November 05, 2025
PCAOB Adopts New Audit Firm and Engagement-Level Metrics Disclosures
PCAOB Release No. 2024-002
By Kevin Hee, Ph.D.
On April 9, 2024, the Public Company Accounting Oversight Board (PCAOB) issued Release No. 2024-002, Firm and Engagement Metrics, which proposes amendments to the current rules and reporting forms for audit firms. The release proposed requiring new firm-level and engagement-level metrics on a new form FM (Firm Metrics) and amended Form AP (Audit Participants and Metrics). The objective of the proposal is to provide value-relevant information, context and perspective on auditors and audit engagements to enhance investor protection and allow for more informed decision-making for investors and other stakeholders (e.g., audit committees).
After receiving stakeholder input from different CPA firms and accounting industry participants, some changes were made and the proposed regulations were adopted by PCAOB on November 24, 2024.
Background of PCAOB Proposal
The proposal is a continuation of prior work (2015 - PCAOB requires firms to disclose the name of the engagement partner; 2017 - PCAOB requires communication of critical audit matters) designed to increase transparency and provide stakeholders with valuable information about public accounting firms and audit engagements.
In general, audits are a black box that are not observable by outside parties such as investors and PCAOB feels there is a lack of incentive for firms to provide accurate, standardized and decision-relevant information about the audit firms and the audit work performed for clients. Also, PCAOB noted that it has observed that only a small number of firms report firm-level metrics and these firms rarely report engagement-level metrics and where firm-level metrics are reported, the firms report the information inconsistently and do not use common definitions, thereby preventing users from making comparisons across firms.
Current Metrics Requirements
Currently, PCAOB requires audit firms to file Form 2 (Annual Report), which includes basic information about the auditor and Form 3 (Special Reporting Form) for certain events such as a legal name change, and Form AP (Auditor Reporting of Certain Audit Participants) with engagement-level metrics and information such as the name of the engagement partner, other firms participating in the audit and the extent of their participation.
Adopted Metrics Requirements
The newly adopted requirements include a new Form FM (Firm Metrics) that would disclose firm-level metrics for the lead auditor and an updated name for Form AP (Audit Participants and Metrics) that would disclose engagement-level metrics. The eight new metrics are as follows.
| Proposed Metric Areas | Example |
| Training Hours for Audit Personnel | Average annual training hours for partners, managers and staff of the firm, combined, across the firm and on the engagement |
| Partner and Manager Involvement | Hours worked by senior auditors compared to junior staff on the engagement |
| Workload | Average hours worked weekly on a quarterly basis by engagement partners and other engagement auditors broken out by category of work |
| Experience of Audit Personnel | Average number of years worked at public accounting firm by senior auditors across the firm and on the engagement |
| Industry Experience of Audit Personnel | Average years of experience of senior professionals in key industries audited by the firm at the firm level and the audited company's primary industry at the engagement level |
| Retention of Audit Personnel (firm-level only) | Across the firm and on the engagement |
| Allocation of Audit Hours | Percentage of hours incurred prior to and following an issuer's year-end across the firm's issue engagements and on the engagement |
| Restatement History (Firm-level) | Restatements of financial statements and management reports on internal control over financial reporting that were audited by the firm over the past five years |
PCAOB argues that the main benefits of these proposed metrics include:
- Audit committees having additional information to help their decision about auditor retention and auditor engagement monitoring
- Audit firms using standardized metric information about themselves and peers to improve designing, implementing, monitoring, and remediating their systems of quality control
- PCAOB having additional information for its inspections and standard-setting process
Changes Made from Initial Proposal
After the comment period ended, the following changes were made to the new requirements:
- The metrics were reduced to eight from 11; proposed metrics for audit hours and risk areas, quality performance and compensation and audit firms' internal monitoring were not included in the final amendment
- The metrics were refined to be simpler, with clearer calculations
- Optional narrative disclosure was increased from 500-1,000 characters; and
- The effective date of the requirements was updated - if approved by the SEC, the earliest effective date of the new metrics (for both firm-level and engagement-level) will be October 1, 2027, with the first reporting as of September 30, 2028
- Phase-in period for small and mid-sized - if an audit firm audits 100 or more issuers, the requirements will take effect in the first year; if less than 100 issuers, the new requirements will take effect the following year
Impact on the Accounting Profession
The new metrics requirements would increase the disclosure needed at both the firm and engagement level for all accounting firms with publicly owned clients. This has a significant impact presently on Texas CPAs given the large number of public accounting firms that have offices in the state, as well as for the future given the increasing number of companies that are moving business operations to Texas. This increase in business activity could lead to an increase in future clients for some Texas CPA firms and if these proposed metrics are adopted (even partly), the logistical and financial impact could be significant.
Based on comments from accounting profession participants, there is a high level of concern about the increased costs and logistical burden of the new regulations. All audit firms will have to most likely increase information technology expenditures in order to track the data necessary to calculate the new metrics and the fiscal impact will probably be disproportionately higher for the smaller CPA firms that perform public audits. This could lead to market exits by some CPA firms, leaving public companies with a less competitive audit service provider market.
These amendments do not directly affect CPA firms that do not audit public companies since PCAOB only regulates audits of public companies. However, there could be some indirect impacts, such as unintended consequences from the exit of small and medium-sized firms from the public company auditing market.
