The Securities and Exchange Commission has postponed its decision whether to approve the PCAOB’s firm and engagement performance metrics and firm reporting rules until March. It is uncertain whether these rules will become effective in their current form.
On November 21, the PCAOB adopted rules requiring registered accounting firms to disclose performance metrics regarding their larger audit engagements. These rules require firms that audit accelerated filers or large accelerated filers to publicly report eight metrics relating to specific audit engagements or to the firm’s overall audit practice (e.g., hours worked by senior professionals relative to more junior staff across all of the firm’s large accelerated and accelerated filer engagements and on each specific engagement). The Board also adopted expanded firm operational and financial condition reporting. Under the firm reporting rules, PCAOB-registered accounting firms would be required to disclose financial information (e.g., aggregate fees billed to issuer clients), governance information (e.g., the names of the individuals holding certain leadership positions), network relationships, and material events impacting the firm’s audit services. See PCAOB Adopts Pared Back Engagement Performance Metrics and Audit Firm Reporting Rules, November 2024 Update.
PCAOB rules do not take effect unless the SEC approves them, and the Commission is required to solicit public comment before making approval decisions. The SEC published the firm reporting and performance metrics rules for comment in early December, and the comment periods expired on December 26 and January 2, respectively. Both rules attracted considerable comment. Opponents, including several of the large accounting firms, the AICPA, the Center for Audit Quality, and the U.S. Chamber of Commerce, argued that the rules had been rushed to approval without a full analysis of their costs and benefits, and that the performance metrics were potentially misleading. The American Bar Association’s Law and Accounting Committee questioned the PCAOB’s authority to require the performance metrics disclosures. On the other hand, investor advocates, including the CFA Institute, the Council of Institutional Investors, and the Consumer Federation of America strongly supported the rules, arguing that they would provide audit committees and investors with useful information that would better inform decision-making and auditor evaluation.
On January 14, the SEC issued an order extending the public comment period on both rules until February 4, 2025. Under the statute governing SEC approval of PCAOB rules, this postpones the deadline by which the Commission must approve the rules or institute a formal proceeding to determine whether to disapprove them until March 5 for firm reporting and until March 11 for performance metrics. If the Commission fails to either approve a proposed rule or institute disapproval proceedings before the statutory deadline, the rule is deemed to have been approved.
In conjunction with the change in the Presidential administration, SEC Chair Gensler resigned from the Commission on January 20 and Democratic Commissioner Lizárraga resigned on January 17. President Trump has announced his intention to nominate former SEC Commissioner Paul Atkins as the new SEC Chair, but Mr. Atkins is unlikely to take office by March. Accordingly, the Commission that will decide whether to approve these rules will consist of Hester Peirce, Mark Uyeda, and Carolin Crenshaw. Both Commissioners Peirce and Uyeda have been critical of prior proposals from the current PCAOB and, given the objections raised in the public comments, it is possible that one or both of these Commissioners will not vote to approve the pending rules. Moreover, regardless of the fate of the current proposals, after Paul Atkins takes office and the Commission makes decisions on the membership of the PCAOB going forward, it is possible that these topics will be revisited.
Comments