Confidence in the Capital Markets: The Role of Audit Oversight

Remarks as prepared for delivery 

Good morning and thank you, Veronica [Callahan], for the invitation and warm introduction. It is a pleasure to be with you and Junaid [Zubairi] again this year. The annual Accountant’s Liability Conference is an influential event due to its timely and thought-provoking topics that generate rich dialogue. This year’s conference continues that tradition, and I am always pleased to be able to lend my voice to the discussion.

It is also good to see a number of familiar faces in attendance. I know that many of you count among your clients accounting firms that are registered with the PCAOB, whether you serve as in-house counsel; serve as outside counsel, including on regulatory matters; or advise on risk management, compliance, and governance. The PCAOB’s regulatory activity affects your clients, and your understanding of our activity is important to your ability to serve them.

This morning I will share a few thoughts about the PCAOB’s regulatory activities and then look forward to a fireside chat with you, Veronica, and taking your questions.

Before I continue, I want to note that although I am here today in my official capacity as a PCAOB Board member, the views I express are my own and do not necessarily reflect the views of the full Board, my fellow Board members, or the PCAOB’s dedicated staff.

I also want to recognize that later this morning my colleagues – Christine Gunia and Tim Sikes from the Division of Registration and Inspections and Kathleen McGovern from the Division of Enforcement and Investigations will share their views on the PCAOB’s work. One of the rewards of being at the PCAOB is the opportunity to work with experienced, knowledgeable, and highly dedicated professionals, and you will hear from some of our finest this morning.

Speaking of knowledgeable and dedicated professionals, I want to start with a word about financial statement auditors. The work of the financial statement auditor is, I truly believe, special and, indeed, noble. Although the auditor interacts with the audit committee that administers the engagement and the public company that is being audited, the auditor performs the audit in the service of an important greater good.

The value that the financial statement auditor provides to investors and other financial statement users is indispensable to the trust and confidence necessary to healthy capital markets. Part of what brings us together at an event like this conference is recognition of the importance of that work to the financial reporting ecosystem, in which we all have a role.

I believe, and I hope you all agree, that the PCAOB serves a valuable role in that ecosystem. So let me turn now to a brief update on some of the PCAOB’s activity and its direction.

Three new Board members have been in place for about three months, and a fourth new Board member has been named but has not yet joined us. The strategic plan that the PCAOB adopted in 2022 was designed to run through 2026, so we are working on developing a new strategic plan that will shape our priorities over the next several years. We have requested public comment on what those priorities should be. If you have thoughts, you still have a few hours to submit a comment – which can be a simple as an email – before tonight’s comment deadline.

Our standard-setting work continues. Recently, the staff in our Office of the Chief Auditor published an updated standard-setting agenda that highlights two topics. One of those is the continuation of ongoing research on whether there is a need for guidance, changes to PCAOB standards, or other regulatory actions in light of the increased use of technology-based tools by auditors and preparers, a topic that merits our keen, and constant, attention.

The other item on the agenda relates to QC 1000, A Firm’s System of Quality Control, which we adopted, and the SEC approved, in 2024, and is scheduled to take effect later this year. We have heard from firms about complexities encountered in preparing to implement QC 1000, and the standard-setting agenda reflects an expectation that we will, this year, issue a supplemental request for comment to consider targeted changes to the standard. I remain committed to the core tenets of QC 1000, and I look forward to hearing from stakeholders on their views.

One other note regarding standard-setting: our request for comment on strategic priorities includes a request specifically for thoughts on other matters that we should consider adding to the standard-setting agenda. I am especially interested in whether stakeholders believe that additional research on Critical Audit Matters (CAMs) requirements is warranted and whether the PCAOB should issue guidance or standards on the use of service organizations – two topics that I frequently hear about in my outreach with stakeholders. Another area that I am interested in hearing views on is whether the PCAOB should undertake a standard setting project to consider enhancing the auditor’s responsibility for fraud detection.

Moving from standard-setting to rulemaking, and shifting the focus to our inspection activity, we have publicly described our expectation that in 2026 we will propose rules for a permanent program of inspection of broker-dealer auditors. As many of you know, the authority to inspect broker-dealer auditors was not part of the original Sarbanes-Oxley Act in 2002 (Act), but it was added to the Act as part of the Dodd-Frank amendments in 2010.¹ The PCAOB promptly implemented an interim broker-dealer auditor inspection program in 2011. In doing so, the Board deferred to a later date the issue of whether and how to use its statutory discretion to exempt auditors of non-carrying brokers and dealers from an inspection program. My fellow Board member Mark Calabria has spoken about this,² and I share his view that it is time to move forward to decide that question and put in place a permanent program.

Our existing program of inspection of public company auditors continues to meet the demands and expectations set out in the Act. During 2025, we inspected more than 200 registered accounting firms, 70 of which are in non-U.S. jurisdictions, including mainland China and Hong Kong. As part of those inspections, we reviewed portions of more than 880 audit engagements, including more than 200 at the inspected non-U.S. firms.

Over the past two decades, our inspections – through the regular review of such individual audit engagements and the regular evaluation of firms’ systems of quality control – have propelled improvements in audit quality, a point that I believe is widely acknowledged. Just recently, I was in a meeting with several audit committee members who expressed their views that the PCAOB’s inspection activities have led to improvements in audit quality.

Looking forward, consideration is being given to shifting our inspection process more towards the review of a firm’s system of quality control, corroborated by engagement-level reviews targeted for that potentially narrow purpose, with the idea that doing so may provide the PCAOB with more relevant information about audit quality.

I fully support a heightened inspection focus on quality control, particularly as our new quality control standard, QC 1000, comes into effect. At the same time, I would be hesitant to move entirely away from our existing approach to engagement selection and reviews without first considering whether that may be the aspect of our inspections that has been the biggest driver of improvements to audit quality.³

Finally, our enforcement program remains active and, in my view, a vital part of the PCAOB’s mission of protecting the interests of the investing public. That work is carried out by an incredibly talented group of attorneys and accountants dedicated to the public interest and the protection of investors. I want also to note that, as with our inspections, an important component of that work is carried out with respect to firms and individuals around the world, frequently pursuant to standing cooperative arrangements negotiated through the extensive efforts of our Office of International Affairs.

To conclude this portion of my remarks, before moving to the fireside chat with Veronica, let me just circle back to where I started. It is truly a pleasure and a privilege to be with you today. I appreciate the important role that all of you play in relation to our financial reporting ecosystem, and I look forward with confidence that the PCAOB will continue to make its unique and essential contribution to that ecosystem. And with that, I turn back to you, Veronica.