Audit Firms Back PCAOB QC Standard Delay;
Investors Warn Against Using Deferral for Rule Revisions
October 23, 2025
All accounting firms that wrote comment letters said they support the Public Company Accounting Oversight Board’s (PCAOB) decision to postpone the implementation of its new quality control (QC) standard by one year. While also supporting the delay, investor groups, however, said this should not be used to make changes to the standards that were adopted down the road.
The comment letters were sent to the Securities and Exchange Commission (SEC) in response to Release No. 34-103083, Notice of Filing and Immediate Effectiveness of Proposed Rule Change Postponing the Effective Date of Amendments to Board Standards, Rules, and Forms Adopted on May 13, 2024, after the PCAOB in late August decided to delay the effective date to December 15, 2026, instead of the original date of December 15, 2025.
As the capital markets regulator, the SEC oversees the PCAOB, and its rule changes and annual budget must be approved by the commission.
The PCAOB made the decisions to give a one-year deferral because firms said that they need more time to implement changes to their QC system because the new rules bring about significant changes. All Big Four firms, some second-tier firms—such as Grant Thornton, BDO, and RSM—as well as the Center for Audit Quality (CAQ) urged the SEC to approve the delay.
The CAQ, which requested the delay in July, said that QC is foundational to audit quality, and it is “critically important that PCAOB registered firms of all sizes have adequate time to prepare for and implement QC 1000.”
While firms are working to implement the new standard, QC 1000, some firms are experiencing implementation challenges because of significant differences between the PCAOB’s standard and the International Auditing and Assurance Standards Board’s International Standard on Quality Management 1, the CAQ wrote to the SEC.
Two investor groups—the CFA Institute and the Council of Institutional Investors (CII)—who wrote to the SEC said they support the delay so that the goal of the new standard can be achieved—improving audit quality.
“We are concerned, however, that this proposal may be an approach or tactic to delay the standard until a newly appointed PCAOB can withdraw it,” wrote Sandra Peters, senior head for global advocacy, and Matthew Winters, senior director for global advocacy for the CFA Institute. “Our concern is magnified by the significant and growing risks of misstatement and fraud.” Their concerns relate to the SEC’s staffing challenges, changing priorities, and other operational issues.
In their view, the SEC should maintain the 2025 effective date for annually inspected firms but grant a one-year delay for all other registered firms. Firms that audit more than 100 public companies are inspected every year.
“Such a proportionate change would give smaller audit firms with fewer resources and issuer clients more implementation time, while keeping quality improvements mandated by QC 1000 on track at larger audit firms which have more resources and audit the majority of issuers on US exchanges by market capitalization,” the CFA Institute wrote.
Big Four firms, for example, audit about 80% of U.S. market capitalization.
CII General Counsel Jeffrey Mahoney also wrote that the council does not object to the delay.
“We, however, would strongly oppose efforts to use the Delay Proposals as a basis for ‘targeted revisions to the QC 1000’ unless those revisions are limited to those recommendations contained in CII’s comment letter that were not adopted in QC 1000,” Mahoney wrote.
However, it is clear that auditors would prefer to see changes.
The CAQ encouraged the SEC and PCAOB to gather information on the topics it laid out in its July letter to determine whether targeted amendments will be needed.
For example, the CAQ pointed out that QC 1000 requires all registered firms to design a QC system even if they have not and do not plan to perform engagements in accordance with PCAOB standards. The CAQ said this would be burdensome for smaller firms.
Other challenging areas include the external quality control function (EQCF)—which larger firms and the CAQ, as well as the powerful U.S. Chamber of Commerce opposed when the PCAOB and the SEC approved the standard last year—automated independence system, and in-process engagement monitoring. These apply to annually inspected firms, but the CAQ said that this is burdensome for mid-size firms that have audit clients just above the 100-issuer threshold. The CAQ recommended 500-issuer threshold instead.
In calling for revisions, the U.S. Chamber of Commerce pointed to PCAOB member Christina Ho’s statement that the delay also provides the PCAOB with an “opportunity to reevaluate QC 1000 and related amendments and consider whether there may be a more pragmatic, cost-effective, and principles-based regulatory path.”
Government Shutdown and SEC Approval
In the meantime, it is unclear whether or how the federal government shutdown that began on October 1 affects the SEC’s approval.
“Due to a lapse in appropriations, the SEC is currently operating in accordance with the agency’s plan for operating during a shutdown,” a spokesperson said. “During the shutdown, the SEC’s public affairs office is not able to respond to many inquiries from the press.”
This was in response to a query about timing vis-a-vis Section 19(b)(2)(A) of the Securities Exchange Act of 1934, which gives the SEC 45 days to act after publishing the board’s rule for public comment. The provision allows the SEC to extend the period by an additional 45 days if the agency determines that a longer period is appropriate, though it is unlikely to be necessary for this particular notice.
Only 393 essential employees out of 4,289 are working during shutdown, and the agency’s plan notes that the “SEC will halt routine oversight of self-regulatory organizations and the PCAOB.”
Further, while the SEC will “accept” comment letters, “in that we will not prevent the submission of letters via the usual methods (webform, email, or mail), the SEC will not be posting them until after the resumption of duties.”
In addition, the shutdown plan notes that the SEC “will not engage in non-emergency rulemaking, non-emergency interpretive advice, or staff no-action letters nor process new or pending applications for exemptive relief.”
Former founding PCAOB member Daniel Goelzer who previously served as the general counsel of the SEC said that he doesn’t know what the commission’s general policy is on how a shutdown affects the time periods regarding PCAOB rule filings.
“Since these time periods are statutory, I doubt that the commission could say that the 45 days is suspended during a government shutdown,” Goelzer said.
But he pointed out that Section 19(b) states that if the SEC fails to approve or disapprove a rule change within the 45 days, the rule change is deemed approved.
In his view, however, none of these issues matters for the one-year extension.
“In its order extending the effective date by one year, the PCAOB took the position that the extension constituted ‘a stated policy, practice, or interpretation with respect to the administration of an existing rule,'” Goelzer said.
Under Section 19(b)(3) of the Exchange Act, “that type of action takes effect immediately upon filing with the SEC,” he said. “No SEC approval is necessary. Since there is no need for SEC approval, the shutdown has no effect on the extension of the QC 1000 effective date.”
The SEC’s release itself notes that the “foregoing rule change has become effective pursuant to Section 19(b)(3)(A).”
“At any time within 60 days of the filing of the proposed rule change, the Commission summarily may temporarily suspend such rule change if it appears to the Commission that such action is necessary or appropriate in the public interest, for the protection of investors,” the release states.
When asked about the SEC’s solicitation of comment letters, Goelzer further explained that “when this kind of change takes effect without needing SEC approval, the commission could, based on the comments, suspend its effectiveness and start disapproval proceedings.”
“But of course there is no chance of that in this case,” he said.
[Thomson Reuters]
