While "uncertainty" may have been one of the most frequently used words by the powerhouse panelists over this two-day event, there was no shortage of deep discussions surrounding the most pressing issues facing auditors in their crucial gatekeeper role within the capital markets.
QC 1000
One of the primary take-aways was repeated discussion and examination of QC 1000, the new Quality Control Standard adopted by the Public Company Accounting Oversight Board (PCAOB). Effective December 15, 2025, QC 1000 addresses a firm's system of quality control. A few key highlights from QC 1000 include:
- Emphasis on accountability, firm culture, and "tone at the top." Specific requirements for firm governance roles and requirements, at the highest levels. Ties of compensation to quality;
- Mandates requiring risk assessments and quality control related processes, quality objectives, and quality responses intending to ensure that QC systems are designed, implemented, and operated with an appropriate level of rigor;
- New requirements targeting changes in the audit practice environment;
- Broader responsibilities and focus on monitoring and remediation of deficiencies to drive continuous improvement;
- Rigorous annual evaluation of the firm's QC system, reinforce individual accountability, and support PCAOB oversight efforts.
The PCAOB's future was called into question with the introduction of the Trump Administration's Big Beautiful Bill, which would have had the PCAOB absorbed into The Securities and Exchange Commission (SEC), however, that provision was stripped as part of the Senate's review.
Changes in Regulatory Focus Under the New Administration and Jarkesy
An Executive Order requires that all SEC rule-making has to liaison back to the White House. Many of the panelists anticipate a shift to "recklessness" as a required basis for enforcement actions and not simple negligence. Most see fewer "foot-fault" cases being pursued.
Focus changes for SEC enforcement actions are widely anticipated including: retail harm rather than sophisticated investors, examinations rather than enforcement, shift away from examining rule violations with no harm, renewed doubt over authority over Crypto, and a lack of desire for industry sweeps.
As to PCAOB review, panelists expected the focus to remain on audit quality. Inspections of nearly half (46%) of the engagements reviewed by the PCAOB in 2023 revealed a Part 1.A flaw, or evidence that the audit firm failed to obtain enough evidence to support its opinion on a company's financial statement or internal control over financial reporting. That number had fallen to 39% in 2024, although improvements were most highly concentrated in the Big-Four ranks. The Part 1.A flaws reported in 2023 were 96% of non-affiliated triennial firms inspected for the first time, which has led to a redirected focus to small firms and an effort to provide more remedial guidance.
The U.S. Supreme Court's 2024 decision in SEC v. Jarkesy, holding that an administrative enforcement proceeding can violate an individual's seventh amendment rights and the resulting dismissal of all accountant disciplinary proceedings (102(e) timeout), continued to prompt active discussion. There is an unanswered question of whether Jarkesy applies to PCAOB actions.
Finally, several panels explored self-reporting in the current environment. While credit can be gained from self-reporting, panelists cautioned that you must have enough information to provide an informed and accurate report. Several panelists also expressed new opportunities for meaningful discussions and a growing acceptance (and expectation) of vigorous defenses being advanced in certain areas.
Auditors should exercise careful consideration when a subpoena is received in which they are not the target and an Issuer poses objections based on privilege. Actions may prompt a self-report before issuance of subpoena to the firm to preserve credibility. An audit firm's intended cooperation and compliance could be side-stepped by an Issuer's counsel controlling the process.
Risks from Emerging Technologies
The use of Artificial Intelligence was another repeated topic of discussion across panels. Auditors must understand the risks of not only their own uses of AI but also Issuer use of AI. The interplay of AI and governance and the impact on internal controls was frequently discussed. Auditors must fully understand how the Issuer uses AI in developing estimates, the company's policies governing AI use by personnel, and the extent of human oversight and authority over AI systems. Auditors must assess AI use in relation to governance, IT strategies and controls, and the expertise of those responsible for oversight.
Use of AI in audit procedures must address the audit trail with a focus on explainability, model iterability, and change management.
Cyber events and the governance of evaluation of an event and disclosure are still hot topics. Appropriate materiality determinations and timely disclosures are key and failures in that regard continue to be the subject of enforcement actions.
As hacking events continue to become more sophisticated, auditors need to ensure they are dealing with and sharing only verified facts when they are the victim. Artifacts can be intentionally misleading to suggest minimal impact.
Changes in Practice Management
Ethics rules don't change despite new technologies and changes in practice structures. Private equity involvement can create organizational and privilege issues.
New practice structures affect firm governance. Changes must comply with rules and standards and auditors must consider independence issues and inspection considerations. Client acceptance and tone at the top were the most frequently cited concerns.
The two-day event sparked many deep discussions—far more than can be fully covered in this article. If you would like to discuss any points of interest, we have a team of professional liability lawyers across several states, any of whom would be happy to further explore questions or concerns.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
