A New Audit Quality Benchmark Is Approved By SEC Despite Republican Objections

On Monday, the U.S. Securities and Exchange Commission (SEC) approved new accounting standards proposed by a watchdog agency, aimed at addressing concerns over poor-quality audits. The SEC’s five-member panel voted 3-2 in favour of the standards, with Republican members expressing objections over what they considered a rushed drafting process and unnecessary burdens on smaller audit firms.

The U.S. Public Company Accounting Oversight Board (PCAOB), established after the Enron accounting scandals, has sought to tighten auditing rules this year. SEC Chair Gary Gensler highlighted that in 2023, the PCAOB found that nearly 46% of the audits reviewed lacked sufficient, appropriate evidence.

The new standards, adopted by the PCAOB in May, will require registered accounting firms to identify, manage, and monitor risks related to audit quality control. Firm leadership will be held accountable if these requirements are not met. However, Republican SEC members argue that the rules impose undue burdens on smaller firms, including requiring them to design compliant quality control systems, even if they are not currently conducting audits subject to PCAOB standards.

The new regulations are set to take effect in December of next year.