---
kind: "section"
citation: "15 U.S.C. § 78j–1"
title: "15"
title_heading: "Commerce and Trade"
number: "78j–1"
heading: "Audit requirements"
release: "119-102"
date: "2026-07-12"
url: "https://uscodex.org/usc/15/78j-1"
units:
  - "Chapter 2B — Securities Exchanges"
---

# §78j–1. Audit requirements

- (a) **In general—** Each audit required pursuant to this chapter of the financial statements of an [issuer](/usc/15/78c.md?p=a-8) by a [registered public accounting firm](/usc/15/78c.md?p=a-59) shall include, in accordance with generally accepted auditing standards, as may be modified or supplemented from time to time by the [Commission](/usc/15/78c.md?p=a-15)—
  - (1) procedures designed to provide reasonable assurance of detecting illegal acts that would have a direct and material effect on the determination of financial statement amounts;
  - (2) procedures designed to identify related party transactions that are material to the financial statements or otherwise require disclosure therein; and
  - (3) an evaluation of whether there is substantial doubt about the ability of the [issuer](/usc/15/78c.md?p=a-8) to continue as a going concern during the ensuing fiscal year.
- (b) **Required response to audit discoveries—**
  - (1) **Investigation and report to management—** If, in the course of conducting an audit pursuant to this chapter to which [subsection (a)](#a) applies, the [registered public accounting firm](/usc/15/78c.md?p=a-59) detects or otherwise becomes aware of information indicating that an illegal act (whether or not perceived to have a material effect on the financial statements of the [issuer](/usc/15/78c.md?p=a-8)) has or may have occurred, the firm shall, in accordance with generally accepted auditing standards, as may be modified or supplemented from time to time by the [Commission](/usc/15/78c.md?p=a-15)—
    - (A)
      - (i) determine whether it is likely that an illegal act has occurred; and
      - (ii) if so, determine and consider the possible effect of the illegal act on the financial statements of the [issuer](/usc/15/78c.md?p=a-8), including any contingent monetary effects, such as fines, penalties, and damages; and
    - (B) as soon as practicable, inform the appropriate level of the management of the [issuer](/usc/15/78c.md?p=a-8) and assure that the [audit committee](/usc/15/78c.md?p=a-58) of the [issuer](/usc/15/78c.md?p=a-8), or the [board](/usc/15/78c.md?p=a-73) of [directors](/usc/15/78c.md?p=a-7) of the [issuer](/usc/15/78c.md?p=a-8) in the absence of such a committee, is adequately informed with respect to illegal acts that have been detected or have otherwise come to the attention of such firm in the course of the audit, unless the illegal act is clearly inconsequential.
  - (2) **Response to failure to take remedial action—** If, after determining that the [audit committee](/usc/15/78c.md?p=a-58) of the [board](/usc/15/78c.md?p=a-73) of [directors](/usc/15/78c.md?p=a-7) of the [issuer](/usc/15/78c.md?p=a-8), or the [board](/usc/15/78c.md?p=a-73) of [directors](/usc/15/78c.md?p=a-7) of the [issuer](/usc/15/78c.md?p=a-8) in the absence of an [audit committee](/usc/15/78c.md?p=a-58), is adequately informed with respect to illegal acts that have been detected or have otherwise come to the attention of the firm in the course of the audit of such firm, the [registered public accounting firm](/usc/15/78c.md?p=a-59) concludes that—
    - (A) the illegal act has a material effect on the financial statements of the [issuer](/usc/15/78c.md?p=a-8);
    - (B) the senior management has not taken, and the [board](/usc/15/78c.md?p=a-73) of [directors](/usc/15/78c.md?p=a-7) has not caused senior management to take, timely and appropriate remedial actions with respect to the illegal act; and
    - (C) the failure to take remedial action is reasonably expected to warrant departure from a standard report of the auditor, when made, or warrant resignation from the audit engagement;

    the [registered public accounting firm](/usc/15/78c.md?p=a-59) shall, as soon as practicable, directly report its conclusions to the [board](/usc/15/78c.md?p=a-73) of [directors](/usc/15/78c.md?p=a-7).

