Fall Investor Advisory Group Meeting – Proportionate Audit Regulation in the Best Interest of Investors

Remarks as prepared for delivery

Good morning and welcome to the Fall IAG meeting. Investors are the driving purpose behind PCAOB’s existence. As you know, Congress established the PCAOB over 20 years ago with a mission of investor protection, which I believe can best be fulfilled by improving audit quality. However, being an audit regulator is complex and challenging as audit involves judgment and is thus more than a “check the box” exercise. Judgment is a human cognitive function and regulating judgment is akin to regulating other cognitive functions like decision-making, creativity, and learning which are highly subjective areas. Therefore, regulating such areas requires deep expertise, balanced considerations of interconnectivity, and humility. I want to briefly share with you the three core principles that guide my decision-making and regulatory approach:

First, proportionate regulation. Regulations should be well-designed and proportionate to the problem we are trying to solve. Overly burdensome regulation can reduce competition, drive up costs that are ultimately borne by investors, and paradoxically harm the very audit quality we seek to protect.

Second, focus on material impacts to investor protection. Our regulatory approach must prioritize deficiencies that are material to the reliability of financial statements and the associated audit reports. Real investors want auditors to perform adequate procedures to test financial statement reliability and provide reasonable assurance on such statements. We must avoid a "check-the-box" compliance mentality that misses the bigger picture and fails to distinguish between material deficiencies and those that are not material to investor protection.

Third, promotion of innovation while avoiding regulatory overreach. The digital age demands that we embrace innovation, particularly artificial intelligence and emerging technologies that can enhance audit quality. Regulatory clarity is essential to achieving efficient, high-quality, and hopefully one day, continuous audits. We must develop standards that promote technological advancement rather than discourage it through regulatory uncertainty or punitive approaches that cause firms to fear and avoid beneficial innovations.

I am committed to ensuring that our regulations genuinely serve investors through thoughtful, proportionate oversight that enhances audit quality, while preserving the competitive, innovative environment necessary for robust capital markets. Thank you for investing your time to help us be a better regulator. Finally, I want to give a special shout out to one of our IAG members, Gina Sanchez, who participated in our Technology Innovation Alliance (TIA) Working Group Roundtable. The TIA recommendations were recently published, and I am looking forward to more discussion on the responsible use of AI and emerging technologies to promote audit quality.