discussed below, financial 

reporting quality may be relatively more 

important for smaller companies. 

Finally, the Board notes that the final 

rules require engagement-level reporting 

only for accelerated filers and large 

accelerated filers and firm-level 

reporting only for firms that audit at 

least one accelerated filer or large 

accelerated filer. This should help 

mitigate any concern that investors in 

smaller companies do not have a need 

for the final metrics. 


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429Commenters on proposed QC 1000 said that 

mid-sized firms would deliberately manage their 

portfolios to avoid the proposed scalability 

requirements that apply only to annually inspected 

firms. Therefore, the Board believes that such 

portfolio management is possible in relation to the 

final rules. Among the firms that will be impacted 

by the final rules, approximately 41%, 19%, and 

11% had one, two, or three accelerated filer or large 

accelerated filer engagements during the 12-month 

period ending September 30, 2023. 

430Contextually, a separating equilibrium occurs 

when incentives cause a division in the market in 

which one type of auditor gravitates towards a 

particular market segment. See, e.g., Michael 

Rothschild and Joseph E. Stiglitz, Equilibrium in 

Competitive Insurance Markets: An Essay on the 

Economics of Imperfect Information, 90 The 

Quarterly Journal of Economics 629, 634 (1976) 

(specifically, the discussion marked I.6 Imperfect 

Information: Equilibrium with Two Classes of 

Customers). 

431Economic theory suggests that private 

negotiations yield efficient allocations of decision 

rights. See Ronald Coase, The Problem of Social 

Cost, 3 The Journal of Law and Economics 1 (1960). 

432Some research finds that poor financial 

reporting outcomes are attributable to client risk 

rather than poor audit quality. See Minutti-Meza, 

Does Auditor Industry Specialization Improve 

Audit Quality? 

433See, e.g., Loewenstein et al., Disclosure 

(discussing how ‘‘[p]sychological factors severely 

complicate the standard arguments for the efficacy 

of disclosure requirements.’’). 434See above for more discussion on the survey. 

ii. Some Auditors May Strategically 

Manage Their Issuer Portfolios 

As discussed above, auditors that do 

not audit accelerated filers or large 

accelerated filers will not be subject to 

the final reporting requirements. Some 

auditors may strategically seek to audit 

only non-accelerated filers to avoid 

disclosure of the final metrics, either to 

avoid costs of complying or out of 

concern that disclosing the metrics 

could potentially damage their 

reputation.429 As a result, there could be 

a separating equilibrium in the audit 

market.430 One commenter agreed that 

smaller firms may manage their 

engagement portfolios to avoid being 

required to comply with the final 

requirements and one commenter 

provided the results of a survey 

indicating that some firms may 

eliminate or manage their client base of 

accelerated filers. Assuming that lowerquality auditors are more likely to avoid 

accelerated filers in this way, this would 

increase the supply of low-quality 

auditors to non-accelerated filers and 

decrease the supply of low-quality 

auditors to accelerated filers. For nonaccelerated filers, this supply shock 

could increase competition among audit 

firms for non-accelerated filers and 

therefore reduce audit fees. However, 

because the supply shock would consist 

primarily of low-quality auditors, it 

could also lower audit quality for nonaccelerated filers. For accelerated filers, 

the opposite would occur. Reduced 

availability of auditors would tend to 

reduce competition and therefore 

increase audit fees. However, because 

higher-quality auditors would remain, 

audit quality could increase. As a result 

of these complex and countervailing 

influences, it is unclear whether this 

unintended consequence would have a 

net positive or negative impact. 

Auditors may also attempt to manage 

their metrics via their acceptance and 

continuance policies. Reputation risks 

to the auditor associated with 

individual engagements may start to 

play a greater role in firms’ acceptance 

and continuance decisions as well as 

their audit fee decisions because new 

engagements could impact firms’ 

metrics and hence their ability to charge 

audit fees on existing engagements. For 

example, a prospective issuer 

engagement may present a higher risk of 

restatement. Since restatements will be 

reported on Form FM in a uniform and 

comparable way, auditors may require a 

fee premium for this issuer to offset any 

negative effect the issuer may have on 

the auditor’s metrics. In extreme cases, 

risky issuers may not be able to find an 

auditor, may be forced to hire a lowquality auditor, or may be forced to 

delist. 

To avoid such adverse outcomes, 

issuers may take steps to reduce their 

contribution to audit risk.431 For 

example, issuers may become more 

forthcoming with information or opt for 

less aggressive financial reporting. This 

potential unintended consequence 

would also be mitigated to the extent 

capital markets recognize that an 

auditor’s metrics are driven in part by 

the riskiness of the auditor’s client 

portfolio rather than the quality of the 

auditor.432 Indeed, auditors will have 

the opportunity to explain important 

context like this in the qualitative 

portion of the final disclosures. 

iii. Investors, Audit Committees, and 

Auditors May Misinterpret or Misuse 

the Final Metrics 

As discussed above, it is possible that 

the final metrics may not relate to audit 

quality in a straightforward way. As a 

result, there is a risk that investors, 

audit committees, and auditors could 

misinterpret, or misuse, the final 

metrics (e.g., by assuming they are 

strongly related to audit quality). The 

outcomes of misinterpretation or misuse 

are difficult to predict because they 

would be rooted in complex aspects of 

human psychology.433 As one example, 

investors and audit committees could 

rely too heavily on a final metric (e.g., 

when making capital allocation or 

auditor selection decisions). In response 

to market forces or requests from audit 

committees, some auditors could make 

changes to their audit approach that 

could negatively impact audit quality. 

As another example, auditors could 

mistakenly attribute other firms’ 

competitiveness to one final metric and 

adjust their audit approach in a way that 

compromises the quality of their 

services. 

Many commenters agreed that there 

would be a risk that users, particularly 

investors, of the proposed metrics 

would misunderstand the metrics. One 

commenter said the proposed metrics 

would be misinterpreted. The 

commenter suggested that this may 

undermine the benefits of the proposal. 

Another commenter said that users 

would not understand some of the 

proposed metrics. One commenter 

suggested that this potential unintended 

consequence should be acknowledged 

as a cost because the negative effects 

would be borne by investors. One 

commenter performed a survey of audit 

committee chairs.434 Some survey 

participants agreed that the proposed 

metrics could lead to inappropriate 

conclusions. One commenter said that 

the risk of misusing the proposed 

metrics by audit committees could lead 

to increased director insurance costs. 

One commenter said investors or other 

stakeholders could pressure audit 

committees to only appoint auditors 

whose metrics fall within a certain 

range without considering other aspects 

of the firm’s audit quality. One 

commenter said that overemphasis on 

metrics by auditors could commoditize 

the profession and reduce incentives to 

innovate the audit approach. 

The Board agrees that, as with other 

financial information made available to 

investors, some investors may 

misunderstand the metrics and make 

poor decisions as a result. If so, this 

could negatively impact them. However, 

the Board believes that the final metrics 

will likely, on average, improve 

investors’ decision-making and 

therefore have chosen to acknowledge 

improved decision-making as a benefit. 

The Board acknowledges that some 

misunderstanding could also reduce the 

magnitude of this benefit. However, the 

Board believes this unintended 

consequence, should it arise, would 

diminish over time as investors learn 

how to effectively integrate the final 

metrics into their decision-making. 

Though the Board believes the metrics 

will spur competition on quality by 

allowing firms to credibly differentiate 

themselves, the Board recognizes it is 

possible that some firms would 


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435See Allen G. Schick, Lawrence A. Gordon, and 

Susan Haka, Information Overload: A Temporal 

Approach, 15 Accounting, Organizations and 

Society 199 (1990); Eugene G. Chewning Jr and 

Adrian M. Harrell, The Effect of Information Load 

on Decision Makers’ Cue Utilization Levels and 

Decision Quality in a Financial Distress Decision 

Task, 15 Accounting, Organizations and Society 

527 (1990); Herbert A. Simon, Rationality in 

Psychology and Economics, 59 Journal of Business 

S209 (1986); J. Richard Dietrich, Steven J. 

Kachelmeier, Don N. Kleinmuntz, and Thomas J. 

Linsmeier, Market Efficiency, Bounded Rationality, 

and Supplemental Business Reporting Disclosures, 

39 Journal of Accounting Research 243 (2001); 

Morris H. Stocks and Adrian Harrell, The Impact 

of an Increase in Accounting Information Level on 

the Judgment Quality of Individuals and Groups, 20 

Accounting, Organizations and Society 685 (1995); 

Knechel, et al., Audit Quality; DeFond and Zhang, 

A Review of Archival Auditing Research; Joost 

Impink, Mari Paananen, and Annelies Renders, 

Regulation-Induced Disclosures: Evidence of 

Information Overload?, 58 Abacus 432 (2022); 

Cornelius J. Casey Jr., Variation in Accounting 

Information Load: The Effect on Loan Officers’ 

Predictions of Bankruptcy, 55 Accounting Review 

36 (1980); Brad Tuttle and F. Greg Burton, The 

Effects of a Modest Incentive on Information 

Overload in an Investment Analysis Task, 24 

Accounting, Organizations and Society 673 (1999); 

Michael B. Clement, Analyst Forecast Accuracy: Do 

Ability, Resources, and Portfolio Complexity 

Matter?, 27 Journal of Accounting and Economics 

285 (1999); Brian P. Miller, The Effects of Reporting 

Complexity on Small and Large Investor Trading, 

85 The Accounting Review 2107 (2010); Christine 

A. Botosan and Mary S. Harris, Motivations for a 

Change in Disclosure Frequency and its 

Consequences: An Examination of Voluntary 

Quarterly Segment Disclosures, 38 Journal of 

Accounting Research 329 (2000); and John L. 

Campbell, Hsinchun Chen, Dan S. Dhaliwal, Hsinmin Lu, and Logan B. Steele, The Information 

Content of Mandatory Risk Factor Disclosures in 

Corporate Filings, 19 Review of Accounting Studies 

396 (2014). 

436See, e.g., Graham, John R., Campbell R. 

Harvey, and Shiva Rajgopal, The Economic 

Implications of Corporate Financial Reporting, 40 

Journal of Accounting and Economics 3, 4 

(discussing how ‘‘[a] surprising 78% of the Board’s 

sample admits to sacrificing long-term value to 

smooth earnings’’). Firms could manipulate the 

final metrics in ways analogous to both accountingbased earnings management and real earnings 

management. For example, they might adjust 

training hours or reported experience levels without 

substantive improvements (analogous to 

accounting-based earnings management) or make 

operational changes, such as altering client 

portfolios, solely to improve metrics (analogous to 

real earnings management). 

437Such behavior can be ascribed to Goodhart’s 

law in that, once the final metrics are disclosed and 

market participants act upon them, previously 

defined relationships change, and the final metrics 

may become unrelated to the alignments previously 

discussed. 

438See Mark S. Beasley, Joseph V. Carcello, Dana 

R. Hermanson, Fraudulent Financial Reporting: 

1987–1997: An Analysis of US Public Companies, 

Committee of Sponsoring Organizations of the 

Treadway Commission (1999); Mark S. Beasley, 

Dana R. Hermanson, Joseph V. Carcello, and Terry 

L. Neal, Fraudulent Financial Reporting: 1998– 

2007: An Analysis of US Public Companies, 

Committee of Sponsoring Organizations of the 

Treadway Commission (2010); Ilia D. Dichev, John 

R. Graham, Campbell R. Harvey, and Shiva 

Rajgopal, Earnings Quality: Evidence from the Field, 

56 Journal of Accounting and Economics 1 (2013); 

Graham et al., The Economic Implications; and 

Jaime L. Grandstaff and Lori L. Solsma, Financial 

Statement Fraud: A Review from the Era 

Surrounding the Financial Crisis, 13 Journal of 

Forensic and Investigative Accounting 421 (2021). 

coordinate their metrics. The Board 

discussed this potential unintended 

consequence below. 

Commenters described specific ways 

the proposed metrics could create 

confusion. Several commenters said that 

some of the definitions in the proposal 

conflict with other definitions in 

PCAOB standards or otherwise lead to 

confusion. The Board does not believe 

there are any direct conflicts with other 

PCAOB standards. The Board has 

attempted to draft the definitions in the 

proposal as precisely and clearly as 

possible. Commenters suggest that the 

ICB industry classification used for the 

industry specialization metric could 

create confusion because the SEC uses 

the SIC system. One commenter agreed 

that it is appropriate to use the ICB for 

industry classification. The Board 

acknowledges that a taxonomy based on 

the ICB industry classification could 

create some confusion. However, 

crosswalks between the ICB system, the 

SIC system, and other industry 

classification systems are available. The 

Board describes in the proposal and 

above why the Board based the 

taxonomy on the ICB system rather than 

the SIC system. One commenter said 

that the proposed restatements metrics 

would be difficult to compare with 

public data because Audit Analytics 

categorizes restatements in a different 

way than the proposed requirements 

would require firms to categorize them. 

The commenter did not explain what 

Audit Analytics categorization they are 

referring to. The Board does not believe 

a user of the final metrics who is also 

familiar with Audit Analytics data and 

wishes to reconcile the two data sources 

would find it challenging to do so. 

One commenter pointed to research 

that suggests more information, 

including via mandatory financial 

disclosure, is not always better for 

investors.435 Several other commenters 

also suggested information overload 

would be a concern. The Board 

appreciates this research and agrees that 

there will be opportunity costs to 

understand the final metrics. However, 

the Board notes that investors will be 

free to disregard the final metrics if they 

find the costs to understand them 

exceed their benefits. Furthermore, the 

Board agrees with one commenter who 

said that technology would obviate this 

potential unintended consequence. 

Several commenters were concerned 

that certain calculations would drive 

misinterpretation. These comments are 

discussed above. For example, one 

commenter suggested that users may 

misinterpret the proposed headcount 

changes as turnover. One commenter 

said industry experience of audit 

personnel could be misleading because 

it does not distinguish between recent 

and past experience. The Board also 

acknowledges that some investors may 

misunderstand this metric and make 

poor decisions as a result that will 

negatively impact them. However, the 

Board believes that the final 

requirements would, on average, 

improve investors’ decision-making and 

therefore have chosen to acknowledge 

improved decision-making as a benefit. 

