The US’ Public Company Accounting Oversight Board (PCAOB) has updated PCAOB Rule 3502 to hold associated persons accountable when the negligently, directly, and substantially contribute to firms’ violations.

For decades under PCAOB and predecessor auditing standards, auditors have been required to exercise reasonable care any time they perform an audit, and the failure to do so constitutes “negligence.”

Previously, however, Rule 3502 allowed the PCAOB to hold associated persons liable for contributing to a registered firm’s violation only when they did so “recklessly” – which represents a greater departure from the standard of care than negligence.

This means even when a firm commits a violation negligently, an associated person of that firm who directly and substantially contributed to the firm’s violation could be sanctioned by the PCAOB only if the PCAOB were to show that the associated person acted recklessly.

As adopted, the updated rule changes Rule 3502’s liability standard from recklessness to negligence, aligning it with the same standard of reasonable care auditors are already required to exercise anytime they are executing their professional duties.

The updated rule maintains Rule 3502’s requirement that an associated person must have contributed to the firm’s violation both “directly and substantially” in order to be held liable.

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The amendment to Rule 3502 is subject to approval by the US’ Securities and Exchange Commission (SEC). If approved by the SEC, the amended rule will become effective 60 days after such approval.