Audit Deficiency Rates Fall Sharply as PCAOB Quality Control Standard Nears Its Start

Oct 30

4 min read

Updated: 5 hours ago

Public company audits are getting measurably better, according to the Public Company Accounting Oversight Board. On October 22, 2026, the PCAOB's Division of Registration and Inspections released its staff update on 2025 inspections. It estimates that 23 percent of the audits it reviewed had Part I.A deficiencies, down from 38 percent in 2024. A Part I.A finding means the firm did not obtain enough appropriate evidence to support its opinion. The report arrives less than two months before the board's new quality control standard, QC 1000, takes effect on December 15, 2026. The Securities and Exchange Commission approved amendments scaling that standard back on November 2, 2026.

What the inspection numbers show

In 2025, PCAOB staff inspected 143 registered firms and reviewed portions of 780 public company audits, mostly for fiscal years ending in 2024. The 2025 figures are estimates because some inspection reports are not yet final. Thomson Reuters' Checkpoint reported that the aggregate rate was 46 percent in 2023, so 2025 marks a second straight year of improvement. Part I.A rates by firm category:

Big Four (combined): 20 percent in 2024, 8 percent in 2025. These firms audited about 80 percent of the market capitalization of U.S.-listed public companies.
All six U.S. global network firms (the Big Four plus BDO USA and Grant Thornton): 26 percent to 13 percent.
U.S. non-affiliated firms inspected annually: 52 percent to 18 percent.
U.S. non-affiliated firms inspected every three years (100 or fewer issuer clients): 53 percent to 32 percent.
Non-U.S. global network firms: 24 percent to 26 percent, the only category that worsened.

Integrated audits, which include an audit of internal control over financial reporting (ICFR), also improved. The share with at least one ICFR deficiency fell from 27 percent to 14 percent. Recurring problem areas included controls with a review element, identifying and selecting controls, and evaluating identified deficiencies. In the financial statements, revenue remained among the most frequent problem areas, along with accruals and other liabilities, the allowance for credit losses, business combinations, and goodwill and intangibles.

The staff did not study the causes directly and cautioned that changes in firm and audit mix affect the results. It did note practices at firms that improved: workload metrics to track partner capacity, targeted reviews before reports are issued, standardized templates, and training on ICFR, revenue, estimates and fraud.

PCAOB Chairman Demetrios (Jim) Logothetis, a retired EY partner appointed by the SEC in January 2026, said, "We are working to identify the factors that produced these results."

QC 1000 arrives December 15

QC 1000 requires registered firms to identify quality risks in their practice, build a system to address them, evaluate it every year and report results to the PCAOB. The SEC approved it in 2024. In August 2025 the board postponed the effective date to December 15, 2026, after firms reported difficulty implementing it.

On September 9, 2026, the board adopted amendments that would:

rescind the "design-only" requirement, so the standard applies only to firms subject to professional and legal requirements on an engagement;
eliminate the requirement that firms auditing more than 100 issuers have an external quality control function;
let firms assign quality control roles to people outside the firm and split roles among several individuals;
limit the required search for similar problems on other engagements to deficiencies that could affect audit evidence or the overall conclusion;
let firms choose their own annual evaluation date instead of September 30; and
shorten documentation retention from seven years to five.

Board member George Botic, who previously served as acting chairman, objected to dropping the external function entirely. The board had considered keeping it for firms auditing more than 500 issuers, a group of five firms.

The SEC published the amendments for comment in the Federal Register on September 18, with comments due October 9. Deloitte and other Big Four firms urged approval. The Council of Institutional Investors and CFA Institute opposed the change, and CII asked the SEC to begin proceedings to consider disapproving it. The SEC approved the amendments on November 2, 2026, and they take effect with QC 1000 on December 15. Staff said future inspections will place greater emphasis on firms' quality control systems.

The board's new agenda

In late September the PCAOB published updated standard-setting, research and rulemaking agendas, its first set after a public comment period. Near-term items include:

a fourth-quarter 2026 proposal to amend AS 6101 on comfort letters to underwriters;
an auditor independence proposal in early 2027, requested by the SEC's chief accountant;
a fourth-quarter 2026 proposal for a permanent broker-dealer inspection program.

Projects on fraud, noncompliance with laws and regulations, and going concern are back on the agenda, but with no timetable.

What it means for companies and audit committees

Ask your auditor about inspections. Audit committees can ask whether the engagement was inspected, what was found and how the firm responded.
Ask about QC 1000 readiness. Useful questions cover who at the firm is accountable for quality, when the annual evaluation occurs and how significant findings are fixed.
Expect continued scrutiny of review controls. Management should document how precise each review control is, what it looks for and how exceptions are resolved.
Revenue and estimates remain focus areas. Expect detailed testing of revenue, credit loss allowances, acquisition accounting and impairment.
Plan for December 15. With the SEC's approval in hand, smaller registered firms should confirm how the amended standard applies to them before it takes effect.