In the final rules, the Board has 

modified some of the scoping and 

calculations, which likely will reduce 

some of the potential for confusion. 

iv. Auditors May Attempt To 

Manipulate the Final Metrics 

As discussed above, the final rules 

could lead firms to compete on the final 

metrics. As a result, the Board believes 

some firms will take steps to provide 

higher service quality. However, it is 

possible that some firms could instead 

manipulate the final metrics in ways 

that create an impression of providing 

higher service quality when in fact this 

is not the case. For example, firms could 

increase training hours by introducing 

training that has little benefit for audit 

quality, or could adjust staffing in ways 

that they believe make their metrics 

look better but that do not improve 

audit quality. This unintended 

consequence will be analogous, in some 

regards, to earnings management by 

financial statement preparers.436

Some final metrics will be more 

difficult to manage than others. To the 

extent firms are able to manage a final 

metric, management of the final metric 

will tend to reduce the overall 

informativeness of the corresponding 

disclosures and could lead investors 

and audit committees to doubt the 

quality of other firms’ disclosures as 

well. This could degrade existing 

empirical relationships between the 

final metrics and audit quality that have 

been found in the literature discussed 

above.437

Referring to academic research, one 

commenter agreed that firms could try 

to manipulate their metrics, comparing 

this incentive to the incentive 

companies face to manage earnings.438

The same commenter agreed that firms’ 

attempts to manipulate could be 

detrimental to audit quality. The 

commenter also suggested that oversight 

by the PCAOB would create an 

incentive to intentionally manage the 


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439Some research finds that SEC oversight 

reduces some forms of earnings management. See, 

e.g., Lauren M. Cunningham, Bret A. Johnson, E. 

Scott Johnson, and Ling Lei Lisic, The Switch-Up: 

An Examination of Changes in Earnings 

Management after Receiving SEC Comment Letters, 

37 Contemporary Accounting Research 917 (2020). 440See above for a discussion on the final 

documentation requirements. 441See, e.g., Dichev, et al., Earnings Quality: 

Evidence from the Field. 

442One commenter referred to a market research 

report that finds downwards trends in the number 

of accounting graduates and the number of hires but 

upwards trends in the number of new CPA 

candidates. See Association of International 

Certified Professional Accountants, 2021 Trends: A 

Report on Accounting Education, the CPA Exam 

and Public Accounting Firms’ Hiring of Recent 

Graduates, (2022). The commenter also referred to 

an article discussing the perceived talent shortage, 

firms’ efforts to address it, and commentators views. 

See Stephen Foley, Accountants Work to Shed 

‘Boring’ Tag Amid Hiring Crisis, Financial Times 

(Oct 3. 2022). 

443 In the context of this comment, the commenter 

referred to an academic article where discussion on 

dysfunctional manager and investor behavior in 

response to differential audit quality could be 

found. The Board is unsure how such a discussion 

or the article itself are relevant to the topic at hand. 

See Patrick J. Hurley, Brian W. Mayhew, Kara M. 

Obermire, and Amy C. Tegeler, The Impact of Risk 

and the Potential for Loss on Managers’ Demand for 

Audit Quality, 38 Contemporary Accounting 

Research 2795 (2021). 

444See above for more discussion on the survey. 

445See Center for Audit Quality, Increasing 

Diversity in the Accounting Profession Pipeline: 

Challenges and Opportunities, (July 2023). 

metrics. While the Board agrees that 

PCAOB oversight could put pressure on 

firms, the Board notes that, in addition 

to informing the Board’s selection of 

firms, engagements, and focus areas for 

review, PCAOB oversight will be 

focused on compliance with the final 

rules which should deter any efforts to 

manipulate the final metrics. The 

commenter also suggested that 

disclosure of the metrics may change 

behavior in ways that are harmful to 

audit quality. The commenter provided 

specific examples of how this could 

occur for the proposed internal 

monitoring and compensation metrics. 

The Board is not adopting these metrics. 

As discussed above, the Board believes 

behavioral responses to the metrics by 

firms would be largely beneficial. 

Referring to the evolution of CAMs, 

one commenter suggested that the 

metrics could become boilerplate. The 

Board agrees that the narrative 

discussion could potentially become 

boilerplate to some extent. However, as 

the quantitative calculations are not 

boilerplate, the Board believes the 

corresponding optional narrative 

discussion will be less susceptible to 

boilerplate. 

In general, QC 1000 should help 

mitigate this potential unintended 

consequence by explicitly subjecting the 

final metrics to firms’ QC systems. 

Furthermore, firms’ QC systems and 

their disclosure practices, including 

compliance with the final rules, will be 

subject to PCAOB oversight.439 The 

required documentation will also 

constrain firms’ ability to manipulate 

their metrics because it will allow 

PCAOB inspections staff to understand 

how the metrics were calculated.440 The 

Board believes the PCAOB will exercise 

appropriate discretion in its oversight. 

Furthermore, firms will also be 

constrained by the fact that 

manipulations may be detected by 

comparison to peers. Indeed, academic 

research on earnings management 

suggests that peer comparisons help 

stakeholders identify deceptive 

reporting practices, serving as a 

disincentive to manage earnings.441

Finally, the final rules require that any 

optional narrative disclosure should be 

concise and focused on the reported 

metrics, with a view to facilitating the 

reader’s understanding of the metrics. 

The Board believes this should help 

mitigate the risk that auditors would use 

the optional narrative disclosure to 

manipulate users’ perceptions of the 

metrics. 

Firms may attempt to improve their 

metrics by shifting resources from nonaccelerated filer engagements to 

accelerated filer or large accelerated filer 

engagements. This could reduce the 

quality of service on non-accelerated 

filer engagements. However, subject to 

the audit labor market concerns 

discussed below, firms would be able to 

mitigate this effect by acquiring 

additional resources for their 

accelerated filer and large accelerated 

filer engagements (e.g., hiring additional 

staff). Furthermore, the effect would be 

mitigated by the fact that nonaccelerated filers have additional time 

to file their financial statements with 

the SEC compared to accelerated and 

large accelerated filers. Firms may also 

attempt to improve certain metrics by 

shifting resources within an 

engagement. For example, a firm may 

attempt to reduce its workload metrics 

by shifting manager audit hours to more 

junior staff. However, attempting to do 

so may not be beneficial to firms 

because it could at the same time 

degrade other metrics. For example, if a 

firm attempted to reduce its workload 

metrics by shifting manager audit hours 

to more junior staff, it would at the same 

time reduce their partner and manager 

involvement metrics. Furthermore, the 

firm’s QC system operates over all its 

PCAOB engagements and should limit 

the extent to which resources can be 

diverted. 

v. Audit Labor Market Impacts 

The final metrics could lead to 

increased public scrutiny of firms and 

their engagements. This could 

negatively impact the issuer audit labor 

market if individual auditors believe the 

increased public scrutiny negatively 

impacts their personal reputations or 

otherwise increases their work 

pressures. Some commenters agreed that 

the proposed requirements could make 

the audit market less attractive to 

auditors.442 One commenter suggested 

that the potential negative impact on 

individual auditors could lead 

individual auditors to exit the labor 

market which would in turn drive up 

labor costs to audit firms. The 

commenter suggested this could 

potentially increase labor costs for 

issuers as well to the extent audit firms 

seek to hire individuals from issuers 

that have relevant industry 

experience.443 Based on discussions 

with audit committee chairs, one 

commenter said that survey participants 

were ‘‘very concerned’’ that the 

proposal could render the profession 

less appealing to new auditors.444

Referring to a survey commissioned 

by the commenter’s parent organization, 

one commenter reported that, among 

undergraduate accounting majors not 

pursuing or undecided on CPA 

licensure, 94% cite the regulatory 

environment as either a major or partial 

reason.445 The Board notes that this 

statistic ignores the facts that: (i) 

undergraduate accounting majors not 

pursuing or undecided on CPA 

licensure reflect just 20% of the 

participants in the survey (80% of the 

participants in the survey are planning 

to pursue a CPA); and (ii) respondents 

to the question were allowed to select 

multiple reasons. Indeed, 10 out of 14 

of the possible reasons were cited by 

over 85% of the respondents as a major 

or partial reason for not pursuing or 

being undecided on CPA licensure. 

Thus, the findings suggest, at most, that 

the regulatory environment is one of 

many factors discouraging some 

students from pursuing a CPA. 

Furthermore, one commenter suggested 

that, rather than the regulatory 

environment, the 150-credit hour 

requirement to apply for a CPA license 

and work-life balance concerns are the 

key reasons college graduates are 

discouraged from becoming auditors. 

The commenter said that the challenges 

finding qualified auditors are especially 

pronounced for smaller firms. 

The Board notes that individual 

auditors could also use the final metrics 

to gain insights into workplace 

conditions and find firms more suitable 


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446Commenters’ concerns about the cumulative 

impacts of multiple PCAOB standards and rules 

with overlapping implementation periods including 

potential benefits are discussed above. 447See above for more discussion on the survey. 

448See, e.g., Brant E. Christensen, Nathan G. 

Lundstrom, and Nathan J. Newton, Does the 

Disclosure of PCAOB Inspection Findings Increase 

Audit Firms’ Litigation Exposure?, 96 The 

Accounting Review 191, (2021). 

449Tacit collusion refers to coordinated action 

among competitors intended to raise profits that 

does not involve explicit communication. See, e.g., 

Rama Cont and Wei Xiong, Dynamics of Market 

Making Algorithms in Dealer Markets: Learning and 

Tacit Collusion, 34 Mathematical Finance 467 

(2024). The concentrated nature of the audit market 

may enhance the possibility of tacit collusion. 

450See Thomas Bourveau, Guoman She, and 

Alminas Zˇ aldokas, Corporate Disclosure as a Tacit 

Coordination Mechanism: Evidence from Cartel 

Enforcement Regulations, 58 Journal of Accounting 

Research 295 (2020) (finding that ‘‘after a rise in 

cartel enforcement, U.S. firms start sharing more 

detailed information in their financial disclosure 

about their customers, contracts, and products. This 

new information potentially benefits peers by 

helping to tacitly coordinate actions in product 

markets.’’). 

451See Svend Alb#k, Peter M<llgaard, and Per B. 

Overgaard, Government-Assisted Oligopoly 

Coordination? A Concrete Case, 45 The Journal of 

Industrial Economics 429 (1997). 

452See Gaurab Aryal, Federico Ciliberto, and 

Benjamin T. Leyden, Coordinated Capacity 

Reductions and Public Communication in the 

Airline Industry, 89 Review of Economic Studies 

3055 (2022). 

453See, e.g., Yue Pan, Nemit Shroff, and 

Pengdong Zhang, The Dark Side of Audit Market 

Competition, 75 Journal of Accounting and 

Economics 101520 (2023) (explaining how greater 

competition can, on one hand, ‘‘foster audit process 

innovation’’ and, on the other hand, lead auditors 

to ‘‘focus on appeasing clients by reducing 

professional skepticism and allowing clients 

excessive financial reporting discretion’’) and cites 

therein. The Board notes that controlling for all 

potential drivers of audit quality and fees is 

challenging. As such, the results obtained by these 

studies may be affected by omitted variable biases. 

454The commenter referred to two articles about 

‘‘the fraud diamond,’’ a heuristic that approximates 

the conditions under which fraud may occur. See 

David T. Wolfe and Dana R. Hermanson, The Fraud 

Diamond: A 20-year Retrospective, The CPA Journal 

16 (2024) and David T. Wolfe and Dana R. 

Hermanson, The Fraud Diamond: Considering the 

Four Elements of Fraud, The CPA Journal 38 (2004). 

to their skillsets and workplace 

preferences. This may lead firms to 

compete for labor by improving their 

workplace conditions. One commenter 

explained that the industry’s challenges 

attracting staff may be driven in part by 

the commodification of the audit, which 

the proposal would help reduce by 

providing transparency around the 

quality of the audit. The same 

commenter agreed that the proposed 

metrics could empower potential 

employees when shopping for a 

potential audit firm employer. 

One commenter said that the firmlevel retention metric could present 

firms with a competitive disadvantage 

for recruiting talent if high turnover 

rates are provided without sufficient 

context (e.g., changes in firm structure, 

shifting industry concentrations, 

eliminating personnel due to 

performance or ethical concerns, 

independence issues resulting in the 

departure of firm personnel, etc.). The 

retention metric may result in 

additional recruiting costs to some 

firms. However, the Board believes that 

auditors will benefit from using this 

metric to shop for employers. Firms 

would also be able to provide additional 

context through the optional narrative 

disclosure. 

Some commenters said that the costs 

would be increased by the need to 

implement multiple significant PCAOB 

standards at the same time.446 Relatedly, 

one commenter said that the costs 

would be exacerbated by the proposed 

timing for Form FM, which would fall 

during the same time as PCAOB 

inspections and the QC system 

evaluation. The Board acknowledges 

that the issuer audit labor market may 

be relatively inelastic in the short run, 

particularly so given recent concerns 

about inadequate labor supply, which 

could increase the cost implications of 

the additional staffing that would be 

required to implement multiple PCAOB 

standards in relatively quick succession. 

This could exacerbate the costs of the 

final rules or lead to improper 

implementation. 

vi. Litigation and Reputations Risks 

Two commenters suggested that the 

proposed rules would exacerbate audit 

firm litigation and reputation risks. One 

commenter performed a survey of audit 

committee chairs.447 Some participants 

in the survey agreed that the proposal 

could create litigation and reputation 

risk. Regarding litigation risk, the Board 

agrees that plaintiffs’ lawyers may use 

the final metrics to support their cases. 

Supporting this view, some research 

finds that PCAOB inspection reports 

with audit deficiencies are positively 

associated with the number of lawsuits 

subsequently filed against the inspected 

auditor.448 However, while the Board 

acknowledges this could encourage 

some frivolous lawsuits, the Board 

believes it would largely contribute 

positively to audit quality as it would 

create an incentive for firms to produce 

high quality audits. Indeed, the Board 

believes it would help drive more 

competition on audit quality, a criterion 

that the same commenter urged the 

Board to consider. Regarding reputation 

risk, the Board believes that the impact 

on reputation is central to the intended 

impacts of the final rules. 

vii. Tacit Collusion 

Some commenters suggested that the 

proposal could have anticompetitive 

effects. One commenter analogized the 

proposed metrics to (i) the sharing of 

compensation practices in the poultryprocessing market; (ii) information 

sharing in healthcare; and (iii) 

information benchmarking in the meatpacking market. Relatedly, several 

commenters suggested that the proposed 

metrics could reveal competitively 

sensitive information. The Board 

acknowledges commenters’ concerns 

about potential anticompetitive effects 

which, if obtained, could reduce quality 

or increase price. For example, in 

addition to the largely procompetitive 

effects discussed in the proposal and 

above, there could be an offsetting 

negative effect on competition to the 

extent the final metrics facilitate tacit 

collusion among audit firms.449 Some 

research suggests that public disclosure 

can negatively impact competition. For 

example, one academic study suggests 

that U.S. public companies 

opportunistically use their public 

financial disclosures to tacitly 

collude.450 Another academic study 

shows that public disclosure of 

transaction-level pricing data by Danish 

antitrust authorities led to an increase in 

prices for ready-mix concrete.451

Similarly, another academic study 

shows that legacy airlines use their 

earnings calls to coordinate capacity 

reductions on competitive routes.452

However, this research may not 

necessarily apply to the audit market. 

