Advancing Audit Quality Through Balanced Regulation: Statement in Support of Supplemental Request for Comment on Proposed Amendments to QC 1000

Remarks as prepared for delivery

Good morning. Before I begin, I want to thank Barb, Jessica, Karen, Erik, and their teams for their tremendous work. Not just for the proposal before us today, but also for the years of work that brought us to this point.

Coming from a safety and soundness background, I deeply value the role of market discipline in our financial markets. I would like to see more of it. For market discipline to work, however, market participants need financial information that is accurate, relevant, and timely. Auditors play a critical role in ensuring that reliability.

I appreciate the work that has gone into both adopting the initially proposed standard and revisiting parts through this supplemental request for comment.

I want to commend past Board Members and staff, including my friends and fellow Board Members George and Steve, for their efforts relating to the 2024 QC 1000 adoption. 

But adoption was only the beginning. The implementation process has been just as important.

During that implementation phase, the PCAOB has actively engaged with stakeholders, and that engagement has been informative. That engagement has suggested that certain requirements of QC 1000 may carry costs that are not necessary to accomplish the goal of improved audit quality.  

Regulation is never free. Each new requirement, layer of documentation, or monitoring process consumes finite resources—dollars, time, and professional attention.

As an economist, I recognize that our policy choices involve both benefits and costs. I am encouraged that we are reassessing elements of QC 1000 that may have unintentionally imposed meaningful costs without a corresponding improvement in audit quality or investor protection.

Those concerns are not abstract. One concern raised repeatedly involved QC 1000’s “design‑only”¹ requirements for audit firms that do not audit US issuers or SEC-registered broker-dealers. I appreciate that the proposed change rescinds that requirement. As written, the design‑only would require those firms to invest resources in building and documenting systems on paper, but without providing meaningful benefit to investors.

Stakeholders have also raised practical concerns about other aspects of QC 1000 with real cost implications. For example, should all firms be required to use the same quality control evaluation date?

Some foreign registered firms, already operating under ISQM 1, use different evaluation dates for operational and foreign regulatory purposes. A single QC 1000 evaluation date could force firms to maintain parallel timelines, increasing compliance costs, without any clear improvement in audit quality.

More broadly, this illustrates how fragmentation in global standard setting can add cost and complexity. Alignment in PCAOB standards with those of other standard setters may be beneficial, but not if it comes at the expense of audit quality or increases risks to investors in the US capital markets.

Viewed through that lens, I believe the proposal improves alignment without sacrificing audit quality. It would allow firms to select an evaluation date that works best for them. The proposal also better aligns QC 1000 system evaluation conclusions with other quality management standards, while preserving the principles-based evaluation framework.

That said, further public comment is needed and welcomed. These requirements can affect firms of different sizes in different ways and may be implemented with varying degrees of complexity across firms. Larger firms may be able to leverage existing infrastructure and experience with quality management frameworks, while smaller firms may face greater practical challenges in operationalizing new requirements.

A lens I will regularly bring to the Board’s work is any potential impact on industry concentration. I believe a vibrant audit marketplace requires firms of all sizes.

This concern is reflected in stakeholder feedback regarding the scalability of QC 1000. Particularly the concern that smaller firms may bear a disproportionate burden. Here again, the larger firms often have the infrastructure and personnel to absorb new requirements. Smaller firms often do not. The proposed changes should help reduce regulatory burden for firms of all sizes. Robust input will also help ensure that any updates to QC 1000 appropriately balance the PCAOB’s investor protection mandate with the costs of compliance.

Our work will not stop with this supplemental request for comment. It is an ongoing process of engagement and refinement. Continued dialogue with stakeholders will be critical to ensure QC 1000 delivers practical, high‑impact outcomes.

Comments received in connection with our strategic goals highlight a compelling idea: approaching initial implementation of QC 1000 as a calibration and learning period.² This approach could help firms build effective, scalable systems. We should continue exploring this and similar ideas to promote a smooth rollout and support firms in getting implementation right from the outset.

Ultimately, all of this brings us back to a central question—Are PCAOB standards, including QC 1000, appropriately balancing the costs of regulation with the quality investors expect? Because, ultimately, those costs are borne by investors and reflected in the efficiency of our capital markets.

That is the principle that should guide us.

I believe the proposed changes to QC 1000 strike that balance, and I am pleased to support the supplemental request for comment.