  - (3) **Notice to Commission; response to failure to notify—** An [issuer](/usc/15/78c.md?p=a-8) whose [board](/usc/15/78c.md?p=a-73) of [directors](/usc/15/78c.md?p=a-7) receives a report under [paragraph (2)](#b-2) shall inform the [Commission](/usc/15/78c.md?p=a-15) by notice not later than 1 business day after the receipt of such report and shall furnish the [registered public accounting firm](/usc/15/78c.md?p=a-59) making such report with a copy of the notice furnished to the [Commission](/usc/15/78c.md?p=a-15). If the [registered public accounting firm](/usc/15/78c.md?p=a-59) fails to receive a copy of the notice before the expiration of the required 1-business-day period, the [registered public accounting firm](/usc/15/78c.md?p=a-59) shall—
    - (A) resign from the engagement; or
    - (B) furnish to the [Commission](/usc/15/78c.md?p=a-15) a copy of its report (or the documentation of any oral report given) not later than 1 business day following such failure to receive notice.
  - (4) **Report after resignation—** If a [registered public accounting firm](/usc/15/78c.md?p=a-59) resigns from an engagement under [paragraph (3)(A)](#b-3-A), the firm shall, not later than 1 business day following the failure by the [issuer](/usc/15/78c.md?p=a-8) to notify the [Commission](/usc/15/78c.md?p=a-15) under [paragraph (3)](#b-3), furnish to the [Commission](/usc/15/78c.md?p=a-15) a copy of the report of the firm (or the documentation of any oral report given).
- (c) **Auditor liability limitation—** No [registered public accounting firm](/usc/15/78c.md?p=a-59) shall be liable in a private action for any finding, conclusion, or statement expressed in a report made pursuant to paragraph [(3)](#b-3) or [(4)](#b-4) of subsection (b), including any rule promulgated pursuant thereto.
- (d) **Civil penalties in cease-and-desist proceedings—** If the [Commission](/usc/15/78c.md?p=a-15) finds, after notice and opportunity for hearing in a proceeding instituted pursuant to [section 78u–3 of this title](/usc/15/78u–3.md), that a [registered public accounting firm](/usc/15/78c.md?p=a-59) has willfully violated paragraph [(3)](#b-3) or [(4)](#b-4) of subsection (b), the [Commission](/usc/15/78c.md?p=a-15) may, in addition to entering an order under [section 78u–3 of this title](/usc/15/78u–3.md), impose a civil penalty against the [registered public accounting firm](/usc/15/78c.md?p=a-59) and any other [person](/usc/15/78c.md?p=a-9) that the [Commission](/usc/15/78c.md?p=a-15) finds was a cause of such violation. The determination to impose a civil penalty and the amount of the penalty shall be governed by the standards set forth in [section 78u–2 of this title](/usc/15/78u–2.md).
- (e) **Preservation of existing authority—** Except as provided in [subsection (d)](#d), nothing in this section shall be held to limit or otherwise affect the authority of the [Commission](/usc/15/78c.md?p=a-15) under this chapter.
- (f) **Definitions—** As used in this section, the term “illegal act” means an act or omission that violates any law, or any rule or regulation having the force of law. As used in this section, the term “[issuer](/usc/15/78c.md?p=a-8)” means an [issuer](/usc/15/78c.md?p=a-8) (as defined in [section 78c of this title](/usc/15/78c.md)), the [securities](/usc/15/78c.md?p=a-10) of which are registered under [section 78l](/usc/15/78l.md) of this title, or that is required to file reports pursuant to [section 78o(d)](/usc/15/78o.md?p=d) of this title, or that files or has filed a registration statement that has not yet become effective under the Securities Act of 1933 ([15 U.S.C. 77a](/usc/15/77a.md) et seq.), and that it has not withdrawn.