For example, the relationship between 

competition and audit quality is 

ambiguous with some research 

suggesting that increased competition is 

negatively associated with audit 

quality.453 As a result, to the extent the 

final rules facilitate tacit collusion, this 

effect could either raise or lower audit 

quality in certain segments of the 

market. By contrast, the Board believes 

the procompetitive effects of the final 

rules described above will be significant 

due to the dearth of information 

currently available to audit committees 

and investors. Furthermore, competition 

in the audit market is limited by the 

presence of switching costs, reducing 

firms’ incentives to tacitly collude. 

viii. Opportunistic Behavior by 

Preparers 

One commenter suggested that 

financial statement preparers may be 

able to use the proposed metrics to 

evade their auditor’s scrutiny.454 The 

Board agrees that preparers might be 

able to exploit some of the final metrics 

in this way (e.g., partner and manager 

involvement) but for others it will be 


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455See AS 1301. 

456See Kimberly D. Westermann, Jeffrey Cohen, 

and Greg Trompeter, PCAOB Inspections: Public 

Accounting Firms on ‘‘Trial’’, 36 Contemporary 

Accounting Research 694 (2019); Persellin, et al., 

Audit Perceptions. 

457See above. 

458Among the firms that will be impacted by the 

final rules, approximately 41%, 19%, and 11% had 

a total of one, two, or three accelerated filer or large 

accelerated filer engagements, respectively, during 

the 12-month period ending September 30, 2023. 

less likely (e.g., restatements). The effect 

will be limited by the fact that preparers 

already have some familiarity with their 

auditor’s processes. For example, 

auditors are required to provide a 

variety of audit committee 

communications which preparers may 

be privy to.455 Indeed, one key premise 

of the economic analysis is that auditors 

and preparers have better information 

than investors and audit committees do 

about the audit process and outcomes. 

The same commenter suggested that 

financial statement preparers could use 

the proposed metrics to shop for a lower 

quality auditor. The Board agrees this 

will be possible but, as the Board 

discussed in the proposal and above, the 

Board believes that the public nature of 

the metrics will tend to suppress this. 

More specifically, the broader financial 

statement user community will be able 

to observe how auditor switches 

correlate with company characteristics 

and firms’ metrics and judge the 

company’s financial reporting quality, 

and the audit committee’s execution of 

its auditor oversight responsibilities, 

accordingly. However, the Board 

acknowledges that, because companies 

will be better informed about the 

nuances of the audit process, the final 

metrics could make it easier for some 

companies to shop for a lower quality 

auditor without significant negative 

consequence. 

ix. Attention Diversion 

One commenter suggested that the 

proposed rules could reduce audit 

quality by diverting engagement teams’ 

attention away from other activities. 

Another commenter suggested that this 

risk would be greater for smaller audit 

firms and provided numerous research 

articles suggesting that auditors are 

overburdened.456 The same commenter 

suggested that the PCAOB should, as a 

starting point, consider whether the 

proposed metrics place burdens on 

engagement teams that would distract 

them from audit quality. Several 

commenters suggested that the time 

required to prepare the proposed 

metrics would necessarily divert 

attention from audit work and thus 

reduce audit quality. One commenter 

suggested that strains on the audit labor 

market could increase audit 

deficiencies. Another commenter 

suggested that the proposed metrics 

would distract audit committees from 

their oversight responsibilities. 

The Board acknowledges that the final 

rules could require some engagement 

team members’ time. For example, some 

engagement team members may be 

tasked with gathering information from 

the engagement team and forwarding it 

to the national office (e.g., experience, 

hours). Subject to the audit labor market 

concerns discussed above, firms will be 

able to relieve some of this burden by 

hiring additional staff or by centralizing 

or automating certain aspects of the 

implementation effort.457 The Board 

also rejects the premise that the 

presence of any engagement-level 

burden should automatically disqualify 

a metric. Such a criterion ignores the 

metric’s associated benefits. Regarding 

audit committees, as discussed in the 

proposal and again above, the Board 

recognizes that audit committees could 

incur costs understanding the metrics. 

One type of cost could be the 

opportunity cost associated with 

spending less time on other oversight 

activities to the extent audit committees 

choose to do so. However, the Board 

notes that audit committees could 

minimize this opportunity cost by 

spending more total time overseeing the 

audit. Also, the various ways the final 

metrics would improve audit committee 

oversight is discussed above. 

x. Non-PCAOB Registered Firms 

One commenter suggested the 

proposed metrics could have cost 

implications for non-PCAOB registered 

firms. The Board agrees. For example, 

non-substantial role firms may incur 

costs providing information to firms 

subject to the final requirements. 

However, they already should be 

providing total audit hours for Form AP 

reporting purposes. Also, any 

incremental cost will be limited to the 

Partner and Manager Involvement and 

Allocation of Audit Hours final metrics. 

xi. Unintentional Engagement-Level 

Disclosures 

Several commenters said that, for 

firms that issue a limited number of 

audit reports for accelerated filers and 

large accelerated filers, many of the 

firm-level metrics could result in the 

disclosure of engagement-level 

information.458 One commenter cited 

the internal monitoring metric as an 

example. However, for most of the final 

firm-level metrics, corresponding 

engagement-level information will also 

be publicly available independent of the 

public disclosure of the firm-level 

metric itself. The Board does not believe 

that the possibility of making 

engagement-level inferences from the 

final metrics that are required only at 

the firm level would impose costs on 

firms. Furthermore, the Board notes that 

the proposed internal monitoring metric 

is not among the final metrics. 

Alternatives Considered 

The development of the final rules 

involved considering alternative 

approaches to address the problems 

described above. This section explains: 

(i) why standard setting is preferable to 

other policy-making approaches, such 

as providing interpretive guidance or 

enhancing inspection or enforcement 

efforts, (ii) other standard-setting 

approaches that were considered, and 

(iii) key policy choices made in 

determining the details of the final 

standard-setting approach. 

1. Why Standard Setting Is Preferable to 

Another Approach 

As potential alternatives to standard 

setting, the Board considered whether 

interpretive guidance or greater focus on 

inspections or enforcement could better 

address the need described above. One 

commenter suggested the PCAOB could 

communicate to stakeholders 

observations related to audit quality 

based on the outcomes of its inspections 

and its enforcement actions, noting that 

the PCAOB has unique access to 

information and people and has the 

context to understand quality risks. The 

Board determined that, despite longterm requests by investors to disclose 

additional metrics, similar initiatives by 

other standard setters, and the apparent 

ability of firms to voluntarily disclose 

metrics, the fact that most auditors have 

not voluntarily acted to disclose 

effective metrics on a uniform basis at 

the firm and engagement level points to 

the need for regulatory intervention 

through standard setting. 

Increased focus on inspections or 

enforcement is unlikely to incentivize 

audit firms to voluntarily disclose the 

final metrics. Likewise, interpretive 

guidance is unlikely to address audit 

firms’ lack of incentives to voluntarily 

disclose the final metrics. While some 

firms may choose to disclose 

information similar to the final metrics 

voluntarily, the lack of a standardized 

approach would result in 

inconsistencies that prevent effective 

comparisons across the profession. 

Similarly, standardization without 

mandated disclosure is not sufficient to 

ensure the availability of comparable 


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459See, e.g., Patrick Bolton and Marcin T. 

Kacperczyk, Firm Commitments, SSRN Electronic 

Journal (2024). The Board notes that SSRN does not 

peer review its submissions. 460See PCAOB Staff Guidance on Form AP. 

461See, e.g., Yoon-Ho Alex Lee, An OptionsApproach to Agency Rulemaking, 65 

Administrative Law Review 881 (2013); see also 

OMB Circular A–4 at 69 (‘‘The assessment of real 

options allows you to monetize the benefits and 

costs of changing the timing of regulatory effects in 

light of the value of information about potential 

states of the world that can be learned over time.’’). 

In short, when a policy is reversible (as in the case 

with the final rules) and the policy outcome is 

probabilistically determined between an efficient 

outcome and an inefficient outcome, a case can be 

made for moving forward with the policy even 

when the net expected benefit under the static costbenefit analysis is negative because of the option of 

repealing the policy in the future in case the 

inefficient outcome is realized. 

462See Admin. Conf. of the U.S., 

Recommendation 2017–6, Learning from Regulatory 

Experience, 82 FR 61738 (Dec. 29, 2017), available 

at https://www.acus.gov/recommendation/learningregulatory-experience. 

public reporting of metrics.459 As 

discussed above, required mandatory 

and uniform reporting will help audit 

committees make more informed 

decisions in retaining and monitoring 

auditors, and investors make more 

informed decisions when ratifying 

auditor appointments, electing board 

members (including those who serve on 

the audit committee), and allocating 

capital. The Board believes that 

standard setting addresses the problem 

in the most effective way. 

One commenter said that the 

commenter’s experienced implementing 

the Form AP amendments proved to 

them that calculations require a robust 

implementation support infrastructure. 

Several commenters suggested that 

guidance regarding the final 

amendments would reduce the 

complexity and challenges associated 

with calculating the metrics. One 

commenter said that guidance would be 

essential to balance the costs of 

compiling and reporting the information 

and this guidance should extend to the 

evaluation of differences that may arise 

in the disclosure of participating firms 

on Form AP. Another commenter said 

that the Board should clarify whether 

the current Form AP Staff Guidance 

regarding amendments would extend to 

all metrics as well as how routine 

corrections and re-allocations of time 

entries and other matters affecting 

metrics reported on Forms FM are 

expected to be handled.460 The Board 

acknowledges that guidance could help 

reduce the complexity and costs 

associated with implementing the final 

rule. As discussed above, the Board will 

monitor for issues and consider updates 

to implementation guidance as 

appropriate. 

2. Other Standard-Setting Alternatives 

Considered 

During the development of the final 

rules, the Board considered two 

alternatives to the current disclosure 

rules: (i) publishing benchmarks on the 

final firm and engagement metrics, and 

(ii) requiring additional audit committee 

communications. 

First, the Board considered collecting 

the final metrics from the firms on a 

non-public basis and then publicly 

publishing benchmarks based on those 

metrics. This approach would benefit 

the Board in the ways described above. 

However, the Board believes that 

investors and audit committees will be 

able to effectively interpret the final 

metrics in their disaggregated form 

when made directly available to the 

public. Therefore, public transparency 

will be important. Moreover, as 

discussed above, benchmarking could 

even have potentially harmful 

unintended consequences. 

Second, the Board considered 

requiring auditors to communicate the 

final metrics just to their audit 

committees and not to members of the 

public. One commenter suggested that 

the benefits of the proposal would be 

the same under this alternative. 

However, such a policy choice would 

not directly benefit the decision-making 

capabilities of investors and other 

stakeholders in the public securities 

markets. Moreover, it would limit audit 

committees’ ability to compare the final 

metrics across different firms and 

engagements and thus impair their 

decision-making (e.g., auditor selection) 

by depriving audit committees of the 

broader context needed to make 

informed choices. 

One commenter suggested that the 

Board adopt a specific plan to conduct 

a PIR. The Board has an established PIR 

program under which staff of the Office 

of Economic and Risk Analysis (OERA) 

conduct an analysis of the overall effect 

of new rules or amendments on key 

stakeholders in the audit process, 

including whether the rules or 

amendments are accomplishing their 

intended purpose and identifying 

benefits, costs, and unintended 

consequences flowing from them. In 

determining whether to conduct a PIR, 

PCAOB staff will consider the nature of 

the rules or amendments (including the 

magnitude of and degree of uncertainty 

around the key economic effects), the 

feasibility (including research design 

and data availability), and the potential 

utility to the Board (including whether 

the PIR might identify a demand for 

additional guidance or amendments). 

Under the established PIR program, the 

Board expects that OERA staff will 

consider whether, based on these 

factors, a PIR might be warranted and, 

if so, OERA staff will recommend that 

the Board determine to conduct one. In 

other words, this deliberation should 

take place without any commitment. By 

contrast, a commitment to conduct a PIR 

can be counter-productive if OERA staff 

would otherwise determine that a PIR is 

not warranted or feasible. In addition, a 

well-designed PIR is one that is itself 

based on some early experience (even if 

only anecdotal), and thus, the Board 

believes having a specific plan of PIR at 

this stage may be premature. The Board 

believes having an established PIR 

program tends to increase the net 

expected value of the PCAOB’s adopted 

rules and standards. Should future PIRs 

lead to potential modification or 

revision of these rules and standards, 

this dynamic approach to assessing the 

impact of the PCAOB’s rules and 

standards compares favorably with a 

static analysis of costs and benefits.461

Several commenters that opposed 

aspects of the rulemaking suggested that 

the Board should pilot test the final 

rules. One commenter suggested pilot 

testing would allow the PCAOB to 

obtain feedback on the nature, timing, 

extent, and usefulness of reporting. The 

commenter referred to a pilot program 

planned by another regulator. Another 

commenter said that pilot testing should 

occur prior to adoption of the final rules 

to confirm whether the final metrics can 

be consistently collected and reported 

by firms and whether they would be 

useful to stakeholders. One commenter 

suggested that pilot testing would 

provide the Board with data to 

quantitatively estimate the economic 

impacts of the proposal. 

The Board agrees that a pilot study 

could theoretically provide useful 

preliminary compliance data.462 For 

example, a pilot study could provide 

insights on the impacts of the proposed 

requirements or alternative approaches. 

