In a nod to audit firms’ criticisms that the Public Company Accounting Oversight Board’s (PCAOB) new quality control standard (QC) 1000 – adopted in 2024 under previous leadership – is too burdensome with questionable benefit, the current board on June 9, 2026, voted unanimously to seek comments on eliminating a couple of provisions that proved to be especially thorny during the rulemaking process: the external quality control function (EQCF) and design-only requirements.
The PCAOB believes that the amendments would reduce compliance burdens without compromising its mission to protect investors.
“As we evaluate potential refinements to QC 1000, our goal is to produce a rigorous, clear, and consistent framework while ensuring that implementation is scalable, efficient, cost-effective, and contributes to audit quality,” said PCAOB Chairman Demetrios Logothetis. “QC 1000 is a foundational standard for protecting investors and improving audit quality, and the PCAOB is committed to getting this right.”
EQCF
In particular, the PCAOB is proposing to rescind the EQCF provision that applies only to firms that audit more than 100 issuers. These larger firms must establish an EQCF that includes at least one independent person who will evaluate the significant judgments made and the related conclusions reached by the firm when evaluating and reporting on the effectiveness of the QC system.
But auditors and the U.S. Chamber of Commerce, which represents companies, strongly objected to the EQCF, arguing that this is not a logical outgrowth of the PCAOB’s 2022 proposal, among other problems, when QC 1000 was submitted to the Securities and Exchange Commission (SEC) for approval two years ago.
Moreover, PCAOB staff today said that some firms have experienced challenges in implementing the EQCF, including difficulty identifying qualified individuals for the role.
The SEC oversees the PCAOB, and changes to its standards must be approved by the commission before they can go into effect.
Design-Only Requirement
While smaller firms do not need to worry about the EQCF, they criticized the provision in QC 1000 that requires all registered firms to design a QC system even if they have not performed and do not plan to perform engagements under PCAOB standards.
The PCAOB is proposing to rescind the design-only requirement, and QC 1000 would apply only to firms that are required to comply with applicable professional and legal requirements with respect to an engagement.
Other Potential Rollbacks
The PCAOB is proposing the amendments through a supplemental request for comment. Responses are due July 9.
The document contains other proposed modifications intended to provide more flexibility and align more closely with international and AICPA quality management standards.
“The proposal provides increased flexibility in how firms assign certain roles within the QC system,” Jessica Watts, a staff member of the PCAOB’s Office of the Chief Auditor, said before board members voted to issue the rulemaking document. “This includes permitting roles to be performed by non-firm personnel and allowing responsibilities to be divided among multiple individuals. This change is intended to support scalability and audit quality, enabling firms to tailor their QC systems more effectively to their structures and risks.”
She said firms would be allowed to choose the date as of which they evaluate the effectiveness of their QC system instead of September 30 for all firms.
Watts said the PCAOB is also responding to requests for more clarity to reduce compliance burdens.
“The proposal would narrow and simplify communication requirements related to metrics that the firm communicates about its audit practice, firm personnel, and its engagements,” she said. “These amendments would apply the requirements to publicly available metrics that are most relevant and decision-useful, while reducing a potentially unnecessary regulatory burden with respect to nonpublic communication.”
The proposal would also revise the requirements that apply when a firm identifies an engagement deficiency for evaluating whether similar deficiencies exist on other engagements.
“The evaluation with respect to other engagements would be required only when an identified deficiency could result in a failure to obtain sufficient appropriate evidence or an inappropriate overall conclusion on the subject matter of the engagement,” Watts said.
Moreover, the definition of QC deficiency would be changed.
“This amendment would clarify that when a firm has implemented multiple quality responses to address the same risks, those other responses may be considered when determining whether a QC deficiency exists,” Watts said.
Further, the PCAOB would reduce the documentation retention period from seven to five years.
In addition, the board is making revisions to the evaluation of a firm’s QC system.
“Specifically, the proposal revises the QC system evaluation conclusion so that they are more closely aligned with those and other quality management standards, while retaining a structured process, including specified factors for consideration to guide firms’ evaluations and promote consistency in how conclusions are reached,” Watts said.
“Taken together, these amendments would bring certain aspects of QC 1000 into closer alignment with other quality management standards internationally and in the United States,” she explained. “However, differences would remain where we believe they are necessary to address the U.S. regulatory environment, reflect our oversight experience, or otherwise support the board’s mandate.”
Pressure on Board Member Botic
In the meantime, PCAOB board member George Botic, the lone member who survived the transition after Paul Atkins became chairman of the SEC, sought to clarify his views today as he was one of the members who supported QC 1000 when it was adopted in May 2024.
In explaining his support to seek additional comments, he emphasized that since QC 1000 was adopted, firms have told the board of various challenges implementing the standard. Following a request by the Center for Audit Quality for an implementation delay, the PCAOB granted a one-year effective date delay to December 2026.
Nonetheless, he pointed out that the EQCF was not a brand new idea that suddenly materialized when the board adopted it in 2024, as firms suggested in their criticism. The 2019 concept release on QC by the board considered an independent oversight mechanism. This was incorporated in the 2022 proposal as a requirement to set up an oversight function with at least one independent person. The 2024 adoption evolved that notion into the EQCF.
“At the same time, I do not approach this issue from a rigid perspective,” Botic said. “The Supplemental Request for Comment reflects information suggesting that implementation of the EQCF requirement may be more difficult and more costly than originally anticipated; I take those concerns seriously. But I do not believe we should lose sight of what could be lost by rescinding the EQCF requirement entirely. For the largest firms, the quality control system is not simply an internal compliance mechanism. It is part of the architecture that supports confidence in the audit reports on which our capital markets depend.”
In his view, it merits consideration of an alternative in the Supplemental Request for Comment to eliminating the EQCF. Instead of the current 100-issuer threshold, it seeks comments on a 500-issuer threshold. This modification would mean five firms would be required to comply. This would cover about 98% of U.S. public market cap.
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