- (g) **Prohibited activities—** Except as provided in [subsection (h)](#h), it shall be unlawful for a [registered public accounting firm](/usc/15/78c.md?p=a-59) (and any associated [person](/usc/15/78c.md?p=a-9) of that firm, to the extent determined appropriate by the [Commission](/usc/15/78c.md?p=a-15)) that performs for any [issuer](/usc/15/78c.md?p=a-8) any audit required by this chapter or the rules of the [Commission](/usc/15/78c.md?p=a-15) under this chapter or, beginning 180 days after the date of commencement of the operations of the Public [Company](/usc/15/78c.md?p=a-19) Accounting Oversight [Board](/usc/15/78c.md?p=a-73) established under [section 7211 of this title](/usc/15/7211.md) (in this section referred to as the “[Board](/usc/15/78c.md?p=a-73)”), the rules of the [Board](/usc/15/78c.md?p=a-73), to provide to that [issuer](/usc/15/78c.md?p=a-8), contemporaneously with the audit, any non-audit service, including—
  - (1) bookkeeping or other services related to the accounting [records](/usc/15/78c.md?p=a-37) or financial statements of the audit client;
  - (2) financial information systems design and implementation;
  - (3) appraisal or valuation services, fairness opinions, or contribution-in-kind reports;
  - (4) actuarial services;
  - (5) internal audit outsourcing services;
  - (6) management functions or human resources;
  - (7) [broker or dealer](/usc/15/78c.md?p=h-2), [investment adviser](/usc/15/78c.md?p=a-20), or investment banking services;
  - (8) legal services and expert services unrelated to the audit; and
  - (9) any other service that the [Board](/usc/15/78c.md?p=a-73) determines, by regulation, is impermissible.
- (h) **Preapproval required for non-audit services—** A [registered public accounting firm](/usc/15/78c.md?p=a-59) may engage in any non-audit service, including tax services, that is not described in any of paragraphs [(1)](#g-1) through [(9)](#g-9) of subsection (g) for an audit client, only if the activity is approved in advance by the [audit committee](/usc/15/78c.md?p=a-58) of the [issuer](/usc/15/78c.md?p=a-8), in accordance with [subsection (i)](#i).
- (i) **Preapproval requirements—**
  - (1) **In general—**
    - (A) **Audit committee action—** All auditing services (which may entail providing comfort letters in connection with [securities](/usc/15/78c.md?p=a-10) underwritings or statutory audits required for [insurance companies](/usc/15/78c.md?p=a-19) for purposes of [State](/usc/15/78c.md?p=a-16) law) and non-audit services, other than as provided in [subparagraph (B)](#i-1-B), provided to an [issuer](/usc/15/78c.md?p=a-8) by the auditor of the [issuer](/usc/15/78c.md?p=a-8) shall be preapproved by the [audit committee](/usc/15/78c.md?p=a-58) of the [issuer](/usc/15/78c.md?p=a-8).
    - (B) **De minimis exception—** The preapproval requirement under [subparagraph (A)](#i-1-A) is waived with respect to the provision of non-audit services for an [issuer](/usc/15/78c.md?p=a-8), if—
      - (i) the aggregate amount of all such non-audit services provided to the [issuer](/usc/15/78c.md?p=a-8) constitutes not more than 5 percent of the total amount of revenues paid by the [issuer](/usc/15/78c.md?p=a-8) to its auditor during the fiscal year in which the non-audit services are provided;
      - (ii) such services were not recognized by the [issuer](/usc/15/78c.md?p=a-8) at the time of the engagement to be non-audit services; and
      - (iii) such services are promptly brought to the attention of the [audit committee](/usc/15/78c.md?p=a-58) of the [issuer](/usc/15/78c.md?p=a-8) and approved prior to the completion of the audit by the [audit committee](/usc/15/78c.md?p=a-58) or by 1 or more [members](/usc/15/78c.md?p=a-3-A) of the [audit committee](/usc/15/78c.md?p=a-58) who are [members](/usc/15/78c.md?p=a-3-A) of the [board](/usc/15/78c.md?p=a-73) of [directors](/usc/15/78c.md?p=a-7) to whom authority to grant such approvals has been delegated by the [audit committee](/usc/15/78c.md?p=a-58).
