07 JAN 2025 / REGULATORY

SEC Gives PCAOB the Green Light to Clean House

The Securities and Exchange Commission (SEC) has greenlit Rule 2107, a bold move by the Public Company Accounting Oversight Board (PCAOB) to clean house and remove inactive firms. Following a blockbuster 2024, where the PCAOB imposed over $35 million in fines, including a record-breaking $27 million penalty on KPMG Netherlands for exam cheating—the new rule ensures only compliant firms can stay on the registry. Or as the PCAOB might say, "Time to fish or cut bait."

Why Was This Rule Cooked Up?

Back in February 2024, the PCAOB proposed this amendment to tackle a growing problem: firms staying on the registry without actually doing anything. These firms didn’t file annual reports (Form 2) or pay fees for two years straight, but they were still marketing themselves as PCAOB-registered. “This isn’t the Wild West anymore,” Erica Williams, PCAOB Chair, broke it down, saying, “Keeping delinquent firms on our registry muddies the waters for investors and wastes our resources.” The SEC agreed, giving the green light to a rule that’s all about accountability and transparency.

60 Days to Shape Up or Ship Out

The rule goes into effect in 2025, covering annual reports and fees due that year. Firms that fail to meet these requirements could face deregistration starting in fall 2026. However, a 60-day grace period gives delinquent firms a chance to appeal and prove they’re active before being removed. This safeguard is especially important for emerging growth companies (EGCs), which often have a harder time finding experienced auditors. By ensuring only compliant firms remain, the rule streamlines the registry and reduces search costs for stakeholders.

Cleaning Up the Registry

Let’s talk numbers: The PCAOB oversees 1,544 firms, but 80 of them failed to file reports or pay fees in 2022 and 2023. On top of that, more than 50 firms haven’t met these basic requirements for six years. By enforcing this rule, the PCAOB is doing three big things:

Keeping It Real: Only active, compliant firms will stay on the registry, making it a trusted resource for investors and audit committees.
Saving Everyone Time: Companies won’t have to dig through a list full of dead weight to find credible auditors.
Using Resources Smarter: The PCAOB can focus on active firms instead of chasing down ghost firms.

As the SEC Chair put it, “If you’re not paying your dues, don’t expect a free ride.”

The Final Word

This isn’t just another rule—it’s the PCAOB doubling down on accountability and transparency. As Erica Williams said, “This Rule 2107 will make registration info more useful and help us work more efficiently.” With enforcement beginning in fall 2026, inactive firms have a fair warning: either get a complaint or get gone. Because in the world of accounting, “you either step up or step out.” Stay ahead of the curve—subscribe to our newsletter for the latest insights, trends, and strategies delivered straight to your inbox!