Auditors, Hold Your Horses! NOCLAR’s Standard Taking a Rain Check

The Public Company Accounting Oversight Board (PCAOB) recently threw a curveball at auditors, businesses, and investors by pausing its anticipated NOCLAR (Non-Compliance with Laws and Regulations) standard until next year. Despite strong opinions on all sides auditors concerned about added responsibilities, businesses wary of potential costs, and investor advocates pushing for stronger rules to curb fraud, the PCAOB has opted to hold off. This decision leaves industry players with more questions than answers: Why the delay, and what could it mean for those who rely on transparent financial reporting?

Auditors Say NOCLAR Brings More Heat Than Help

First floated back in June 2023, this proposal aimed to get auditors more involved in spotting and reporting when companies don’t play by the rules and think everything from shady accounting moves to compliance slip-ups that could mess with financial statements. But as with most things in the auditing world, it’s not cut-and-dried. Auditors are sweating bullets over what they see as a load of new liability and costs that could come with the NOCLAR standard. Many feel it’s pushing them into a less “numbers watchdog” role and more “law enforcer.” And you bet businesses aren’t thrilled about the likely price tag that comes with it either. As the PCAOB presses pause, it’s anyone’s guess if they’ll tweak the standard to keep both sides from throwing a fit or if they’re sticking to their guns.

Tom Quaadman of the U.S. Chamber of Commerce highlights this with a parking ticket analogy: “If I run a delivery service in New York City, how much do you think I pay in parking tickets a year? It could be tens of millions of dollars. Those are violations of the law. Is that an audit issue? It’s called, frankly, the cost of doing business.” 

Are Auditors Under Fire?

Recent audit failures have left the PCAOB scrambling to address serious gaps in accountability, and NOCLAR is its latest attempt to raise the bar. Investor advocates argue it’s high time auditors face stricter standards to better catch corporate misconduct that traditional audits might overlook and strengthen transparency and protect shareholders, filling gaps where current standards may miss crucial compliance issues. Lynn Turner, a former SEC chief accountant and vocal advocate for reform, has repeatedly called out the PCAOB for its sluggish progress. He doesn’t hold back, emphasizing that despite PCAOB board members’ hefty paychecks, audit quality has left a lot to be desired.

Turner pointed to some eye-opening numbers: the PCAOB’s own inspections revealed a 40% audit deficiency rate in 2022, jumping to 46% in 2023. These stats raise tough questions about whether existing standards are doing enough to ensure quality audits. Advocates like Turner see NOCLAR as a necessary shake-up, one they hope will finally push auditors to tackle deeper, often hidden, issues that affect investor confidence.

What Next for NOCLAR

With the Trump administration set to take office in early 2025, many wonder if the PCAOB’s NOCLAR progress could hit a political roadblock. Historically, Republican-led administrations lean toward deregulation, and Trump’s previous term showed a clear appetite for scaling back regulatory efforts. The PCAOB may strive to complete NOCLAR by the end of the year, but the arrival of new political priorities could potentially complicate matters.

The SEC, which oversees the PCAOB, holds the key to NOCLAR’s future, as the standard requires SEC review and approval within a 45-day public comment period. However, looming leadership changes, including the expected departure of SEC Chair Gary Gensler before January 20, could lead to delays. Former PCAOB Chair Daniel Goelzer noted that to meet procedural deadlines before the new administration takes charge, NOCLAR would need to be published in the Federal Register by early December—a tight timeline with no guarantees. Meanwhile, NOCLAR’s fate carries high stakes: auditors brace for expanded roles, businesses fear rising costs, and investors push for greater transparency, all while regulators aim to strengthen standards. Whether PCAOB can deliver a balanced solution or if the delays expose deeper challenges within the auditing profession remains to be seen, but the outcome will have far-reaching implications. Stay informed with our weekly newsletter, offering key financial updates, expert analysis, and the latest trends—all delivered straight to your inbox.