  - (2) **Disclosure to investors—** Approval by an [audit committee](/usc/15/78c.md?p=a-58) of an [issuer](/usc/15/78c.md?p=a-8) under this subsection of a non-audit service to be performed by the auditor of the [issuer](/usc/15/78c.md?p=a-8) shall be disclosed to investors in periodic reports required by [section 78m(a) of this title](/usc/15/78m.md?p=a).
  - (3) **Delegation authority—** The [audit committee](/usc/15/78c.md?p=a-58) of an [issuer](/usc/15/78c.md?p=a-8) may delegate to 1 or more designated [members](/usc/15/78c.md?p=a-3-A) of the [audit committee](/usc/15/78c.md?p=a-58) who are independent [directors](/usc/15/78c.md?p=a-7) of the [board](/usc/15/78c.md?p=a-73) of [directors](/usc/15/78c.md?p=a-7), the authority to grant preapprovals required by this subsection. The decisions of any [member](/usc/15/78c.md?p=a-3-A) to whom authority is delegated under this paragraph to preapprove an activity under this subsection shall be presented to the full [audit committee](/usc/15/78c.md?p=a-58) at each of its scheduled meetings.
  - (4) **Approval of audit services for other purposes—** In carrying out its duties under [subsection (m)(2)](#m-2), if the [audit committee](/usc/15/78c.md?p=a-58) of an [issuer](/usc/15/78c.md?p=a-8) approves an audit service within the scope of the engagement of the auditor, such audit service shall be deemed to have been preapproved for purposes of this subsection.
- (j) **Audit partner rotation—** It shall be unlawful for a [registered public accounting firm](/usc/15/78c.md?p=a-59) to provide audit services to an [issuer](/usc/15/78c.md?p=a-8) if the lead (or coordinating) audit partner (having primary responsibility for the audit), or the audit partner responsible for reviewing the audit, has performed audit services for that [issuer](/usc/15/78c.md?p=a-8) in each of the 5 previous fiscal years of that [issuer](/usc/15/78c.md?p=a-8).
- (k) **Reports to audit committees—** Each [registered public accounting firm](/usc/15/78c.md?p=a-59) that performs for any [issuer](/usc/15/78c.md?p=a-8) any audit required by this chapter shall timely report to the [audit committee](/usc/15/78c.md?p=a-58) of the [issuer](/usc/15/78c.md?p=a-8)—
  - (1) all critical accounting policies and practices to be used;
  - (2) all alternative treatments of financial information within generally accepted accounting principles that have been discussed with management officials of the [issuer](/usc/15/78c.md?p=a-8), ramifications of the use of such alternative disclosures and treatments, and the treatment preferred by the [registered public accounting firm](/usc/15/78c.md?p=a-59); and
  - (3) other material written communications between the [registered public accounting firm](/usc/15/78c.md?p=a-59) and the management of the [issuer](/usc/15/78c.md?p=a-8), such as any management letter or schedule of unadjusted differences.
- (l) **Conflicts of interest—** It shall be unlawful for a [registered public accounting firm](/usc/15/78c.md?p=a-59) to perform for an [issuer](/usc/15/78c.md?p=a-8) any audit service required by this chapter, if a chief executive officer, controller, chief financial officer, chief accounting officer, or any [person](/usc/15/78c.md?p=a-9) serving in an equivalent position for the [issuer](/usc/15/78c.md?p=a-8), was employed by that registered independent public accounting firm and participated in any capacity in the audit of that [issuer](/usc/15/78c.md?p=a-8) during the 1-year period preceding the date of the initiation of the audit.
- (m) **Standards relating to audit committees—**
  - (1) **Commission rules—**
    - (A) **In general—** Effective not later than 270 days after July 30, 2002, the [Commission](/usc/15/78c.md?p=a-15) shall, by rule, direct the national [securities](/usc/15/78c.md?p=a-10) [exchanges](/usc/15/78c.md?p=a-1) and national [securities](/usc/15/78c.md?p=a-10) associations to prohibit the listing of any [security](/usc/15/78c.md?p=a-10) of an [issuer](/usc/15/78c.md?p=a-8) that is not in compliance with the requirements of any portion of paragraphs [(2)](#m-2) through [(6)](#m-6).
