Accountability measure modernizes PCAOB rules

On Wednesday, the Public Company Accounting Oversight Board (PCAOB) adopted an amendment to update rules and hold people accountable when the contribute to a firms violations.

The Responsibility Not to Knowingly or Recklessly Contribute to Violations rule, originally enacted in 2005, would hold associated persons of a registered public accounting firm who contribute to that firms violations of laws, rules or standards accountable for their actions.

“With today’s adoption, the Board has aligned PCAOB rules to what investors already expect: that when an associated person’s negligence directly and substantially contributes to firm violations, the PCAOB has tools to hold them accountable,” PCAOB Chair Erica Y. Williams said. “We are grateful for the comments we received from investors and other stakeholders on this change, and we look forward to monitoring the impact of the updated rule.”

The amendment would require that the person must have directly, substantially and negligently contributed to the firm’s violation in order to be held liable. Auditors are required to exercise reasonable care when they perform an audit. Failing to do so constituted negligence, the agency said. Previously, the PCAOB held associated persons liable for contributing to the violation when they acted “recklessly.”

The updated rules changes the standard from recklessness to negligence, putting it in alignment with the same standard of care auditors are required to exercise. The rules also requires that the associated person must have contributed “directly and substantially.”

Proposed in September 2023, the rule received numerous comments, which were incorporated into the rule. The amendment is now subject to approval by the U.S. Securities and Exchange Commission, and, if it is approved, will become effective 60 days after.

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