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PCAOB Proposes Amending Rule on Auditors’ Liability for Contributing to Violations

S.J. Steinhardt
Published Date:
Sep 20, 2023

The Public Company Accounting Oversight Board (PCAOB) has proposed amendments to its rule on an auditor’s responsibility for not knowingly or recklessly contributing to violations.

The purpose of Rule 3502, Responsibility Not to Knowingly or Recklessly Contribute to Violations, which dates to 2005, is “to enable the Board to hold accountable associated persons of PCAOB-registered firms who directly and substantially contribute to violations committed by registered firms.”

The PCAOB said in its statement that the proposal better protects investors by strengthening accountability for those who put investors at risk. It does so by updating the threshold for liability and by clarifying the relationship between the contributory actor and the primary violator.

The current rule “requires a showing of more than negligence by individuals for the Board to sanction conduct resulting in negligence by firms. Thus, under current Rule 3502, associated persons who do not exercise reasonable care and contribute to firms’ violations may escape liability and accountability—even while the firms committing the violations do not,” the PCAOB stated.

Accordingly, “the Board is proposing to change from recklessness to negligence the liability standard for associated persons’ contributory conduct,” as well as “proposing to amend the rule to provide that an individual contributing to a registered firm’s primary violation need not be an associated person of the firm that commits the violation so long as the individual is an associated person of some registered firm.”

“This proposal is simply updating PCAOB rules to match what investors already expect: that auditors act with reasonable care whenever they are performing their duties—and when an auditor’s negligence results in firm violations that can put investors at risk, the PCAOB has tools to hold them accountable,” said PCAOB Chair Erica Y. Williams.

In published remarks, member Christina Ho supported the proposal but expressed concerns that it might discourage auditors from accepting important audit roles, exacerbate the accounting talent crisis, and cause smaller audit firms to exit the public company auditing business.   

The deadline for public comment on the proposal is Nov. 3. Comments can be sent by e-mail to or through the PCOAB website . Comments also may be submitted by mail to the Office of the Secretary, PCAOB, 1666 K Street, NW, Washington, D.C. 20006-2803. All comments should refer to PCAOB Rulemaking Docket Matter No. 053 in the subject or reference line.

To learn about other issued and proposed guidance from the PCAOB, attend the Foundation for Accounting Education’s Auditing Standards Update with Renee Rampulla Webcast on Oct. 19.

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