    - (B) **Opportunity to cure defects—** The rules of the [Commission](/usc/15/78c.md?p=a-15) under [subparagraph (A)](#m-1-A) shall provide for appropriate procedures for an [issuer](/usc/15/78c.md?p=a-8) to have an opportunity to cure any defects that would be the basis for a prohibition under [subparagraph (A)](#m-1-A), before the imposition of such prohibition.
  - (2) **Responsibilities relating to registered public accounting firms—** The [audit committee](/usc/15/78c.md?p=a-58) of each [issuer](/usc/15/78c.md?p=a-8), in its capacity as a committee of the [board](/usc/15/78c.md?p=a-73) of [directors](/usc/15/78c.md?p=a-7), shall be directly responsible for the appointment, compensation, and oversight of the work of any [registered public accounting firm](/usc/15/78c.md?p=a-59) employed by that [issuer](/usc/15/78c.md?p=a-8) (including resolution of disagreements between management and the auditor regarding financial reporting) for the purpose of preparing or issuing an audit report or related work, and each such [registered public accounting firm](/usc/15/78c.md?p=a-59) shall report directly to the [audit committee](/usc/15/78c.md?p=a-58).
  - (3) **Independence—**
    - (A) **In general—** Each [member](/usc/15/78c.md?p=a-3-A) of the [audit committee](/usc/15/78c.md?p=a-58) of the [issuer](/usc/15/78c.md?p=a-8) shall be a [member](/usc/15/78c.md?p=a-3-A) of the [board](/usc/15/78c.md?p=a-73) of [directors](/usc/15/78c.md?p=a-7) of the [issuer](/usc/15/78c.md?p=a-8), and shall otherwise be independent.
    - (B) **Criteria—** In order to be considered to be independent for purposes of this paragraph, a [member](/usc/15/78c.md?p=a-3-A) of an [audit committee](/usc/15/78c.md?p=a-58) of an [issuer](/usc/15/78c.md?p=a-8) may not, other than in his or her capacity as a [member](/usc/15/78c.md?p=a-3-A) of the [audit committee](/usc/15/78c.md?p=a-58), the [board](/usc/15/78c.md?p=a-73) of [directors](/usc/15/78c.md?p=a-7), or any other [board](/usc/15/78c.md?p=a-73) committee—
      - (i) accept any consulting, advisory, or other compensatory fee from the [issuer](/usc/15/78c.md?p=a-8); or
      - (ii) be an [affiliated person](/usc/15/78c.md?p=a-19) of the [issuer](/usc/15/78c.md?p=a-8) or any subsidiary thereof.
    - (C) **Exemption authority—** The [Commission](/usc/15/78c.md?p=a-15) may exempt from the requirements of [subparagraph (B)](#m-3-B) a particular relationship with respect to [audit committee](/usc/15/78c.md?p=a-58) [members](/usc/15/78c.md?p=a-3-A), as the [Commission](/usc/15/78c.md?p=a-15) determines appropriate in light of the circumstances.
  - (4) **Complaints—** Each [audit committee](/usc/15/78c.md?p=a-58) shall establish procedures for—
    - (A) the receipt, retention, and treatment of complaints received by the [issuer](/usc/15/78c.md?p=a-8) regarding accounting, internal accounting controls, or auditing matters; and
    - (B) the confidential, anonymous submission by employees of the [issuer](/usc/15/78c.md?p=a-8) of concerns regarding questionable accounting or auditing matters.
  - (5) **Authority to engage advisers—** Each [audit committee](/usc/15/78c.md?p=a-58) shall have the authority to engage independent counsel and other advisers, as it determines necessary to carry out its duties.
  - (6) **Funding—** Each [issuer](/usc/15/78c.md?p=a-8) shall provide for appropriate funding, as determined by the [audit committee](/usc/15/78c.md?p=a-58), in its capacity as a committee of the [board](/usc/15/78c.md?p=a-73) of [directors](/usc/15/78c.md?p=a-7), for payment of compensation—
    - (A) to the [registered public accounting firm](/usc/15/78c.md?p=a-59) employed by the [issuer](/usc/15/78c.md?p=a-8) for the purpose of rendering or issuing an audit report; and
    - (B) to any advisers employed by the [audit committee](/usc/15/78c.md?p=a-58) under [paragraph (5)](#m-5).

