The US Securities and Exchange Commission (SEC) has approved amendments to the Public Company Accounting Oversight Board’s (PCAOB) new quality-control standard, clearing the way for less demanding requirements supported by Deloitte, PwC, EY and KPMG.
In its 2 November approval order, the SEC endorsed revisions to QC 1000, the standard governing how accounting firms design, operate and evaluate their internal quality-control systems.
The PCAOB adopted the amendments on 9 September 2026, but they required SEC approval before taking effect.
The Big Four firms urged the SEC to approve the changes, arguing that the original requirements imposed unnecessary costs and complexity. Investor organisations, including CFA Institute and the Council of Institutional Investors, opposed important elements of the revisions, warning that they could weaken accountability.
CFA Institute urged the SEC not to approve the amendments, while the Council of Institutional Investors proposed retaining independent quality-control oversight at least for firms auditing more than 500 public companies.
The SEC rejected that alternative, concluding that the benefits of independent external review were limited and that other requirements within QC 1000 provided sufficient safeguards.
What has changed?
The approved amendments will:
Remove independent oversight requirements: The largest audit firms will no longer be required to appoint independent external individuals to review significant judgements concerning the effectiveness of their quality-control systems.
Relax deficiency assessments: Firms will be able to consider compensating controls when evaluating deficiencies and may conclude that their systems remain effective despite unresolved deficiencies, provided those deficiencies are not severe individually or collectively.
Narrow cross-engagement reviews: The obligation to investigate whether deficiencies identified on one audit exist elsewhere will apply in more limited circumstances.
Reduce record retention: The mandatory retention period for quality-control system documentation will fall from seven years to five.
Allow more flexibility: Firms will be permitted to select their annual quality-control evaluation date rather than using a fixed 30 September deadline.
The amendments do not eliminate firms’ obligation to report unresolved quality-control deficiencies to the PCAOB. Firms must still disclose those deficiencies in confidential regulatory filings and assess their severity individually and collectively.
However, the revisions remove the separate major QC deficiency classification and allow firms to conclude that their quality-control systems are effective despite certain unresolved deficiencies.
The SEC concluded that the amendments would reduce compliance costs while preserving the standard’s investor-protection benefits.
A broader shift in audit oversight
PCAOB Chairman Jim Logothetis welcomed the SEC’s decision, declaring:
“This is a win for auditors and investors alike.”
In his official statement, Logothetis argued that the amendments would reduce unnecessary regulatory burdens while enabling the PCAOB to adopt a more proactive, risk-informed approach to audit oversight.
The approval comes as US regulators are redrawing the balance between audit inspections, quality-control supervision and enforcement.
In a recent interview, former SEC enforcement lawyer Andrew Feller warned that a reduced PCAOB enforcement role could leave some forms of audit misconduct subject to less regulatory scrutiny.
The central question is whether regulators can place greater reliance on firms’ internal quality-control systems while simultaneously reducing the independent scrutiny of those systems.
The amended QC 1000 requirements take effect on 15 December 2026.
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About the author: Claudine Cassar is the founder and editor of Big4News, covering audit, consulting, regulation and governance across Deloitte, PwC, EY and KPMG.