However, the Board believes several 

concerns would challenge the utility of 

such an approach. First, participation in 

a pilot study would likely be voluntary, 

potentially with a limited group of 

participating firms, which may not be 

representative of all firms. This could 

skew results and would limit the 

applicability of any findings to a 

broader set of firms. Second, the 

impacts of the metrics on competition 

and capital allocation in the markets are 

complex and may require analysis 

across a broad set of firms and market 

conditions. A pilot study would not 

capture this diversity or the broader 

impacts on competition and capital 

markets, potentially leading to 


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463See FRC, Consultation Document: Firm-level 

Audit Quality Indicators. 

464See above for a discussion of phased 

implementation. 

465See above for discussion on data sourcing. The 

Board excludes firms that filed an audit opinion 

during the sample period but whose registration has 

since been withdrawn, revoked, or is pending 

withdrawal. 

466See below for additional discussion. 

467Based on 2023 fiscal year data sourced 

through Audit Analytics’ Web service, nonaccelerated filers paid median audit fees of 

$320,000 and had median total assets of $66 

million. Comparatively, accelerated filers paid 

median fees of $1,300,000 and had median total 

assets of $765 million. Large accelerated filers paid 

median fees of $3,010,000 and had median total 

assets of $5,509 million. Only issuers filing 

pursuant to the Exchange Act (a.k.a. Act–34 filers) 

were retained in the sample. 

468See, e.g., Harris and Williams, Audit Quality 

Indicators. 

469Sourcing data across the University of 

Chicago’s Center for Research and Security Prices 

(CRSP) Annual flat-file to collect annual volume, 

along with Compustat, and Audit Analytics, the 

Board identified, using filer statuses reported by 

Audit Analytics, that the median average daily 

volume (the quantity of share units traded per year 

divided by 252 trading days) for large accelerated 

filers in 2020 and 2021 was roughly 867,000 units 

per day and 762,000 units per day, respectively. For 

accelerated filers, the average daily volume was 

183,000 and 168,000 respectively. For nonaccelerated filers, the average daily volume was 

528,000 and 756,000, units per day, for 2020 and 

2021. One reason for this is possibly the relatively 

lower share price non-accelerated filer issuers have, 

resulting in a higher unit-volume (per trade lot) 

compared to accelerated filer issuers. The Board 

maintains share codes 10, 11 (i.e., U.S. issuers), and 

12 (foreign issuers trading on U.S. exchanges) in the 

Board’s analysis, and remove American depositary 

receipts, shares of beneficial interest, real estate 

investment trusts, SBIs, REITs, and closed-end 

funds. Additionally, the Board retains only 

Exchange Act 1934 filers and volumes related to the 

first audit opinion filed with the SEC for a given 

fiscal year. Filer status, as sourced through Audit 

Analytics, may be an imperfect proxy of the true 

filer status of the entity-issuer due to errors in 

reporting and or collection. Furthermore, the Board 

retains only observations in which there is recorded 

to be complete volume for the entire annual period. 

There were 1,350 large accelerated filer issuers in 

the Board’s sample in 2020, and 1,358 in 2021. For 

accelerated filers there are 337 and 329 issuers in 

each 2020 and 2021 that remain in the Board’s 

sample, and for non-accelerated filers there are 121 

and 134 issuers, respectively. The Board attempts 

to remove issuers additionally classified as Small 

incomplete or misleading conclusions. 

Third, the full implications of the 

metrics on competition and capital 

formation might take several years to 

manifest, as stakeholders would need 

time to adapt to and fully integrate the 

final metrics effectively. This delay 

could postpone the benefits expected 

from the final rules, especially if the 

pilot study would need to run for 

multiple years to capture the necessary 

information and trends. Finally, as 

stakeholders (including firms, issuers, 

investors, and others) adapt to the new 

metrics, their behaviors and the 

resulting data might change over time, 

potentially rendering early data from a 

pilot study less relevant or useful for 

long-term policy decisions. For these 

reasons, a pilot study, while potentially 

yielding some initial insights, would 

have limited overall benefits in this 

case. It would not offer a comprehensive 

view of the metrics’ implications across 

the entire spectrum of firms and could 

unduly delay the transparency 

objectives of the rulemaking. The Board 

notes that the proposal considered the 

work of other regulators, including the 

planned pilot study referred to by one 

of the commenters.463 That discussion 

appears above in substantially the same 

form. 

3. Key Policy Choices 

During the development of the final 

rules, the Board considered different 

approaches to addressing key policy 

issues. 

i. Definitions and Calculations of the 

Final Metrics 

The Board considered a variety of 

alternative definitions and calculations 

of the final metrics, including several 

suggested by commenters and those 

initially proposed. See above for a 

discussion of these considerations. 

ii. Applicability 

The conditions under which firms 

will be required to comply with the 

final engagement and firm-level 

reporting requirements are described 

above. During the development of the 

final rules, the Board considered 

limiting applicability to firms that met 

a certain aggregate issuer market 

capitalization threshold. The Board also 

considered broadening the set of 

applicable filer statuses. 

The Board noted that compared to the 

proposed approach, an aggregate issuer 

market capitalization threshold could 

help focus the final rules on auditors 

and engagements that investors are most 

interested in. 

Commenters during the development 

of QC 1000 indicated that a threshold 

based on market capitalization was 

perhaps preferable to a threshold based 

on issuer count because many auditors 

audit numerous small engagements with 

limited operations (e.g., special purpose 

acquisition companies). However, such 

an approach could present challenges. 

As one commenter noted, thresholds 

based on market capitalization may be 

subject to the volatility of the market. 

During a review of the potential 

methodologies, the Board found that 

such a threshold would also be sensitive 

to auditor switches, particularly if the 

switching issuer had a large market 

capitalization. Some auditors near the 

threshold could move back and forth 

between applicability and nonapplicability. The Board also considered 

alternative transition thresholds for 

market capitalizations, or a phase-out 

period in attempting to mitigate the 

negative aspects of these options. 

Ultimately, the Board has determined 

that there was limited benefit to using 

these alternative applicability 

thresholds.464

The Board also considered broadening 

the applicability of the final firm-level 

metrics to include all firms that audited 

at least one operating company. This 

would increase the number of firms 

impacted by the final firm-level metrics 

by approximately 160 and increase the 

number of engagements and market 

capitalization covered by the final firmlevel metrics by approximately 16% and 

less than 0.1%, respectively.465

Expanding the scope to cover all firms 

that audit at least one operating 

company could reduce any potential 

negative stigma associated with smaller 

firms for not being required to disclose 

the final metrics. However, these firms 

tend to be smaller and hence may lack 

the infrastructure and economies of 

scale to efficiently implement the final 

rules. Furthermore, the gain of 

information to audit committees and 

investors would be limited by the fact 

that these firms tend to have smaller or 

fewer issuers on average. It also could 

create confusion to have different 

thresholds for the final firm-level 

reporting requirements and the final 

engagement-level reporting 

requirements. Finally, firms that will 

not be subject to the final firm-level 

disclosure requirements could 

voluntarily disclose the final metrics. 

The Board also considered broadening 

applicability of the final engagementlevel metrics to include non-accelerated 

filer issuers. While the importance of 

audit quality may be more significant 

for smaller issuers,466 PCAOB staff 

analysis finds that non-accelerated filers 

are proportionately smaller—at the 

median—than accelerated filer and large 

accelerated filers in terms of audit fees 

and total assets.467 One survey of audit 

committees of smaller public companies 

found that five of the 28 metrics 

discussed in the Concept Release were 

evaluated by more than half of the audit 

committees surveyed.468 PCAOB staff 

also reviewed the relative trading 

volume associated with these filer status 

groups and found that non-accelerated 

filer issuers have higher average daily 

(unit) volume than accelerated filer 

issuers but lower average daily (unit) 

volume than large accelerated filers.469


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Reporting Companies from the reported statistics. 

Lastly, not all issuers, particularly smaller issuers, 

trade on exchanges observed in the CRSP data set— 

as a result the Board’s sample may be biased 

towards larger issuers, or issuers that trade on 

exchanges observed by CRSP. 

470For a discussion of ‘‘thinly traded’’ markets, 

see Division of Trading and Markets: Background 

Paper on the Market Structure for Thinly Traded 

Securities, Roundtable on Market Structure for 

Thinly Traded Securities (April 23, 2018), available 

at https://www.sec.gov/rules/policy/2019/thinlytraded-securities-tm-background-paper.pdf. 

471See above for additional discussion on 

commenters’ views on this alternative. 

472See above for additional discussion on this 

policy alternative. 

Neither issuer group, in general, was 

‘‘thinly traded,’’ as measured by average 

daily volume.470 Given these 

differences, the costs of the final rules 

associated with non-accelerated filer 

issuer engagements could be 

proportionally higher than the costs 

associated with accelerated filer or large 

accelerated filer issuers engagements. 

As a result, the Board has restricted the 

applicability of the final engagementlevel metrics to accelerated filer and 

large accelerated filer engagements. 

Firms that will not be subject to the 

final engagement-level disclosure 

requirements could voluntarily disclose 

the final metrics. 

The Board also considered whether 

the scope for engagement-level reporting 

should be extended to non-operating 

company issuers whose financial 

statements are required under SEC rules 

to be audited under PCAOB standards 

(i.e., investment companies, employee 

stock plans) and broker-dealers. While 

these additional disclosures could be 

informative, commenters indicated that 

the proposed metrics would be less 

beneficial for these entities compared to 

accelerated filers and large accelerated 

filers.471 The Board agrees, and 

therefore are not requiring disclosure of 

these metrics for issuers that are not 

accelerated filers or large accelerated 

filers under the final rules. 

iii. Reporting 

Several commenters suggested that 

the Board could alleviate the burden on 

smaller firms by raising the reporting 

threshold. One commenter said that 

firms that issue audit reports for 100 

issuers or more are the firms whose 

metrics investor-related groups would 

be most interested in reviewing, given 

these firms audit a significant majority 

of the market capitalization of issuers 

reporting on Form 10–K, Form 20–F, 

and Form 40–F. Another commenter 

suggested a threshold of 25 or more 

large accelerated filer and accelerated 

filer issuer engagements combined. The 

same commenter said that metrics of 

firms with few engagements could be 

unduly influenced by a single 

engagement. By contrast, one 

commenter suggested making the 

reporting requirements apply to all 

PCAOB-registered firms. As discussed 

in the proposal and above, the Board 

recognizes the potential 

disproportionate cost to smaller firms 

and have considered this in the Board’s 

decision to scope in all firms that audit 

at least one accelerated filer or large 

accelerated filer.472 The Board believes 

audit committees and investors will 

benefit from information related to the 

audits of accelerated filers and large 

accelerated filers and the firms that 

perform these audits. Two commenters 

agreed that the proposed scope captures 

situations where investment and proxy 

voting decisions would be most likely to 

benefit from additional information 

about the audit and the auditor. 

As discussed above, firms subject to 

the final engagement-level reporting 

requirements will be required to 

disclose the final engagement-level 

metrics in Form AP, to be filed by the 

35th day (for most audits) after the date 

the audit report is first included in a 

document filed with the SEC. Firms 

subject to the final firm-level reporting 

requirements will also be required to 

disclose the final firm-level metrics in 

the newly created Form FM. 

As contemplated above, the Board 

considered requiring that the final 

metrics be included in the audit report 

in addition to on Form AP and Form 

FM. Under this alternative, costs 

incurred by investors and audit 

committees when gathering information 

to inform their decision-making could 

be further reduced. Investors would be 

able to look down from the auditor’s 

opinion and immediately review the 

final metrics. Moreover, this would 

serve as a prime opportunity for the firm 

to communicate critical context through 

narratives that might be beneficial for 

investors in reviewing the final metrics. 

The disclosure of the proposed 

metrics in the audit report would not 

impair the usefulness of their disclosure 

through Form AP and Form FM. Indeed, 

such additional reporting may enhance 

their usefulness by setting the proposed 

metrics within the full context of the 

issuer’s financial reporting. However, 

some investors and audit committees 

may prefer to obtain the information 

from Form AP and Form FM, or from 

other sources (e.g., a subscription-based 

data provider), and hence may find little 

use for metrics in the audit report. There 

likely would not be appreciable costs 

associated with this additional 

reporting, outside of costs to include the 

report in the filing of the audit opinion. 

Firms will already be required to collate 

information and compute the final 

metrics for reporting to the PCAOB in 

their relevant forms. 

Many commenters disagreed with this 

approach citing that, for example, it 

could potentially detract from the 

clarity and purpose of the report, could 

result in delays in the issuance of audit 

reports, and amendments to the audit 

report for corrections to metrics could 

create unnecessary burden for issuers 

and confusion for investors. One 

commenter suggested the proposed 

metrics would be better placed in audit 

committee reports in company proxy 

statements. One commenter said that 

the proposed metrics: (i) would create a 

misimpression that the metrics are 

indicative of audit quality; (ii) would be 

impractical to implement in a timely 

manner; and (iii) could distract auditors. 

However, several commenters, primarily 

investor-related groups, were supportive 

of reporting in the auditor’s report. One 

commenter said that the proposed 

engagement performance metrics are as 

important to understanding audit risks 

as CAMs and thus merit inclusion in the 

auditor’s report. The Board is persuaded 

by commenter feedback that this 

alternative would be burdensome and 

could diminish the value of the 

auditor’s report. Therefore, the Board is 

not adopting this alternative at this 

time. 

The Board also considered requiring 

firms subject to the final firm-level 

reporting requirements to disclose the 

firm-level metrics on Form 2 rather than 

Form FM. This approach could benefit 

some investors or audit committees 

because the firm-level metrics would 

appear in the context of other firm-level 

information. It could also reduce 

compliance costs for firms because firms 

are already familiar with Form 2. 

However, information reported on Form 

2 is currently not downloadable as a 

structured data set. This could reduce 

the accessibility of the final firm-level 

metrics to investors and audit 

committees. Furthermore, the final firmlevel metrics use terms that have 

different meanings in the context of 

Form 2 (e.g., ‘‘Partners’’). This could 

lead some investors or audit committees 

to misunderstand the final firm-level 

metrics or lead some firms to mistakenly 

provide incorrect information in Form 

2. Finally, the due date of Form 2, June 

30, falls after the general timing of 

shareholder meanings and therefore 

would generally arrive too late to inform 

shareholders’ voting decisions. This 

alternative and commenter feedback are 

discussed above. Overall, the Board is 

persuaded by commenters’ concerns 


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473See SEC Concept Release on Possible 

Revisions to Audit Committee Disclosures, SEC Rel. 

No. 33–9862 (July 1, 2015) (‘‘2015 SEC Concept 

Release’’). 

474See Gillian Rose Barnes and Dana R. 

