US audit watchdog to revisit contested firm quality-control standard

The US accounting regulator is preparing to rewrite parts of a recently adopted rule on audit firms’ quality control systems after the measure drew criticism from across the profession, the Financial Times reported.

Jim Logothetis, appointed chair of the Public Company Accounting Oversight Board (PCAOB) in January, told the newspaper the watchdog would pursue “narrow” changes to the standard.

The rule, known as QC 1000 and approved in September 2024, sets out requirements for how audit firms operate their internal quality control arrangements and places them under detailed assessment.

It also requires firms that audit more than 100 public companies to establish an internal oversight board that must include at least one independent external member.

Large firms, including the Big Four, had said several elements were unnecessary and impractical, while smaller firms argued the costs would be too high.

QC 1000 was paused after the Trump administration removed the previous PCAOB chair, Erica Williams, last year, leaving the rule’s future uncertain.

In his first public remarks since taking the role, Logothetis said: “Certain requirements included in QC 1000 may be unnecessary for the standard to meet the regulatory objectives of the PCAOB, and may not contribute to audit quality.”

He added that the PCAOB would invite feedback on “narrow revisions to the standard and related amendments”, without outlining which provisions might be altered.

Logothetis is the first chair of the PCAOB to come from an auditing career, having spent four decades at EY before retiring in 2019.

The Center for Audit Quality (CAQ), an industry group representing audit firms, said it had been pressing for revisions as recently as last week.

In an open letter, the CAQ said firms were struggling to find suitable independent executives for the oversight boards. It also highlighted concerns that, when a problem is identified in a single audit, firms would be required to examine all audits for the same issue.

Dennis McGowan, a CAQ vice-president, supported the prospect of “targeted amendments” that would align QC 1000 more closely with global audit standards.

“QC 1000 has a level of prescription that is different from the international standard,” he said, adding the differences “result in increased cost without a commensurate benefit to audit quality”.

The developments come amid a broader push by the Trump administration to reduce regulation and take a more business-oriented approach.

The White House appointed Paul Atkins, a long-time PCAOB critic, to lead the Securities and Exchange Commission (SEC), which oversees the audit regulator.

Atkins removed all but one member of the PCAOB’s five-person board, while the SEC reduced the PCAOB’s budget. The SEC is also seeking changes to how the regulator conducts inspections and enforces audit standards.

Logothetis spoke at the PCAOB’s first public meeting since new board members were sworn in. At the session, the board approved a proposal to solicit public comment on a new five-year plan.

“It is a new day for the PCAOB, but is not a new mission,” he said during the meeting. “What must evolve is how we carry out our mission in a rapidly changing environment.”