Earlier Stakeholder Engagement in Standard-Setting

Remarks as prepared for delivery 

Thank you, Mr. Chairman.

I want to welcome and thank all of you, particularly the new members of the SEIAG.  Some of you have traveled far to be here today, and all of you have set aside other obligations to help advise the PCAOB in fulfilling its mission. 

The PCAOB has a new Chairman and new Board Members, including me, whom I believe are open to changing the way we do things to improve audit quality and thereby protect investors.  In my experience, positive change often begins with an exchange of ideas, sometimes while they are still in the formative stage, because discussing ideas usually helps make them better.  That is one benefit of meeting with you in person.  I expect to hear important perspectives that will help shape my thinking about the PCAOB’s future. 

The PCAOB has asked the public to comment on our strategic priorities.  One particularly relevant question for this group is, “What standard setting projects should the PCAOB pursue?”  I look forward to reading SEIAG’s consensus recommendations on that question.

I’ve also been thinking about how the PCAOB sets its standards; specifically, how we engage with stakeholders while a standard is being developed.  We know that engaging with stakeholders helps make our standards better, so how can we better engage with stakeholders?

There are many different ways the PCAOB can improve its stakeholder engagement, particularly when it comes to standard-setting.  And I have been thinking about how the PCAOB can engage earlier with stakeholders before we publish proposed standards for comment.  My idea, which does not necessarily reflect the views of the PCAOB Board, other Board Members, or PCAOB staff, is as follows.  The PCAOB could convene a small stakeholder working group of 10-12 individuals – many of whom could be SEIAG members - that meet with our standard-setting staff in the Office of the Chief Auditor to review and discuss draft text.  This small, dynamic stakeholder group would include firms and investors and would advise whether the draft standards: (1) are workable; (2) would improve audit quality and thereby protect investors; or (3) require revisions either to be workable or to improve audit quality.  By involving stakeholders early in the standard-formulation process, the proposed standards we publish for public comment would hopefully be more refined, requiring fewer changes after affording the full complement of stakeholders an opportunity to comment. 

Now, no ideas are ever perfect and there are potential drawbacks to this idea.  For example, this front-end stakeholder engagement might not shorten the time between soliciting public comment and the adoption of the standard.  To put it another way, we don’t want to slow down standard-setting with a lot of additional processes that do not prove to be efficient or effective.  But we could mitigate this risk by taking this approach on a pilot basis, for a single standard setting project.  And while there may be better ideas out there, it is important to start thinking about how to improve our process for stakeholder engagement in the formulation of standards by asking, “What if we did this . . . .”  As Chairman Logothetis said recently in different context, “[i]t is a new day for the PCAOB, but it is not a new mission.  What must evolve is how we carry out that mission. . . .”

So, let’s think creatively and act nimbly in finding efficient and effective ways to increase stakeholder engagement when it comes to standard-setting.

Thank you.