Hermanson, Fraud Brainstorming Sessions and 

Interviews in a Remote World: Initial Evidence, 15 

Journal of Forensic and Investigative Accounting 

248 (2023); Lazarus Elad Fotoh and Johan Ingemar 

Lorentzon, Audit Digitalization and its 

Consequences on the Audit Expectation Gap: A 

Critical Perspective, 37 Accounting Horizons 43 

(2023); Jean C. Bedard, Karla M. Johnstone, and 

Edward F. Smith, Audit Quality Indicators: A 

Status Update on Possible Public Disclosures and 

Insights from Audit Practice, 4 Current Issues in 

Auditing C12 (2010); Knechel, et al., Audit Quality; 

and Christensen et al., Understanding Audit 

Quality. 

475See Arianna S. Pinello, Ara G. Volkan, Justin 

Franklin, Michael Levatino, and Kimberlee Tiernan, 

The PCAOB Audit Quality Indicator Framework 

Project: Feedback from Stakeholders, 16 Journal of 

Business & Economics Research 1 (2019). 

that this alternative would place 

burdens on firms during their busy 

season. Therefore, the Board is not 

adopting this alternative at this time. 

While several commenters suggested 

that the Board limit the disclosure of 

engagement-level metrics to audit 

committees—citing audit committees’ 

ability to engage in dialogue with the 

auditor and to understand the context of 

the metrics—the Board believes public 

disclosure will provide the benefits 

associated with investor decisionmaking as well as some benefits related 

to improved audit committee decisionmaking. For example, public disclosure 

allows investors to make more informed 

decisions regarding board directors 

(including audit committee members), 

and auditor ratification. It also will 

provide audit committees with 

comparative information about other 

firms and engagements which may 

improve their auditor selection and 

oversight decisions. Furthermore, the 

Board believes that the public nature of 

the metrics will be a key driver of the 

pro-competitive effects in the auditing 

market, by making it easier to compare 

an existing auditor’s metrics to the same 

metrics for other potential auditors. The 

Board therefore believes public 

transparency will foster a competitive 

auditing environment and support 

robust governance by providing all 

stakeholders, not just audit committees, 

with information to make well-informed 

decisions. 

Two commenters suggested the Board 

refer to work performed by the SEC 

when it considered requiring additional 

audit committee disclosures.473 One 

commenter suggested that the 2015 SEC 

Concept Release could inform the 

Board’s consideration of requiring 

auditors to disclose engagement-level 

metrics to audit committees only. Staff 

reviewed the 2015 Concept Release. The 

2015 SEC Concept Release sought 

comment on, among other things, 

whether the reporting of additional 

information by the audit committee 

with respect to its oversight of the audit 

may provide useful information to 

investors as they evaluate the audit 

committee’s performance in connection 

with, among other things, their vote for 

or against directors who are members of 

the audit committee, the ratification of 

the auditor, or their investment 

decisions. The Board believes this 

request for comment is consistent with 

the questions included in the Board’s 

proposal, the feedback from investorrelated groups the Board received, and 

the Board’s view that investors need 

more information to: (i) evaluate the 

performance of auditors and audit 

committees; (ii) vote for or against 

directors who are members of the audit 

committee; (iii) ratify the appointment 

of the auditor; and (iv) invest capital. 

The 2015 SEC Concept Release also 

stated that to the extent the audit 

committee uses indicators or metrics in 

assessing the quality of the auditor and 

the audit, disclosure about the use and 

consideration of such metrics may 

provide useful information about the 

audit committee’s process for assessing 

the auditor. The Board notes that the 

relevance of the 2015 SEC Concept 

Release is limited by the fact that it: (i) 

contemplates public disclosures by 

audit committees rather than by 

auditors; and (ii) aims to solicit 

feedback rather than provide a costbenefit analysis. As explained 

previously, the Board believes that 

restricting the disclosure of these 

metrics solely to audit committees 

would cause investors and other 

stakeholders to forgo the benefits of 

disclosure. 

Some commenters suggested a more 

flexible approach to engagement-level 

reporting, such as voluntary disclosure. 

One commenter suggested that 

competition among auditors should be 

the primary source of practice 

enhancements as opposed to regulatory 

control. One commenter suggested that 

voluntary disclosure allows for 

refinements and innovation in response 

to the evolving auditing environment. 

Another commenter suggested that 

voluntary disclosure could facilitate a 

market for enhanced disclosures. 

Relatedly, referring academic research, 

one commenter said that relevant 

metrics could evolve over time and that 

many metrics could be useful.474 Also 

citing academic research, another 

commenter recommended a principlesbased approach.475 The Board 

recognizes that a purely voluntary or 

principles-based approach could foster 

innovation. However, for reasons 

discussed above the Board believes the 

benefits associated with a mandatory 

approach, with clearly articulated 

calculations relative to the current 

practice baseline of voluntary 

disclosure, are substantial. For example, 

as discussed above, the Board believes 

that the market does not provide 

sufficient incentives for auditors to 

disclose information akin to the metrics 

voluntarily. Furthermore, even under 

the mandatory framework the Board is 

adopting, firms would still have the 

freedom to innovate beyond the 

required metrics through additional 

voluntary disclosures. 

One commenter suggested that an 

analysis of analogous initiatives in 

foreign jurisdictions would inform the 

PCAOB of potential alternatives to the 

final rules that may be less costly or 

present less risk of unintended 

consequences. One commenter 

suggested that the Board more carefully 

consider the context in which those 

metrics are used, emphasizing their 

voluntary nature. As discussed in the 

proposal, PCAOB staff reviewed 

initiatives in foreign jurisdictions and 

noted their generally less prescriptive 

approaches compared to the metrics the 

Board is adopting. While these 

international approaches may involve 

lower costs and possibly fewer 

unintended consequences, ’they are also 

likely to mean that metrics are less 

comparable and less comprehensively 

available, implying less-substantial 

benefits. The Board believes that the 

Board’s approach, although potentially 

more prescriptive, is necessary to 

achieve the desired level of 

transparency and oversight in audit 

practices. 

Two commenters representing 

investor groups suggested that, if the 

Board adopts the final rules, the PCAOB 

could amplify the value of the final 

metrics by providing tools, research, or 

periodic reviews of the information. The 

Board will consider these suggestions. 

However, the Board notes that, under 

the final rules, users will be able to 

analyze the data using tools of their 

choice. Additionally, the PCAOB plans 

to have programs to sponsor research 

which may consider the final metrics. 

The Board will be alert to how the 

metrics are utilized and their impact. 

iv. Alternative Firm and Engagement 

Metrics Considered 

The Board considered but at this time 

are not adopting metrics related to: (i) 

auditor proficiency testing; surveys of 

firms and audit committees; and auditor 

absenteeism; (ii) legal proceedings 


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476See, e.g., Stephen Perreault, James Wainberg, 

and Benjamin L. Luippold, The Impact of Client 

Error-Management Climate and the Nature of the 

Auditor-Client Relationship on External Auditor 

Reporting Decisions, 29 Behavioral Research in 

Accounting 37 (2017) and Donna D. Bobek, Derek 

W. Dalton, Brian E. Daugherty, Amy M. Hageman, 

Robin R. Radtke, An Investigation of Ethical 

Environments of CPAs: Public Accounting versus 

Industry, 29 Behavioral Research in Accounting 43 

(2017). 

477See, e.g., Christensen et al., Understanding 

Audit Quality. 

478See, e.g., Colleen Honigsberg, Shivaram 

Rajgopal, and Suraj Srinivasan, The Changing 

Landscape of Auditors’ Liability, 63 The Journal of 

Law and Economics 367 (2020). 

479See Honigsberg et al., The Changing 

Landscape. 

480See Christensen et al., Understanding Audit 

Quality. 

481See, e.g., Aobdia et al., Practitioner 

Assessments. 482See, e.g., Matthew G. Sherwood, Miguel 

Minutti-Meza, and Aleksandra B. Zimmerman, 

Auditors’ National Office Consultations, SSRN 

Continued 

against audit firms and firm ownership 

structures; (iii) engagement-level 

PCAOB deficiencies; (iv) access to 

national office or other technical 

resources and staff and investments in 

infrastructure to support audit quality; 

(v) auditor independence and financial 

reporting quality; (vi) timely issuance of 

internal controls weaknesses and going 

concern opinions and fraud or other 

financial reporting misconduct; (vii) 

audit fees, effort, and client risk; (viii) 

audit personnel; (ix) allocation of audit 

hours; and (x) internal monitoring and 

incentives. In the following discussion 

the Board briefly describes and 

evaluates the literature on these metrics 

and provides the Board’s rationale for 

not adopting them. 

a. Metrics Related to Auditor 

Proficiency Testing, Surveys of Firms 

and Audit Committees, and Auditor 

Absenteeism 

Metrics related to proficiency testing, 

surveys of firms and audit committees, 

and auditor absenteeism would 

generally speak to the ‘‘Tone at the Top’’ 

or workplace culture of the audit firm. 

There is a lack of literature covering the 

economic impacts that disclosure of 

these metrics might engender. While 

some academic literature suggests strong 

work culture and a ‘‘Tone at the Top’’ 

is associated with audit quality,476 it is 

unclear how an informative metric 

could be constructed. Similarly, while 

some academic literature suggests 

competence is associated with audit 

quality, there is limited research related 

to proficiency testing per se and it is 

unclear how an informative metric on 

proficiency testing could be 

constructed.477 Finally, the Board is 

unaware of any literature related to 

auditor absenteeism. At this time, the 

Board is not requiring disclosure of 

these metrics under the final rules. 

b. Metrics Related to Legal Proceedings 

Against Audit Firms and Firm 

Ownership Structures 

Some academic literature suggests 

there may be no relationship between 

the quality of audit services or the 

auditor’s provision of reasonable 

assurance and the likelihood that an 

auditor could be sued, have a case 

settled, or be taken through court.478

Many cases brought against auditors fail 

to meet the threshold of fault required 

to show the auditor is liable for the 

damages incurred by investors. 

Information related to legal proceedings 

may also be confidential or otherwise 

sensitive. Furthermore, the incidence of 

lawsuits against auditors has declined 

in recent years.479 One investor survey 

finds that investors perceive private 

litigation as being unrelated to audit 

quality.480 Additionally, information 

regarding proceedings initiated by 

government entities against firms and 

certain of their personnel is already 

reported on PCAOB Form 3. Metrics 

related to firm ownership structure are 

being considered by the PCAOB’s Firm 

Reporting rulemaking project. At this 

time, the Board is not requiring 

disclosure of these metrics under the 

final rules. 

c. Metrics Related to Engagement-Level 

PCAOB Deficiencies 

The Board’s considerations regarding 

potential metrics related to engagementlevel PCAOB deficiencies are discussed 

above. Several commenters suggested 

the Board include metrics related to 

deficiencies identified during PCAOB 

inspections. Several commenters 

suggested the Board require firms to 

report the percentage of their reviewed 

audits that received Part I.A deficiencies 

in their PCAOB inspection reports. 

These commenters highlighted the 

critical nature of Part I.A deficiencies 

and suggested that requiring this 

information to be disclosed along with 

the other final metrics would increase 

its prominence. While the Board 

acknowledges the significance of Part 

I.A deficiencies—indicating deficiencies 

that were of such significance that the 

Board believes the firm, at the time it 

issued its audit report, had not obtained 

sufficient appropriate audit evidence to 

support its opinion on the issuer’s 

financial statements and/or ICFR—the 

Board notes that this information is 

already publicly available and 

stakeholders already utilize this 

information, compiling it in their 

analyses. 

One commenter suggested that the 

Board consider requiring auditors to 

disclose which of their audits had Part 

I.A deficiencies included in their 

PCAOB inspection reports. The 

commenter suggested that this 

disclosure would obviate need for most, 

if not all, of the proposed firm- and 

engagement-level metrics. The Board 

acknowledges that information on 

engagement deficiencies identified 

through PCAOB inspection could 

provide investors and other 

stakeholders with additional insight on 

audit quality. However, PCAOB 

inspection reports are typically 

published well after the reporting 

deadlines for engagement-level metrics 

on Form AP, making it impractical to 

include such inspection results in that 

form. The Board also disagrees that 

disclosure of PCAOB inspection 

findings would obviate the need for the 

metrics. The final metrics will be 

available for the full population of 

accelerated filer and large accelerated 

filer issuers, whereas the presence of 

Part I.A deficiencies are available for the 

much more limited sample of inspected 

firm engagements. Furthermore, the 

Board believes the final metrics would 

provide information on aspects of audit 

quality not entirely captured by Part I.A 

deficiencies. While academic literature 

suggests that engagement-level PCAOB 

auditing deficiencies are indicative of 

low audit quality, Sarbanes-Oxley 

already provides a robust framework for 

making PCAOB inspection findings and 

sanctions public.481 At this time, the 

Board is not requiring the disclosure of 

engagement-level PCAOB auditing 

deficiencies under the final rules. 

d. Metrics Related to Access to the 

National Office or Other Technical 

Resources and Staff and Investments in 

Infrastructure To Support Audit Quality 

The Board’s considerations regarding 

potential metrics related to access to 

technical resources is discussed above. 

Overall, metrics related to audit teams’ 

access to such technical resources and 

staff could indicate how accessible 

individuals, decision aids, or technical 

audit-process manuals are to audit 

teams. For example, in larger firms, 

individuals in the national office may 

provide consultation on complex, 

unusual, or unfamiliar issues. One study 

using PCAOB data found that national 

office consultations are common among 

PCAOB-inspected engagements and that 

national office consultation use is 

associated with engagement 

characteristics and proxies for audit 

quality.482 Smaller firms may retain 


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Electronic Journal (2024). The Board notes that 

SSRN does not peer review its submissions. 

483See DeFond and Zhang, A Review of Archival 

Auditing Research. 

484See, e.g., Aobdia et al., The Economics of 

Audit Production, Table 3 and Table 4 (finding that 

audit effort is not related to various proxies for 

audit quality after holding other factors constant); 

Constantinos Caramanis and Clive Lennox, Audit 

Effort and Earnings Management, 45 Journal of 

Accounting and Economics 116 (2008) (studying 

Greek audit firms, finding that lower audit hours 

are associated with decreases in various proxies for 

audit quality) and Dafydd Mali and Hyoung-Joo 

Lim, Can Audit Effort (Hours) Reduce a Firm’s Cost 

of Capital? Evidence from South Korea, 45 

Accounting Forum 171 (2020) (finding, using data 

on Korean audit firms, that audit effort is negatively 

associated with weighted average cost of capital). 

