The PCAOB’s Achievements in 2024 and Projections for 2025

On November 4, 2024, shortly before the election, the Public Company Accounting Oversight Board (PCAOB) issued a news release summarizing its most significant achievements and looking ahead to 2025. As a new administration takes hold, the PCAOB, while asserting that it will continue its efforts, faces an uncertain future.

Key Achievements in 2024

In 2024, the PCAOB accomplished much during a banner year for standard setting and rulemaking, inspections, and enforcement.

1. Adopted New Standards:

• Quality control systems. The PCAOB adopted a new standard, QC 1000, intended to improve the quality control systems of registered public accounting firms. This new standard replaced quality control standards that were developed before the PCAOB’s establishment in 2002. Press Release, PCAOB, PCAOB Adopts New Quality Control Standard with a Risk-Based Approach Designed to Drive Continuous Improvement in Audit Quality (May 13, 2024).
• Auditing standards. A new auditing standard, AS 1000, was adopted with the goal of enhancing and consolidating prior standards addressing the general principles and responsibilities of auditors. One of the changes that drew significant commentary was the following language in Auditing Standard 1000.01: “Auditors have a fundamental obligation to protect investors through the preparation and issuance of informative, accurate, and independent auditor’s reports.” E.g., Comment Letter, Ctr. for Audit Quality, PCAOB: AS 1000, General Responsibilities of the Auditor (May 30, 2023). Commentators had expressed concern that this standard could suggest that auditors are liable to third parties, but the PCAOB responded that the language “does not alter any existing regulatory or legal requirements or obligations between auditors and investors.” Notice of Filing of Proposed Rules on General Responsibilities of the Auditor in Conducting an Audit and Amendments to PCAOB Standards, 89 Fed. Reg. 49,730 (June 11, 2024).
• Technology-assisted analysis. On June 12, 2024, amendments were made to two PCAOB auditing standards, Auditing Standard 1105, Audit Evidence, and Auditing Standard 2301, The Auditor’s Responses to the Risks of Material Misstatement, to clarify auditor responsibilities when using technology-assisted analysis of electronic information.
• Firm and engagement metrics. In April 2024, the PCAOB proposed requiring audit firms, on an annual basis, to publicly report certain standardized firm and engagement metrics, including, for example, partner and manager involvement, workload, and experience of audit personnel. On the same day, the PCAOB issued a proposal regarding its framework for collecting information from audit firms. The comment period for these proposals expired June 7, 2024.
• Substantive analytical procedures. A proposal was made to update Auditing Standard 2305, which was originally put in place by the American Institute of Certified Public Accountants in 1989 and which the PCAOB stated “has not changed substantially since its adoption on an interim basis by the Board in 2003.” Press Release, PCAOB, PCAOB Continues Its Modernization Drive with Proposal to Replace Outdated Standard on Substantive Analytical Procedures (June 12, 2024). The comment period for this proposal passed in August 2024.

2. Enhanced Inspections:

• The PCAOB continued using its enhanced inspection reports, which include a new section on auditor independence and expanded information related to fraud procedures and the identification of the risks of material misstatements, issuing nearly 80 inspection reports for audit firms in the United States.
• While acknowledging a “leveling off” in audit deficiencies at the largest audit firms, the PCAOB continued in 2024 to be “interested in why deficiency trends are not improving more quickly and the impact of audit firms’ cultures in this failure to improve.” PCAOB, Spotlight: Staff Priorities for 2025 Inspections and Interactions with Audit Committees 3 (Dec. 2024) [hereinafter Spotlight].
• The PCAOB’s “Firm Inspection Reports” page, launched in July 2023, continued to be available, helping the public analyze and compare more than 4,000 reports over a 20-year period.

3. Strengthened Enforcement:

• The PCAOB imposed record-breaking fines in 2024. It settled 51 disciplinary orders and assessed $35.74 million in fines, the highest one-year total in the organization’s history. PCAOB, PCAOB 2024 Fourth Quarter Recap, LinkedIn (Jan. 3, 2025)

The PCAOB’s Projections for 2025

Despite its substantial activity in 2024, the PCAOB faces much uncertainty in the year to come. President Donald Trump, having been elected on a deregulatory agenda and with the support of a Republican majority in both houses of Congress and a conservative majority on the U.S. Supreme Court, seems likely to pull in the reins of the PCAOB. The president has nominated Paul Atkins, a longtime critic of the PCAOB, to lead the U.S. Securities and Exchange Commission (“SEC”), the regulator that oversees the PCAOB. If the nomination is approved, Atkins is expected to ease oversight and reduce budgets, including at the PCAOB. Indeed, some have commented that the PCAOB could be streamlined into the SEC or even abolished during the second Trump administration. Mark Maurer, PCAOB Critic Picked for SEC Chair, Raising Potential for a Smaller Audit Watchdog, Wall St. J. (Dec. 9, 2024). Thus, it is unclear how much of its stated agenda the PCAOB ultimately will be able to accomplish.

The following were the PCAOB’s projected priorities for 2025 as of December 2024.

1. Revamping Priorities in Selections:

• The PCAOB has said that in 2025, its selection process will prioritize audits of public companies in the financial, real estate, and information technology sectors. Spotlight, supra at 4. Each of these sectors, according to the PCAOB, is experiencing significant change, from the postpandemic impact of remote work on commercial real estate to the adoption of artificial intelligence. Id. at 5.
• Under the new Trump administration, increased oversight in audits of public companies that oppose the administration’s key initiatives, such as immigration reform or elimination of diversity, equity, and inclusion programs, could become a top priority for the PCAOB.

2. Modernizing Standards:

• While the PCAOB’s controversial standard-setting proposal on the auditor’s consideration of public companies’ noncompliance with laws and regulations (“NOCLAR”) previously seemed poised to be 2025’s headline, the PCAOB appears to have stepped back from its prior plans. As recently as November 4, the PCAOB had planned to press ahead with NOCLAR in 2024; but on November 18, less than two weeks after the presidential election, a PCAOB spokesperson said that “the PCAOB will not take additional action on NOCLAR this year.” Soyoung Ho, PCAOB Sets Aside Noncompliance with Laws and Regulations for Now, Will Finalize Rules to Increase Auditor Transparency, Thomson Reuters Tax & Acct. (Nov. 19, 2024). The PCAOB website now indicates that the next board action on the NOCLAR proposal is “TBD,” with no further actions scheduled until sometime in 2025.
• The PCAOB has said that it will consider proposing a new going-concern standard and a new substantive analytical procedures standard in 2025.
• While noting that the responsibility for preparing for recent changes to the standards and for “the upcoming changes” falls on audit firms, the PCAOB is likely to make additional training materials available in 2025. Erica Y. Williams, Chair, Statement Before the SEC Open Commission Meeting on the PCAOB’s Proposed 2025 Budget (Dec. 18, 2024).

3. Strengthening Enforcement:

• In remarks on the proposed budget for 2025, PCAOB Chair Erica Y. Williams emphasized the need to continue supporting the approximately 30 staff members executing inspections in mainland China and Hong Kong, suggesting that the PCAOB will continue its enforcement crackdown in those jurisdictions. Under the new administration, PCAOB enforcement in China and Hong Kong may prove to be a rare area of bipartisan compromise for the PCAOB.

4. Improving Organizational Effectiveness:

• The PCAOB’s 2025 budget, approved in December 2024, will support its strategic initiatives and operational needs, including funding for 945 positions. Beyond 2025, the PCAOB’s budget seems far from certain, particularly under Atkins’s leadership at the SEC.