In this comment letter, the CAQ responds to the PCAOB’s proposed amendments related to Rule 3502 Governing Contributory Liability. We express concerns and our view that the Board’s proposal to amend the standard for contributory liability from one of recklessness to negligence is not adequately supported.
We believe that any project to modify the framework by which auditors can be held liable for violations of PCAOB rules and standards should include a clear assessment of why that current framework exists and whether, in practical application, the current framework has impeded the PCAOB’s effectiveness in bringing enforcement actions to fulfill its mission.
Our primary concerns are that:
1. Adoption of the Proposed Rule Could Have Unintended Consequences by Negatively Impacting Audit Quality
We are concerned that the proposal could exacerbate the accounting talent crisis. We believe there is a risk of inefficient and unproductive “self-protective” behavior that will occur if the amendments are approved. Further, the Proposal could have a negative impact on small firms and reduce the market for audit services.
2. The Rationale for the Proposal Is Not Clear. We are concerned the proposal does not have an adequate cost-benefit assessment.
3. Individual Liability for Single Instances of Simple Negligence Would be Contrary to SEC Practice and Inappropriate
Although the Board notes the SEC holds similar power under Exchange Act Section 21C, its conclusion that the proposed modification of Rule 3502 would merely put the PCAOB on par with the SEC is unsupported.
4. The Legal Basis for a Contributory Liability Standard Based in Negligence Is Not Clear
The Board appears to rely on Sections 103 and 105. Neither of these provisions provides a basis for the proposed rule.
Read the full comment letter here.