485See, e.g., Aobdia, Practitioner Assessments, 

Table 4. 

individuals with such expertise from 

outside the firm. Metrics related to 

infrastructure that supports audit 

quality could provide information on 

resources audit teams have available to 

them that could support audit quality. 

However, due to the variety of ways 

firms provide technical resources and 

infrastructure to support audit quality, 

the Board believes that metrics related 

to these areas would likely not be 

informative or comparable for all firms. 

Furthermore, disclosures related to 

network relationships currently being 

considered as part of the PCAOB’s Firm 

Reporting rulemaking project would 

provide some information to investors 

and audit committees regarding firms’ 

access to technical resources. At this 

time, the Board is not requiring 

disclosure of metrics related to access to 

technical resources under the final 

rules. 

The Board’s considerations regarding 

potential metrics related to investment 

in audit infrastructure is discussed 

above. In particular, one commenter 

suggested that the Board consider 

requiring firms to report the percentage 

of the firm’s revenues invested in 

technology accessible by audit teams. 

The Board believes the broad range of 

what constitutes ‘‘technology’’ and how 

it is used across different firms could 

lead to inconsistencies in how such a 

metric is calculated and reported. 

Overall, the Board does not believe such 

a metric would be informative and 

comparable. At this time, the Board is 

not requiring disclosure of metrics 

related to access to investment in audit 

infrastructure under the final rules. 

e. Metrics Related to Auditor 

Independence and Financial Reporting 

Quality 

Disclosures related to audit fees and 

non-audit fees are being considered as 

part of the PCAOB’s Firm Reporting 

rulemaking project. Furthermore, the 

final rules already include a metric for 

restatements, a well-accepted proxy for 

financial reporting quality. Therefore, 

the Board does not think there is a need 

to expand disclosures related to this 

information under the final rules. 

f. Metrics Related to the Timely 

Issuance of Internal Controls 

Weaknesses and Going Concern 

Opinions, and Fraud or Other Financial 

Reporting Misconduct 

Academic research suggests that (i) 

markets react to going concern reporting 

and (ii) timely reporting of a going 

concern opinion is an indicator of audit 

quality.483 However, there is a lack of 

academic research related to timely 

reporting of internal control 

weaknesses. The final rules include 

metrics related to restatement history, 

which the Board believes will provide a 

clearer signal of audit quality. Firms’ 

reporting of internal control weaknesses 

and their inclusion of going concern 

explanatory paragraphs in the audit 

report are also publicly available 

already, as are indicators of auditors’ 

timeliness (e.g., subsequent restatements 

or bankruptcies). Additionally, the 

Board is considering other standardsetting opportunities related to the 

reporting of fraud or other financial 

reporting misconduct as well as the 

auditor’s going concern evaluation. At 

this time, the Board does not think there 

is a need to require disclosure of these 

metrics under the final rules. 

g. Metrics Related to Audit Fees, Effort, 

and Client Risk 

Regarding audit fees, the Board notes 

that engagement-level audit fees are 

already publicly available and firm-level 

audit fees may be constructed by 

summing engagement-level audit fees. 

Regarding audit effort, the Board notes 

that, while some academic research 

finds that proxies for audit effort are 

associated with audit quality, the level 

of association diminishes in certain 

settings when considered jointly with 

other information correlated with audit 

effort.484 Indeed, stakeholders will have 

access to information correlated to audit 

effort. For example, engagement-level 

audit hours, a commonly used proxy for 

audit effort, are highly correlated with 

engagement-level audit fees which are 

publicly available.485 Additionally, the 

final metrics related to Partner and 

Manager Involvement, Workload, 

Training Hours for Audit Personnel, and 

Allocation of Audit Hours will provide 

information related to audit effort. 

Regarding client risk, the Board has 

observed through the Board’s oversight 

activities that firms classify clients as 

high risk in various ways. At this time, 

the Board is not requiring disclosure of 

these metrics under the final rules. 

h. Metrics Related To Audit Personnel 

The Board proposed but are not 

adopting engagement-level metrics 

related to turnover (i.e., Retention and 

Tenure). Academic literature related to 

turnover generally and commenters’ 

views on the proposed metric are 

discussed above. Overall, commenters 

generally did not support engagementlevel metrics in this area. Several 

commenters said that mandatory partner 

rotation, personal issues, and strategic 

resource management concerns could 

drive the proposed engagement-level 

metric related to turnover. Commenters 

said that for these and other reasons the 

metrics would be especially difficult for 

stakeholders to interpret and would 

need to be considered in conjunction 

with other metrics. After considering 

these comments, and in light of the 

Board’s original analysis, the Board is 

not adopting the proposed engagementlevel Retention and Tenure metric 

under the final rules. 

i. Certain Metrics Related to the 

Allocation of Audit Hours 

The Board proposed but is not 

adopting several metrics related to the 

allocation of audit hours (i.e., Audit 

Hours and Risk Areas, Audit 

Resources—Use of Auditor’s Specialists 

and Shared Service Centers). These 

proposed metrics predominantly focus 

on whether the audit team is being 

efficiently and effectively deployed. The 

proposed metrics were intended to 

improve transparency into the audit 

process and help investors and audit 

committees to review: (i) whether the 

auditor is effectively allocating hours in 

response to areas of significant risk, (ii) 

whether the auditor is efficiently and 

effectively deploying individuals with 

expertise to address areas that require 

their specialized knowledge; and (iii) 

whether the auditor is efficiently and 

effectively using SSCs. Section 

IV.C.1.iv.b of the proposal provides 

additional discussion on the potential 

benefits of these metrics and relevant 

academic literature. Comments related 

to the discussion of academic literature 

are addressed above. The Board 

addresses below more specific 

comments related to the impacts of 

these metrics. 

Commenters’ views on the proposed 

Audit Hours and Risk Areas metric 

including alternative approaches 

suggested are discussed above. Overall, 

many commenters did not support the 

proposed metric and said that it would 

be challenging to calculate. Several 


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486See J. Efrim Boritz, Natalia KochetovaKozloski, and Linda Robinson, Are Fraud 

Specialists Relatively More Effective Than Auditors 

at Modifying Audit Programs in the Presence of 

Fraud Risk?, 90 The Accounting Review 881 (2015); 

Candice T. Hux, Use of Specialists on Audit 

Engagements: A Research Synthesis and Directions 

for Future Research, 39 Journal of Accounting 

Literature 23 (2017); Zimmerman, et al., Auditor’s 

Use; Dereck Barr-Pulliam, Stephani Mason, and 

Kerri Ann Sanderson, The Joint Effects of Work 

Content and Work Context on Valuation Specialists’ 

Perceptions of Organizational-Professional Conflict, 

SSRN Electronic Journal (2022); Aleksandra B. 

Zimmerman, Dereck Barr-Pulliam, Joon-Suk Lee, 

and Miguel Minutti-Mezza, Auditors’ Use of InHouse Specialists, 61 Journal of Accounting 

Research 1363 (2023). The Board notes that SSRN 

does not peer review its submissions. 

487See Richard W. Houston and Chad M. 

Stefaniak, Audit Partner Perceptions of Post-Audit 

Review Mechanisms: An Examination of Internal 

Quality Reviews and PCAOB Inspections, 27 

Accounting Horizons 23, (2013). 

488See Pub. L. 112–106 (Apr. 5, 2012). Section 

103(a)(3)(C) of Sarbanes-Oxley, as added by Section 

104 of the JOBS Act. Section 104 of the JOBS Act 

also provides that any rules of the Board requiring 

(1) mandatory audit firm rotation or (2) 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. The 

final mandatory disclosure rules do not fall within 

either of these two categories. 

489The Board provided this analysis of the impact 

on EGCs to assist the SEC in making the 

determination required under Section 104 to the 

extent that the requirements apply to ‘‘the audit of 

any emerging growth company’’ within the meaning 

of Section 104 of the JOBS Act. 

commenters said that, because risk 

assessment is an iterative process, highrisk areas could change over the course 

of the audit, leading to challenges 

tracking the required hours information. 

Several commenters also said that 

calculating the proposed metric would 

require extensive coordination among 

other auditors. Several commenters also 

said that hours charged to particular 

accounts may include work that is 

unrelated to an identified significant 

risk. After considering these comments, 

and in light of the Board’s original 

analysis, the Board is not adopting the 

proposed Audit Hours and Risk Areas 

metric under the final rules. 

Commenters’ views on the proposed 

Audit Resources metrics including 

alternative approaches suggested are 

discussed above. Overall, commenters 

generally opposed these metrics. For 

example, one commenter said that the 

use of auditor’s specialists would not be 

comparable across firms of different 

sizes without sufficient context. The 

same commenter said that smaller firms 

are more likely to engage outside 

specialists compared to larger firms 

with in-house specialists. One 

commenter said firms are already 

required to communicate their use of 

specialists to audit committees on an 

engagement. One commenter said that 

the use of specialists is highly 

contextual. One commenter said it 

would be difficult obtain the hours 

information to calculate the proposed 

use of specialists metric. Referring to 

several academic articles, one 

commenter suggests that smaller firms 

and larger firms’ metrics related to the 

use of specialists would not be 

comparable because smaller firms feel 

regulatory pressure to use specialists 

and typically retain outside 

specialists.486 One commenter said that 

the SSC metric would be misinterpreted 

as indicating that greater SSC hours 

indicated lower quality. After 

considering these comments, and in 

light of the Board’s original analysis, the 

Board is not adopting the proposed 

Audit Resources metrics under the final 

rules. 

j. Metrics Related to Internal Monitoring 

and Incentives 

The Board proposed but is not 

adopting metrics related to internal 

audit quality review (i.e. Audit Firms’ 

Internal Monitoring) and incentive 

alignment (i.e., Quality Performance 

Ratings and Compensation). Metrics 

related to internal audit quality review 

and incentive alignment focus on the 

positive and negative incentives 

auditors face. Unlike the final metrics 

related to audit personnel and allocation 

of audit hours, which would provide 

additional transparency into the inner 

workings and characteristics of the audit 

team, the disclosure of these proposed 

metrics would provide information 

related to audit outcomes and the 

incentives that led to those results. 

Section IV.C.1.iv.c of the proposal 

provides additional discussion on the 

potential benefits of these metrics and 

relevant academic literature. Comments 

related to the discussion of academic 

literature are addressed above. The 

Board addresses below more specific 

comments related to the impacts of 

these metrics. 

Commenters’ views on these proposed 

metrics including alternative 

approaches raised are discussed above. 

Two commenters agreed that the 

proposed metrics related to firms’ 

internal monitoring would be useful for 

stakeholders. One firm reported that it 

provides similar firm-level information 

in its transparency report. However, 

others expressed several concerns, 

particularly regarding the engagementlevel metrics. By way of background, 

survey research cited in the proposal 

finds that internal monitoring programs 

are valued by audit partners for their 

focus on the firm’s audit methodology, 

their timeliness, and the quality of the 

feedback.487 Pointing to this research, 

one commenter suggested that the 

proposed internal monitoring metric 

would undermine the efficacy of audit 

firm internal inspection programs and 

audit quality. Some commenters said 

that the information would not be 

comparable due to differences in firms’ 

monitoring programs. One commenter 

said that smaller firms would be 

disadvantaged because the results of 

their monitoring programs tend to be 

more variable. Regarding incentive 

alignment, some commenters supported 

a metric for incentive alignment and 

agreed with the Board’s rationale for 

proposing it. One commenter said that 

investors routinely evaluate executive 

compensation packages and understand 

that compensation may be driven by a 

variety of factors which could be 

discussed in the voluntary narrative 

discussion. However, other commenters 

said it would lack comparability, would 

not capture other important drivers of 

compensation, and would raise 

confidentiality concerns. After 

considering these comments, and in 

light of the Board’s original analysis, the 

Board did not adopt these metrics under 

the final rules. 

Special Considerations for Audits of 

Emerging Growth Companies 

Section 104 of the Jumpstart Our 

Business Startups (‘‘JOBS’’) Act imposes 

certain limitations to the application of 

the Board’s standards to audits of 

Emerging Growth Companies (‘‘EGCs’’), 

as defined in Section 3(a)(80) of the 

Exchange Act. Under Section 104, the 

JOBS Act provides that any additional 

rules adopted by the Board subsequent 

to April 5, 2012, ‘‘shall not apply to an 

audit of any [EGC] 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 would promote efficiency, 

competition, and capital formation.’’ 488

As a result, the final rules are subject to 

a separate determination by the SEC 

regarding their applicability to audits of 

EGCs.489

To inform consideration of the 

application of PCAOB standards and 

rules to audits of EGCs, the PCAOB staff 

publishes a white paper annually that 

provides general information about 

characteristics of EGCs. The data on 

EGCs outlined in the most recent white 

paper, released in February 2024, 

remains generally consistent with the 

data outlined in prior EGC white 


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490See PCAOB, White Paper on Characteristics of 

Emerging Growth Companies and Their Audit Firms 

at November 15, 2022 (Feb. 20, 2024), available at 

https://pcaobus.org/resources/other-researchprojects (‘‘EGC White Paper’’). 491The EGC White Paper uses a lagging 18-month 

window to identify companies as EGCs. Please refer 

to the ‘‘Current Methodology’’ section in the EGC 

White Paper for details. Using an 18-month window 

enables PCAOB staff to analyze the characteristics 

of a fuller population in the EGC White Paper, but 

may tend to result in a larger number of EGCs being 

included for purposes of the present EGC analysis 

than would alternative methodologies. For example, 

an estimate using a lagging 12-month window 

would exclude some EGCs that are delinquent in 

making periodic filings. An estimate as of the 

measurement date would exclude EGCs that have 

terminated their registration, or that have exceeded 

the eligibility or time limits. See id. 

492See, e.g., Harris and Williams, Audit Quality 

Indicators. 

493See EGC White Paper at Figure 9 and Figure 

12 (indicating that exchange-listed EGCs have less 

market capitalization and revenue than exchangelisted non-EGCs). 

494See SEC, Final Report of the Advisory 

Committee on Smaller Public Companies to the U.S. 

Securities and Exchange Commission (Apr. 23, 

2006) at 73. 

