Audit firms are calling on the Securities and Exchange Commission (SEC) to reject new metrics proposed by the Public Company Accounting Oversight Board (PCAOB), Accounting Today reported.
The recent standards on firm and engagement metrics and firm reporting, adopted by the PCAOB in November, aim to increase transparency in public company audits by standardizing disclosures across eight areas.
However, these metrics, which require SEC approval to take effect, have sparked strong opposition from the accounting industry, raising concerns about cost, feasibility and potential misinterpretation by investors, according to the Financial Times.
The metrics aim to provide transparency into partner and manager involvement, workload, training hours, retention rates and industry-specific audit experience. PCAOB Chair Erica Y. Williams stated that the initiative is intended to boost investor confidence and audit quality by equipping stakeholders with clear and consistent data. If approved, the metrics would be implemented in stages, with larger firms adopting them first. Despite these intentions, audit firms argue that the proposed metrics lack a clear connection to audit quality and could lead to confusion among investors.
In a letter to the SEC, Deloitte described the metrics as speculative and potentially misleading. Ernst & Young echoed this sentiment in another comment letter, emphasizing that the PCAOB has not adequately demonstrated how the metrics directly enhance audit quality. KPMG added, in its own letter, that its internal analyses found little correlation between the metrics and successful audit outcomes.
Concerns about the operational burden and cost have further fueled the opposition against the metrics. Mid-sized and smaller firms argue that implementing the metrics would place a significant strain on resources, potentially forcing some firms to exit the public company audit market altogether. Accounting Today reported that the AICPA highlighted these challenges, stating that the proposed rules could undermine audit quality by reducing the availability of audit providers.
Deloitte also pointed to the cumulative impact of several new PCAOB requirements introduced in recent months, warning that firms, particularly smaller ones, face significant challenges in adapting to these changes.
Despite industry pushback, the metrics have garnered support from investor and consumer advocacy groups, according to Accounting Today. Organizations like the Council of Institutional Investors and Consumer Federation of America argued that the metrics address long-standing gaps in audit transparency. These groups believe the disclosures will help investors make more informed decisions and hold auditors accountable. The Council called the metrics “an overdue step forward,” while the Consumer Federation noted that current voluntary disclosures fail to meet investor needs.
The debate over the metrics has taken on political significance as the SEC prepares for leadership changes with the incoming Trump administration, Accounting Today said. As The Trusted Professional reported in November, SEC chair Gary Gensler is set to step down later this month, with Republican commissioners expected to assume control. After Gensler leaves, the SEC will be controlled by Republican commissioners who have critical of the PCAOB and have expressed concerns about the board’s regulatory approach under the Biden administration, according to the Financial Times.
The Financial Times said that the SEC has not announced when it will vote on the metrics, leaving the future of the rules uncertain. For now, the accounting industry, investor advocates and regulators remain at odds over how best to balance transparency, cost and practicality in the audit process.