PCAOB issued proposal to strengthen accountability for contributing to firm violations.
Amended PCAOB Rule 3502, Responsibility not to knowingly/recklessly contribute to violations, to hold associated persons accountable for contributing to firm violations.
Enabled the Board to hold accountable associated persons of PCAOB-registered firms who directly and substantially contribute to violations committed by registered firms.
Updated liability standard from recklessness to negligence, to align it with the same standard of reasonable care auditors are required to exercise when executing duties.
Maintained PCAOB Rule 3502 requirement that an associated person must have contributed to firm’s violation both directly and substantially in order to be held liable.
Amendments clarified that an associated person contributing to a firm's violation need not be an associated person of the registered firm that commits the primary violation.
Provided redline of amendments PCAOB Rule 3502 on page 35 of Release 2023-007.
Consultation
Comments on amendments to PCAOB Rule 3502 must be submitted by Nov. 3, 2023.
Jun. 12, 2024 PCAOB Adopted Amendment
On Jun. 12, 2024, PCAOB approved adoption of an amendment to PCAOB Rule 3502.
The amendment to the rule will enable PCAOB to hold associated persons accountable when they negligently, directly, and substantially contribute to firms’ violations.
As adopted, changes Rule 3502’s liability standard from recklessness to negligence.
If approved by SEC, the amended rule becomes effective 60 days after such approval.
On Jun. 20, 2024, PCAOB issued proposal re violations for 21-day comment period.
Jun. 26, 2024 SEC Notice of Filing
On Jun. 26, 2024, SEC issued notice of PCAOB proposal for a 21-day comment period.
Jul. 2024 Fed Reg Proposal
On Jul. 2, 2024, SEC published proposal in the federal register, comments by Jul. 23.
Jul. 10, 2024 Editorial Update
On Jul. 10, 2024, Reg-Track made an editorial update to add the Jun. 26 sub-heading.
Aug. 19, 2024 Fed Reg Approval Extension
On Aug. 19, 2024, SEC published notice extending period for action in federal register.
On Aug. 13, 2024, SEC published notice extending period to act until Aug. 23, 2024.
Aug. 20, 2024 SEC Approval
On Aug. 20, 2024, SEC approved amendment to Rule 3502 re contributory liability.
SEC believed believe the application of the amendment to associated persons engaged in the audits of emerging growth companies (EGCs) is necessary or appropriate.
Received 1 comment letter, reiterated comments that had been submitted to PCAOB on its proposing release and that were addressed by the board in its adopting release.
SEC Chair Gensler issued opening statement re proposals; PCAOB Williams statement.
