Statement on the QC 1000 Effective Date Extension – Good Blooms When Reason Prevails

Remarks as prepared for delivery

Today, the PCAOB submitted to the Securities and Exchange Commission (SEC) a proposed rule change to delay the effective date of QC1000, A Firm’s System of Quality Control, and related amendments, from December 15, 2025, to December 15, 2026. This is indeed a new PCAOB, one that is much more deliberative and collaborative. If we had operated under such principles, we probably would not need the action this Board is taking today.

Formulating standards is both an art and a science, requiring discipline in being clear-eyed on the problem to be solved and keeping an open mind in considering the comments and concerns of each affected stakeholder. During my tenure as a Board Member, I dissented on four standards and rules, specifically: (1) the proposed Noncompliance with Laws and Regulations (NOCLAR) standard which has been deferred indefinitely; (2) both the proposed and the adopting releases for Firm Reporting, where the PCAOB withdrew its adopting release earlier this year in February; (3) the adopting release for Firm and Engagement Metrics, which the PCAOB also withdrew earlier this year in February; and of course, (4) the adopting release for QC 1000. I take each of my dissenting votes seriously. When I dissent, it is because I believe the PCAOB has not clearly identified the problem to be solved; exceeded its statutory authority; failed to conduct a sufficient economic analysis; failed to adequately consider the comments of affected stakeholders; otherwise overreached; or a combination thereof. I foresaw substantial complications arising from the implementation of QC 1000. My overarching concerns with this standard centered on three key issues: the design-only requirement imposed on firms not actively engaged in public company audits, the complexities introduced by its misalignment with ISQM 1, and its overly prescriptive nature.

As a refresher, I stated at the conclusion of my dissenting statement: “I agree that we need a robust and modernized quality control standard which was why I supported the proposal over 18 months ago. But we must do it right, and not rush to replace an outdated standard with one harmful to audit quality by increasing burdens without credible benefits that will likely reduce competition. Rather than potentially dismantling the audit profession and simultaneously setting copious standards that ironically make this profession exceptionally unappealing to future accountants and auditors, we as a regulator should thoughtfully balance the scale, using evidence-based quantitative and qualitative analysis to justify the need for our standards.”¹

I supported the one-year extension of the QC 1000 standard, because it has become clear that the 15-month implementation period following the SEC’s September 9, 2024, approval of this standard was unduly aggressive and ultimately counterproductive to our mission of protecting investors in our capital markets. I am pleased to see that we are now taking a more sensible implementation path, one with a renewed focus on stakeholder input, particularly the input from smaller firms - many of whom have been facing implementation challenges, and one that affords all firms the additional time needed to ensure that each has a real chance of succeeding with their respective implementation approaches.

This one-year extension also provides us, as the regulator, with an opportunity to re-evaluate QC 1000 and related amendments and consider whether there may be a more pragmatic, cost-effective, and principle-based regulatory path. We can use this one-year extension to consider whether targeted revisions to the QC 1000 standard and related amendments may be appropriate, while at the same time providing technical assistance to firms by answering their specific implementation questions and posting these Q&As on the PCAOB website for the benefit of all stakeholders. We might also find helpful the comments the SEC receives related to this one-year extension of QC 1000. I am interested in learning more about: (1) whether QC 1000 and related amendments are overly prescriptive; (2) whether they are likely to enhance audit quality; (3) the total implementation costs that firms have incurred to date and their total estimated implementation costs (distinguishing between one-time costs and recurring costs); and (4) the implementation costs that firms have incurred to date and the total estimated implementation costs (where applicable) for the design-only requirement, the requirement for annually-inspected firms to have an external quality control function (EQCF), the automated independence system, and in-process monitoring, respectively.    

Consistent with my dissenting statement on the adopting release, I continue to be concerned about the design-only requirement which requires inactive firms to invest in a quality control system that, in most cases, may never be used nor subject to inspection, making this requirement unnecessarily burdensome with no direct correlation to improving audit quality. Since the beginning of 2022, there has been a 13% decline in the total number of PCAOB registered firms. More than 1/3 of that decline occurred after SEC approval of QC 1000 in September 2024. I don’t know to what extent that significant of a decline in less than a year is related to QC 1000, but it would be very helpful for us to understand that since the QC 1000 adopting release’s economic analysis mentioned this as an unintended consequence. Having a resilient public company audit marketplace is crucial to the capital markets.

In addition, this one-year extension presents an opportunity to stress test the differences in evaluation conclusions under QC 1000 and ISQM 1 stemming from the misalignment between the two standards in definitions, evaluation dates, and frameworks. The overarching objective should be that firms operate under a convergent quality control system, rather than maintaining potentially two different and costly systems driven by divergent evaluation conclusions.

In conclusion, this extension gives us a chance to learn and improve. I am grateful that thoughtful reflection led to a balanced outcome. I thank the Office of the Acting Chair for attentively considering stakeholder concerns and responding with care. My thanks also go to the Office of the Chief Auditor and all others whose efforts contributed to this result.