495Researchers have developed a number of 

proxies that are thought to be correlated with 

information asymmetry, including small issuer size, 

lower analyst coverage, larger insider holdings, and 

higher research and development costs. To the 

extent that EGCs exhibit one or more of these 

properties, there may be a greater degree of 

information asymmetry for EGCs than for the 

broader population of companies, which increases 

the importance to investors of the external audit to 

enhance the credibility of management disclosures. 

See, e.g., Steven A. Dennis and Ian G. Sharpe, Firm 

Size Dependence in the Determinants of Bank Term 

Loan Maturity, 32 Journal of Business Finance and 

Accounting 31 (2005); Michael J. Brennan and 

Avanidhar Subrahmanyam, Investment Analysis 

and Price Formation in Securities Markets, 38 

Journal of Financial Economics 361 (1995); David 

Aboody and Baruch Lev, Information Asymmetry, 

R&D, and Insider Gains, 55 Journal of Finance 2747 

(2000); Raymond Chiang and P. C. Venkatesh, 

Insider Holdings and Perceptions of Information 

Asymmetry: A Note, 43 Journal of Finance 1041 

(1988); and Molly Mercer, How Do Investors Assess 

the Credibility of Management Disclosures?, 18 

Accounting Horizons 185 (2004). 

496PCAOB staff analysis indicates that, compared 

to exchange-listed non-EGCs, exchange-listed EGCs 

are approximately 2.6 times as likely to be audited 

by an NAF and approximately 1.3 times as likely 

to be audited by a triennially inspected firm. 

Source: EGC White Paper and S&P. 

497As of November 15, 2022, among the 2,562 

EGCs for which ‘‘accelerated filer’’ status 

information is available, just 163 identified as 

accelerated filers. See EGC White Paper at 26. 

498See above for a discussion on the link between 

audit quality and financial reporting quality. 

499As noted in Form FM and Form AP, hours 

worked are the sum of hours that are incurred on 

issuer and non-issuer engagements and include 

hours spent on training, practice development, 

personnel development, or other firm activities. 

Hours worked exclude hours that are not 

considered working hours (e.g., paid time off and 

holiday time). 

papers.490 As of the November 15, 2022, 

measurement date, PCAOB staff 

identified 3,031 companies that selfidentified with the SEC as EGCs and 

filed with the SEC audited financial 

statements in the 18 months preceding 

the measurement date.491

The discussion of benefits, costs, and 

unintended consequences of the final 

rules above is generally applicable to all 

audits performed pursuant to PCAOB 

standards, including audits of EGCs. 

The economic impacts of the final rules 

on an individual EGC audit will depend 

on factors such as the auditor’s ability 

to distribute implementation costs 

across its audit engagements and 

whether the auditor has already 

incorporated the final metrics into its 

audit approach. One survey of audit 

committees of smaller public companies 

found that five of the 28 metrics 

discussed in the Concept Release were 

evaluated by more than half of the audit 

committees surveyed.492 EGCs are more 

likely to be newer companies, which are 

typically smaller in size and receive 

lower analyst coverage.493 For example, 

smaller companies have very little, if 

any, analyst coverage, which reduces 

the amount of information made 

available to financial statement users 

and therefore makes markets less 

efficient.494 These factors may increase 

the importance to investors of the higher 

audit quality expected to result from the 

final rules, as high-quality audits 

generally enhance the credibility of 

management disclosures.495 The costs of 

the final rules may disproportionately 

impact smaller audit firms, and in so 

much as smaller audit firms tend to 

audit smaller issuers, pass through of 

these costs may disproportionately 

impact EGCs.496

However, two important caveats will 

limit the impact of the final rules on 

EGCs. First, the vast majority of EGC 

engagements will not be subject to the 

final engagement-level reporting 

requirements because an EGC cannot be 

a large accelerated filer and few 

accelerated filers maintain the EGC 

status.497 The Board believes these EGCs 

will therefore not be impacted by the 

final engagement-level reporting 

requirements. Second, approximately 

23% of EGC engagements (712 out of 

3,031) will not be included in any final 

firm-level reporting because they are not 

audited by a firm that will be subject to 

the final firm-level reporting 

requirements. The Board believes these 

EGCs will therefore not be impacted by 

the final firm-level reporting 

requirements. 

Overall, among the impacted EGCs, 

the final rules are expected to enhance 

the quality of EGC audits and financial 

reporting quality.498 To the extent the 

final rules will improve EGCs’ financial 

reporting quality, it may also improve 

the efficiency of capital allocation, 

lower the cost of capital, and enhance 

capital formation. For example, 

investors may improve their capital 

allocation by more accurately 

identifying EGCs with the strongest 

prospects for generating future riskadjusted returns and reallocating their 

capital accordingly. Investors may also 

perceive less risk in the impacted EGC 

capital markets generally, leading to an 

increase in the supply of capital to the 

impacted EGCs. This may increase 

capital formation and reduce the cost of 

capital to impacted EGCs. The final 

rules could reduce competition in an 

EGC’s product market if the indirect 

costs to audited companies 

disproportionately impact EGCs relative 

to their competitors. 

As discussed above, the Board 

considered broadening the applicability 

of the final rules to include information 

from audits of EGCs generally. However, 

for the reasons described there, the 

Board is not doing so at this time. In 

particular, non-accelerated filer EGCs 

may be disproportionately impacted by 

cost passthrough and tend to be smaller 

than in-scope issuers. Comments related 

to this alternative are discussed above. 

There were no comments related to the 

EGC analysis specifically. 

Accordingly, and for the reasons 

explained above, the Board recommends 

that the Commission determine that it 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, to apply the final 

rules to audits of EGCs. 

Appendix—Illustrative Examples of 

Metric Calculations 

The examples below are based on 

hypothetical situations and have been 

prepared for illustrative purposes only, 

to show how metrics would be 

calculated based on the facts presented. 

They are not intended to provide 

guidance or suggestions regarding what 

the numerical values of the metrics 

themselves, or of the inputs on which 

they are based, are likely to be or should 

be. They are qualified in their entirety 

by reference to Rule 2203C, Firm 

Metrics, Rule 3211, Audit Participants 

and Metrics, Form FM, Firm Metrics, 

and Form AP, Audit Participants and 

Metrics. 

I. Partner and Manager Involvement 


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Example firm-level calculation: 

Total audit hours of the firm's accelerated filer and large accelerated filer engagements 

Accelerated filer and Total Audit Hours Total Audit Hours 

large accelerated filer incurred by partners 

engagements and managers on the 

engagement team 

CompanyX 3,900 1,400 

Company Y 2,500 625 

Company Z 1,500 300 

Total 7,900 2,325 

Total audit hours incurred by partners and managers on the engagement team for all 

accelerated filer and large accelerated filer engagements/ Total audit hours for all accelerated 

filer and large accelerated filer engagements 

Calculation: 2,325 / 7,900 = 29% 

Example firm-level reporting for Form FM: 

Partner and Manager Percentage of total audit hours 

Involvement for partners and managers for 29% all accelerated filer and large 

accelerated filer engagements 

Example engagement-level calculation: 

Details for total audit hours of the accelerated filer or large accelerated filer engagement 

• Lead auditor issues the audit report for Company X. 

• Total audit hours for the engagement: 3,900 

Details for partners and managers 
100072 Federal Register / Vol. 89, No. 238 / Wednesday, December 11, 2024 / Notices 

II. Workload 


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CompanyX Total audit hours incurred by 

partners and managers on the 

engagement team 

Engagement Partner 300 

U.S. (partners other than the 700 

engagement partner and managers) 

France (partners and managers) 150 

Germany (managers) 125 

Italy (managers) 60 

China (managers) 15 

India shared service center 50 

(managers) 

Total 1,400 

Total audit hours incurred by partners and managers on the engagement team I Total audit 

hours for the engagement 

Calculation: l,400/3,900 = 36% 

Example engagement-level reporting/or Form AP: 

Partner and Manager Percentage of total audit hours 

Involvement for partners and managers 36% 
Federal Register / Vol. 89, No. 238 / Wednesday, December 11, 2024 / Notices 100073 


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Example firm-level calculations: 

Details for hours worked499 by the firm's 12artners who worked on accelerated filer and large 

accelerated filer engagements 

Quarter Total hours worked Number of partners Average Weeks Average 

for the quarter who incurred hours number in the weekly 

on accelerated filer of hours quarter workload 

and large accelerated worked 

filer engagements in the 

quarter 

Sep 30, 5,400 10 540 13 42 

2024 

Jun 30, 5,300 10 530 13 41 

2024 

Mar 31, 6,700 10 670 13 52 

2024 

Dec 31, 5,750 10 575 13 44 

2023 

Average number of hours worked by partners who incurred hours on accelerated filer and 

large accelerated filer engagements in the calendar quarter/ Number of weeks in the calendar 

quarter 

Calculation (September 30, 2024): 540/13 = 42 

Details for hours worked by the firm's managers who worked on accelerated filer and large 

accelerated filer engagements 

Quarter Total hours Number of Average Weeks in Average 

worked for the managers who number of the weekly 

quarter incurred hours on hours quarter workload 

accelerated filer 

and large 
100074 Federal Register / Vol. 89, No. 238 / Wednesday, December 11, 2024 / Notices 


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accelerated filer worked in 

engagements the quarter 

Sep 30, 14,000 25 560 13 43 

2024 

Jun 30, 13,750 25 550 13 42 

2024 

Mar 31, 18,000 25 720 13 55 

2024 

Dec 31, 14,750 25 590 13 45 

2023 

Average number of hours worked by managers who incurred hours on accelerated tiler and 

large accelerated filer engagements in the calendar quarter/ Number of weeks in the calendar 

quarter 

Calculation (September 30, 2024): 560/13 = 43 

Example firm-level reporting for Form FM: 

Average weekly hours worked 

Quarter ended Partners Managers 

Sep 30, 2024 42 43 

Jun 30, 2024 41 42 

Workload Mar 31, 2024 52 55 

Dec 31, 2023 44 45 

Example engagement-level calculations: 

Company A has a fiscal year end of December 31. The audit report was issued on March 1, 

2024 and the firm filed Porm AP on March 15, 2024. 

Details for hours worked by the engagement ~artner 

Quarter Number of hours Number Average 

worked in the of weeks weekly 

quarter in the workload 

quarter 
Federal Register / Vol. 89, No. 238 / Wednesday, December 11, 2024 / Notices 100075 

500The number of weeks for the quarter ended 

March 1, 2024, represents the number of weeks 

through the issuance of the audit report. 


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Jun 30, 2023 546 13 42 

Sep 30, 2023 559 13 43 

Dec 31, 2023 585 13 45 

Mar 1, 2024500 468 8.6 54 

Number of hours worked by the engagement partner in the fiscal quarter/ Number of weeks in 

the fiscal quarter 

Calculation (September 30, 2023): 559/13 = 43 

Details for hours worked by :gartners (excluding engagement i;1artner) and managers on the 

core engagement team 

Quarter Total hours Number of Average Weeks in Average 

worked for the partners number of the weekly 

quarter ( excluding the hours quarter workload 

engagement worked in 

partner) and the quarter 

managers on the 

core 

engagement 

team 

Jun 30, 2023 2,260 4 565 13 43 

Sep 30, 2,300 4 575 13 44 

2023 

Dec 31, 2,400 4 600 13 46 

2023 

Mar 1, 2024 1,975 4 494 8.65 57 

Average number of hours worked by partners (excluding the engagement partner) and 

managers who are on the core engagement team in the fiscal quarter/ Number of weeks in the 

fiscal quarter 

Calculation (September 30, 2023): 575/13 = 44 
100076 Federal Register / Vol. 89, No. 238 / Wednesday, December 11, 2024 / Notices 


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Example engagement-level reporting/or Form AP: 

Average weekly hours worked during the 

engagement 

Period ended Engagement Partners ( excluding the 

Partner engagement partner) and 

Managers 

Workload Jun 30, 2023 42 43 

Sep 30, 2023 43 44 

Dec 31, 2023 45 46 

March 1, 2024 54 57 
Federal Register / Vol. 89, No. 238 / Wednesday, December 11, 2024 / Notices 100077 

501As noted in Form FM and Form AP, training 

metrics should be calculated for the same 12-month 

period, either ended September 30, or based on the 

firm’s training calendar. 

III. Training Hours for Audit 

Personnel 501


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Example firm-level calculation: 

Details for total professional development training hours 

The firm tracks its annual partner and staff training based on the calendar year.501 The firm has 

a combined headcount of partners, managers, and staff of 1,400. Total professional 

development training hours recorded from January 1, 2024, through December 31, 2024, were 

68,600. The hours were distributed as follows: 

Total Professional Total Audit Personnel 

Development 

Training Hours 

Partners 4,100 100 

Managers 17,200 400 

Staff 47,300 900 

Total 68,600 1,400 

Total professional development training hours incurred by partners, managers and staff of the 

firm I Total number of partners, managers, and staff of the firm 

Calculation: 68,60011,400 = 49 

Example reporting/or Form FM: 

Training Hours for 

Audit Personnel 

Average annual professional 

development training hours 

Example engagement-level calculation: 

Details for total professional development training hours 

49 

The firm tracks its annual partner and staff training based on the calendar year. The core 

engagement team has a combined headcount of partners, managers, and staff of 12. Total 

professional development training hours for all members of the core engagement team 

recorded from January 1, 2024, through December 31, 2024, were 564. The hours were 

distributed as follows: 
100078 Federal Register / Vol. 89, No. 238 / Wednesday, December 11, 2024 / Notices 

IV. Experience of Audit Personnel 


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Total Professional Total Audit Personnel 

Development 

Training Hours 

Partners 96 2 

Managers 168 3 

Staff 300 7 

Total 564 12 

Total professional development training hours incurred by partners, managers and staff on the 

core engagement team /Total number of partners, managers, and staff on the core 

engagement team 

Calculation: 564/12 = 47 

Example reporting/or Form AP: 

Training Hours for Average annual professional 47 Audit Personnel development training hours 
Federal Register / Vol. 89, No. 238 / Wednesday, December 11, 2024 / Notices 100079 


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Example firm-level calculations: 

• The Firm has 100 partners and 500 managers. 