If a large proportion of those firms decide that the new requirements are cost prohibitive and exit that market, where will those firms go to make up lost revenue? Will they expand their other services, such as consulting, tax research and planning, or compilation and reviews? If so, how does that impact CPAs who receive most of their revenues from those non-public company services?
Implications for CPAs - Especially in Texas
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Comments from the Big 4
Based on the comment letters from multiple large public accounting firms (KPMG, EY, PwC, Deloitte, etc.), there is a significant belief that while PCAOB's broad goal of increasing transparency is commendable, there are some issues with the proposed metrics.
All of the firms commenting felt the proposed metrics were overly prescriptive with the need for a longer implementation period and additional feedback and discussion from more stakeholders impacted by the metrics. In addition, all four firms commented that while they do not support public disclosure of any of the engagement-level metrics, they do support disclosure of those metrics to the audit committees of the engagement company.
There was some variation on the topic of the firm-level metrics and the level of disclosure preferred by the firms. None of the Big 4 firms supported public disclosure of all of the firm-level metrics, but a couple did support public disclosure of some of the metrics (e.g., workload, experience of audit personnel, allocation of audit hours), albeit with the qualification that ample context would have to be provided with those disclosures.
Two of the biggest issues brought up by the firms were context and the gap between the metrics and audit quality. EY's comment letter in particular focused on concerns about an overemphasis on metrics that could potentially lead to a trend towards commoditization of the profession instead of a trend towards audit innovations. But all four firms expressed the opinion that some of the metrics do not necessarily measure audit quality appropriately without context.
An example provided was the proper use of team turnover, which can improve an audit through fresh perspectives or how the choice of engagement team can be subject to a specific firm's quality control system. This would not be appropriately captured in the Experience of Audit Personnel metric if viewed without context, therefore making interpretation of that metric difficult.
One of the firms commented that in many cases, the metrics that are proposed are not relevant to how we view audit quality or our system of quality control.
Comments by Non-Big 4 Parties
TXCPA's Professional Standards Committee (PSC) did not support any required public disclosure of engagement-level metrics (similar to other comments). The PSC also brought up the point that the increased data collection and analysis requirements to calculate proposed metrics require substantial investment in new information technology to capture and retrieve necessary data. This potential investment may have disproportionately higher impact on smaller audit firms and have competitive consequences, such as pushing larger accelerated filing companies to larger audit firms with sufficient financial resources to handle the new requirements. And again, the PSC thought the focus on metrics with a lack of context was a major issue.
The comment letter from Forvis Mazar Group brought up a unique concern about non-U.S. firm PCAOB registrants that are based outside the U.S. but still have limited engagements in the U.S. that would be subject to the proposed disclosure requirements. Forvis was worried about the potential reduction of non-U.S. registered companies due to additional data collection requirements, as well as potential legal and regulatory conflict with non-U.S. jurisdictions.
Plante & Moran questioned whether PCAOB has the statutory power under SOX to create and enforce the proposed requirements. P&M also shared similar concerns from all the other firms about the cost of implementing data collection and processing systems for all firms. They thought these increased costs may lead to firms opting out of the issuer and broker-dealer engagements leading to audit industry concentration that may not be aligned with PCAOB's mission and strategic objectives.
AICPA focused its comment letter on the impact on small and medium-size firms. It felt the smaller firms would bear a disproportionate cost burden and the regulations would likely accelerate the exit of some of these firms from the public company audit market and lead to reduced competition and market diversity.
In addition, AICPA conducted a survey of the top 500 public accounting firms (excluding the Big 4) in the U.S. about the proposed regulations and found that approximately 25 percent of the firms surveyed that do public audits responded that they would eliminate the public audit practices of accelerated and large accelerated filers if the regulations are adopted. This data point is incredibly significant to public companies given the impact of losing approximately a quarter of the available public audit service suppliers when the requirements become effective.
Implementation TimelineEarliest effective date: October 1, 2027 First reporting date: September 30, 2028 Phase-in:
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Summary
It does seem that the spirit of the adopted metrics' goal to increase transparency and allow investors and stakeholders to make better decisions is fully supported by the different stakeholders who sent in comment letters on the disclosure regulations. However, the comment letters point out multiple concerns, including:
- The lack of correlation between the proposed metrics and audit quality (as perceived by the commenting firms)
- A perceived lack of sufficient outreach and engagement with the relevant stakeholders, such as audit committees, investors and audit firms
- A need for a longer implementation period, and
- Significant compliance costs
Comment letters from non-Big 4 organizations had a larger emphasis on the potential negative impact on market competition and diversity if the increased costs of the regulations force smaller CPA firms out of the public audit market.
It's important for Texas CPAs to be aware of the implications of PCAOB's new regulations, as well as the feedback from different accounting profession participants. If the proposed metrics are finalized (whether in full or partly), there will be increased workload to track the data necessary to compute the metrics and managing the implications of disclosing firm and engagement information to the public that has always been kept confidential or only between auditors and the audit committee.
The most significant concern for Texas CPAs (and all states' CPAs) is the likely disproportionate cost impact to small and medium-sized audit firms of the increased data collection and analysis work necessary to satisfy the new disclosure requirements.
About the Author: Kevin Hee, Ph.D., is Clinical Assistant Professor Accounting and Business Law at Baylor University. Contact him at Kevin_Hee@baylor.edu.
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