## Source credit

(June 6, 1934, ch. 404, title I, § 10A, as added Pub. L. 104–67, title III, § 301(a), Dec. 22, 1995, 109 Stat. 762; amended Pub. L. 107–204, title II, §§ 201(a), 202–204, 205(b), (d), 206, title III, § 301, July 30, 2002, 116 Stat. 771–775; Pub. L. 111–203, title IX, § 985(b)(3), July 21, 2010, 124 Stat. 1933.)

## Notes

### Editorial Notes

### References in Text

This chapter, referred to in subsecs. (a), (b)(1), (e), (g), (k), and (l), was in the original “this title”. See References in Text note set out under section 78a of this title.

The Securities Act of 1933, referred to in subsec. (f), is title I of act May 27, 1933, ch. 38, 48 Stat. 74, which is classified generally to subchapter I (§ 77a et seq.) of chapter 2A of this title. For complete classification of this Act to the Code, see section 77a of this title and Tables.

### Amendments

2010—Subsec. (i)(1)(B). Pub. L. 111–203 substituted “minimis” for “minimus” in heading and “the non-audit” for “the nonaudit” in cl. (i).

2002—Subsec. (a). Pub. L. 107–204, § 205(b)(1), substituted “a registered public accounting firm” for “an independent public accountant” in introductory provisions.

Subsec. (b)(1). Pub. L. 107–204, § 205(b)(2), (4)(A), in introductory provisions, substituted “the registered public accounting firm” for “the independent public accountant” and “the firm” for “the accountant”.

Subsec. (b)(1)(B). Pub. L. 107–204, § 205(b)(4)(B), substituted “such firm” for “such accountant”.

Subsec. (b)(2). Pub. L. 107–204, § 205(b)(2), (4)(A), (B), in introductory provisions, substituted “the firm” for “the accountant”, “such firm” for “such accountant”, and “the registered public accounting firm” for “the independent public accountant” and, in concluding provisions, substituted “the registered public accounting firm” for “the independent public accountant”.

Subsec. (b)(3). Pub. L. 107–204, § 205(b)(2), substituted “the registered public accounting firm” for “the independent public accountant” wherever appearing in introductory provisions.

Subsec. (b)(4). Pub. L. 107–204, § 205(b)(1), (4)(A), (C), substituted “a registered public accounting firm” for “an independent public accountant”, “the firm” for “the accountant”, and “the report of the firm” for “the accountant’s report”.

Subsec. (c). Pub. L. 107–204, § 205(b)(3), substituted “No registered public accounting firm” for “No independent public accountant”.

Subsec. (d). Pub. L. 107–204, § 205(b)(1), (2), substituted “a registered public accounting firm” for “an independent public accountant” and “the registered public accounting firm” for “the independent public accountant”.

Subsec. (f). Pub. L. 107–204, § 205(d), substituted “Definitions” for “Definition” in heading and inserted at end “As used in this section, the term ‘issuer’ means an issuer (as defined in section 78c of this title), the securities of which are registered under section 78l of this title, or that is required to file reports pursuant to section 78o(d) of this title, or that files or has filed a registration statement that has not yet become effective under the Securities Act of 1933 (15 U.S.C. 77a et seq.), and that it has not withdrawn.”

Subsecs. (g), (h). Pub. L. 107–204, § 201(a), added subsecs. (g) and (h).

Subsec. (i). Pub. L. 107–204, § 202, added subsec. (i).

Subsec. (j). Pub. L. 107–204, § 203, added subsec. (j).

Subsec. (k). Pub. L. 107–204, § 204, added subsec. (k).

Subsec. (l). Pub. L. 107–204, § 206, added subsec. (l).

Subsec. (m). Pub. L. 107–204, § 301, added subsec. (m).

### Statutory Notes and Related Subsidiaries

### Effective Date of 2010 Amendment

Amendment by Pub. L. 111–203 effective 1 day after July 21, 2010, except as otherwise provided, see section 4 of Pub. L. 111–203, set out as an Effective Date note under section 5301 of Title 12, Banks and Banking.

### Effective Date

Pub. L. 104–67, title III, § 301(b), Dec. 22, 1995, 109 Stat. 764, provided that: “The amendment made by subsection (a) [enacting this section] shall apply to each annual report— for any period beginning on or after January 1, 1996, with respect to any registrant that is required to file selected quarterly financial data pursuant to the rules or regulations of the Securities and Exchange Commission; and for any period beginning on or after January 1, 1997, with respect to any other registrant.”

### Construction

Pub. L. 104–67, title II, § 203, Dec. 22, 1995, 109 Stat. 762, provided that: “Nothing in this Act [see Short Title of 1995 Amendment note set out under section 78a of this title] or the amendments made by this Act shall be deemed to create or ratify any implied private right of action, or to prevent the Commission, by rule or regulation, from restricting or otherwise regulating private actions under the Securities Exchange Act of 1934 [15 U.S.C. 78a et seq.].”