Number Years of experience 

Partners 100 2,000 

Managers 500 4,000 

(i) Average experience at a public accounting firm of the firm's partners: 

Total experience at a public accounting firm of all partners I Total number of partners 

Calculation: 2,000/100 = 20 

(ii) Average experience at a public accounting firm of the firm's managers: 

Total experience at a public accounting firm of managers /Total number of managers 

Calculation: 4,000/500 = 8 

Example firm-level reporting/or Form FM: 

Partners 

Experience of 

Audit 

Personnel 

Average years of 

experience at a 

public accounting 

firm 

Example engagement-level calculations: 

Engagement Partner 

Engagement Quality 

Reviewer 

Core engagement 

team partners 

( excluding the 

engagement partner) 

Number 

1 

1 

3 

Managers 

20 

Total experience at a 

public accounting 

firm 

23 

19 

45 

8 
100080 Federal Register / Vol. 89, No. 238 / Wednesday, December 11, 2024 / Notices 

V. Industry Experience 


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Core engagement 

team managers 

8 80 

(i) Total experience at a public accounting firm of the engagement partner: 

Total experience at a public accounting firm of the engagement partner 

Calculation: 23 

(ii) Total experience at a public accounting firm of the engagement quality reviewer: 

Total experience at a public accounting firm of the engagement quality reviewer 

Calculation: 19 

(iii) Average experience at a public accounting firm of the core engagement team members 

who are partners ( excluding the engagement partner): 

Total experience at a public accounting firm of the core engagement team members who are 

partners (excluding the engagement partner) I Total number of people on the core 

engagement team who are partners ( excluding the engagement partner) 

Calculation: 45/3 = 15 

(iv) Average experience at a public accounting firm of the core engagement team members 

who are managers: 

Total experience at a public accounting firm of the core engagement team members who are 

managers /Total number of people on the core engagement team who are managers 

Calculation: 80/8 = 10 

Example engagement-level reporting/or Form AP: 

Years of Years of Average years of Average years 

experience at a experience at a experience of of experience 

public public Partners ( excluding of Managers on 

accounting firm accounting firm the engagement the Core 

ofthe ofthe partner) on the Core Engagement 

Engagement Engagement Engagement Team Team 

Partner Quality Experience Reviewer of Audit 

Personnel 23 19 15 10 
Federal Register / Vol. 89, No. 238 / Wednesday, December 11, 2024 / Notices 100081 


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Example firm-level calculation: 

The top five industries based on revenue from audit services for the most recently completed 

fiscal year are the following: 

• Consumer products and services, 

• Banks, 

• Health care providers, 

• Industrial goods and services, and 

• Government services 

The firm took into account a number of factors in determining career industry experience, such 

as the extent to which non-audit experience and experience in auditing companies in adjacent 

industries could reasonably be considered as industry experience. The firm determined there 

were several partners and managers that had career industry experience of five or more years 

for partners and three or more years for managers in its top five industries. 

Industry % of firm 1. Number of 2. Number of 

revenue from partners with 5 managers with 

audit services or more years 3 or more years 

of career of career 

industry industry 

experience experience 

Consumer products and 18% 15 45 

services 

Banks 11% 10 30 

Health care providers 9% 12 43 

Industrial goods and 8% 5 13 

services 

Government services 4% 4 6 

Note: While not required, a firm may choose to report on additional industries that are not 

among its top five by revenue from audit services. 
100082 Federal Register / Vol. 89, No. 238 / Wednesday, December 11, 2024 / Notices 


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Example firm-level reporting for Form FM: 

Top five industries based on Number of Number of 

the firm's revenue from audit Partners with 5 or Managers with 3 or 

services more years of more years of career 

career industry industry experience 

experience 

Consumer products and 15 45 

services 

Industry 

Experience Finance: Banks 10 30 

Health care: Health Care 12 43 

Providers 

Industrial Goods and 5 13 

Services: General 

Government and Public 4 6 

Services: Government 

Example engagement-level calculation: 

The company's primary industry is Banks. 

The engagement partner and the EQR have 16 and 24 years, respectively, of career industry 

experience. The core engagement team also has several other partners and managers who 

work on different aspects of the audit throughout the year, including those who have focused 

on other industries and have not yet met the five- and three-year requirements. The following 

table depicts their career industry experience: 

Bank career industry experience 

Engagement partner 16 years 

Engagement quality reviewer 24 years 

IT partner Does not meet criteria for five years 

Tax partner Meets criteria for 5 years 

Actuarial partner Does not meet criteria for five years 

Other assisting partner Meets criteria for five years 

Audit lead senior manager Meets criteria for three years 

Manager 2 Meets criteria for three years 
Federal Register / Vol. 89, No. 238 / Wednesday, December 11, 2024 / Notices 100083 


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Manager 3 Meets criteria for three years 

Manager 4 Does not meet criteria for three years 

Manager 5 Does not meet criteria for three years 

Tax senior manager Meets criteria for three years 

IT manager Does not meet criteria for three years 

Example engagement-level reporting/or Form AP: 

Issuer's Primary Industry Financial Services: Banks 

Years of Career Industry Engagement Partner Engagement Quality 

Experience Reviewer 

Industry 16 24 Experience 

Number of core engagement Partners ( excluding the Managers 

team members with industry engagement partner) 

expenence 

2 4 
100084 Federal Register / Vol. 89, No. 238 / Wednesday, December 11, 2024 / Notices 

502As provided in the Note to Item 4.6 of Form 

FM, promotion is treated as if it had occurred at the 

beginning of the period for the calculation of 

retention of audit personnel metric. 

503As noted in Form FM, only partners and 

managers with one or more years of service and 

who were employed continuously during the 12- 

month period are included in the numerator. 

VI. Retention of Audit Personnel 502 503


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Example calculations (only manager calculations provided): 

Firm A had 204 managers, 204 managers, and 200 managers as of September 30, 2023, 

October 1, 2023 and September 30, 2024, respectively. During the 12-month period, 38 

managers left the firm, 2 managers did not participate in audits, 5 managers were promoted to 

partner, 37 staff were promoted to manager, and 4 managers were newly hired or served on 

audits and did not in the prior year. 

• Average number of managers-The total number of managers as of October 1, 2023 

was 204 and the total number of managers as of September 30, 2024 was 200. 

The number of r,partners/managers] as of October 1 (Year 1) + the number of 

r,partners/managers] as of September 30 (Year 2) / 2 

Calculation: (204+200) / 2 = 202 

• Average annual retention rate 

Calculation of the numerator - Calculate the total number of managers who were continuously 

employed and held the same position from October 1, 2023 to September 30, 2024 

Calculation of the numerator 

Managers as of October 1, 2023 204 

Adjust for managers who were not 

continuously employed and holding the same 

position throughout the period 

Left the firm (38) 

Did not participate in audits (2) 

Promoted to partner (5) 

Staff promoted to manager1 37 

196 

Because the 4 managers who were newly hired or transferred into the audit practice were not 

included in the beginning number of 204, no specific adjustment to the numerator relating to 

these 4 is necessary. 2 
Federal Register / Vol. 89, No. 238 / Wednesday, December 11, 2024 / Notices 100085 

504As noted in Form FM and Form AP, multiyear audits are excluded from both the firm- and 

engagement-level calculations. 

VII. Allocation of Audit Hours 504


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Calculation of the denominator - Adjust the number of managers as of October 1, 2023 (204 

managers) for the promotions as if they had occurred at the beginning of the period (the 

denominator). 

Calculation of the denominator 

Managers as of October 1, 2023 204 

Adjust for managers who did not continuously 

hold the same position 

Promoted to partner (5) 

Staff promoted to manager 37 

236 

The number of rPartnerslmanagers] continuously holding the same position from October 1 

(Year 1) to September 30 (Year 2) /Number of rPartnerslmanagers] as of October 1 (Year 1) 

Calculation: 196 / 236 = 83% 

• Average annual headcount change --- The total number of current year-end managers 

was 200 and the total number of prior year managers was 204. 

Number of wartnerslmanagers] as of September 30 (Year 2) - Number of 

wartners/managers] as of September 30 (Year 1) / Number of wartners/managers] as of 

September 30 (Year 1) 

Calculation: (200-204) / 204 = -2% 

Example firm-level reporting/or Form FM: 

Retention of Audit Partners Manager 

Personnel s 

Average number 85 202 

Average annual retention rate 96% 83% 

Average annual headcount -1% -2% 

change 
100086 Federal Register / Vol. 89, No. 238 / Wednesday, December 11, 2024 / Notices 


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Example firm-level calculations: 

The firm issued audit reports with respect to eight accelerated filer or large accelerated filer 

engagements with various year ends during the reporting period ended September 30, 2024. 

The hours incurred by the engagement teams during the audits were: 

Issuer year end Hours incurred Hours incurred 

prior to issuer year following issuer 

end year end 

Issuer A December 31, 2023 20,415 12,056 

Issuer B December 31, 2023 7,856 3,020 

Issuer C March 31, 2024 10,583 8,023 

Issuer D June 30, 2024 5,570 3,502 

Issuer E March 31, 2024 4,508 3,752 

Issuer F December 31, 2023 1,575 1,208 

Issuer G December 31, 2023 3,301 1,833 

Issuer H December 31, 2023, -

1 - (Initial 

December 31, 2022, public 

offering and December 31, 

engagement) 2021 

Total 53,808 33,394 

Total audit hours incurred prior to issuers'year ends for all accelerated filer and large 

accelerated filer engagements/ Total audit hours for all accelerated filer and large accelerated 

filer engagements 

Calculation: 53,808 / (53,808+33,394) = 62% 

Total audit hours incurred following issuers'year ends for all accelerated filer and large 

accelerated filer engagements/ Total audit hours for all accelerated filer and large accelerated 

filer engagements 
Federal Register / Vol. 89, No. 238 / Wednesday, December 11, 2024 / Notices 100087 

VIII. Restatement History 


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Calculation: 33,394 / (53,808+33,394) = 38% 

Example firm-level reporting for Form FM: 

Allocation of Audit Percentage of audit hours incurred 62% 

Hours prior to issuers' year ends for all 

accelerated filer and large accelerated 

filer engagements 

Percentage of audit hours incurred 38% 

follo"ing issuers' year ends for all 

accelerated filer and large accelerated 

filer engagements 

Example engagement-level calculations: 

The firm audits Issuer G with a December 31 year end. The hours incurred by the engagement 

team during the audit were: 

Hours incurred prior Hours incurred following 

to and including December 31 

December 31 

U.S. (lead auditor) 2,015 1,350 

Germany 682 265 

China 452 163 

South Africa 152 55 

Total 3,301 1,833 

Total audit hours incurred prior to the issuer's year end/ Total audit hours 

Calculation: 3,301 I (3,301 +1,833) = 64% 

Total audit hours incurred following the issuer's year end/ Total audit hours 

Calculation: 1,833 / (3,301 +1,833) = 36% 

Example engagement-level reporting for Form AP: 

Percentage of total audit hours incurred prior 64% 

Allocation of Audit Hours 

to the issuer's year end 

Percentage of total audit hours incurred 36% 

following the issuer's year end 
100088 Federal Register / Vol. 89, No. 238 / Wednesday, December 11, 2024 / Notices 


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Example calculation: 

The following is true for Firm X's audit practice for the 12-month periods ended September 30 

for the last three years: 

• For 09/30/2022, Firm X issued 110 audit reports for its issuer engagements, 40 of 

which were integrated audits. 

• For 09/30/2023, Firm X issued 105 audit reports for its issuer engagements, 35 of 

which were integrated audits. 

• For 09/30/2024, Firm X issued 100 audit reports for its issuer engagements, 30 of 

which were integrated audits. 

During the 12-month period ended September 30, 2024, Firm X had the following 

restatements for its issuer engagements: 

• 9 revision restatements. These restatements relate to audit reports initially issued 

during the following reporting periods: 

o 2022-6 

o 2023 -3 

0 2024-0* 

• 4 reissuance restatements relate to the financial statements. These restatements relate to 

audit reports initially issued during the following reporting periods: 

o 2022-2 

o 2023 -1 

o 2024-1 

• 2 reissuance restatements of management's report on ICFR. These restatements relate 

to audit reports on ICFR initially issued during the following reporting periods: 

o 2022 - 1 

o 2023 - 1 

0 2024-0* 

* Note that for the 12-month period ended September 30, 2024, there were no restatements of 

this type of audit report issued during that 12-month period. 
Federal Register / Vol. 89, No. 238 / Wednesday, December 11, 2024 / Notices 100089 

III. Date of Effectiveness of the 

Proposed Rules and Timing for 

Commission 

Action 

Within 45 days of the date of 

publication of this notice in the Federal 

Register or within such longer period (i) 

as the Commission may designate up to 

90 days of such date if it finds such 

longer period to be appropriate and 

publishes its reasons for so finding or 

(ii) as to which the Board consents, the 

Commission will: 

(A) By order approve or disapprove 

such proposed rules; or 

(B) Institute proceedings to determine 

whether the proposed rules should be 

disapproved. 

IV. Solicitation of Comments 

Interested persons are invited to 

submit written data, views and 

arguments concerning the foregoing, 

including whether the proposed rules 

are consistent with the requirements of 

Title I of 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/pcaob); or 

• Send an email to rule-comments@

sec.gov. Please include PCAOB–2024– 

06 on the subject line. 

Paper Comments 

• Send paper comments in triplicate 

to Vanessa A. Countryman, Secretary, 

Securities and Exchange Commission, 

100 F Street NE, Washington, DC 

20549–1090. 


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Example reporting for Form FM: 

Audit Report Initially Issued 

2024 2023 2022 

Revision 0 3 6 

restatements of the 

financial statements 

for errors 

Reissuance 1 1 2 

restatements of the 

financial statements 

for errors 

Reissuance 0 1 1 

restatements of 

management's 

report on ICFR 

Restatement Total issuer 100 105 110 

History engagements 

Total issuer 30 35 40 

engagements with 

audits of ICFR 
100090 Federal Register / Vol. 89, No. 238 / Wednesday, December 11, 2024 / Notices 

505 17 CFR 200.30–11(b)(1) and (3). 

All submissions should refer to 

PCAOB–2024–06. 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/pcaob). Copies of the submission, 

all subsequent amendments, all written 

statements with respect to the proposed 

rules that are filed with the 

Commission, and all written 

communications relating to the 

proposed rules 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 

such filing will also be available for 

inspection and copying at the principal 

office of the PCAOB. 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 PCAOB–2024–06 and should be 

submitted on or before January 2, 2025. 

For the Commission, by the Office of the 

Chief Accountant.505

Vanessa A. Countryman, 

Secretary. 

[FR Doc. 2024–28142 Filed 12–10–24; 8:45 am] 

BILLING CODE 8011–01–P 


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