Inviting Broader Stakeholder Perspectives on Proposed Amendments to QC 1000, A Firm’s System of Quality Control

Remarks as prepared for delivery

Good morning and thank you, Chairman Logothetis.

I am supportive of the Supplemental Request for Comment on Proposed Amendments Related to QC 1000, A Firm’s System of Quality Control.

A robust system of quality control is essential for a registered accounting firm to consistently perform quality financial statement audits. Not only do investors and other financial statement users rely on auditors to perform individual audit engagements in accordance with applicable standards and rules, but they also expect auditors to operate within a firmwide system that promotes integrity, objectivity, competence, consistency, independence, and accountability. Recently, we have seen significant evolution in the accounting profession impacting firms’ systems of quality control. Examples include changing firm ownership structures, expanding numbers of firm mergers and acquisitions, accelerating implementation of advanced technologies including artificial intelligence, and increasing interconnectedness of global audit networks. These changes, in my view, underscore the need for the PCAOB to provide a robust quality control framework.

Journey to QC 1000

QC 1000, A Firm’s System of Quality Control, (QC 1000), reflects years of work and outreach by the Board and staff. That work originated with the concept release in December 2019, and continued with the proposal issued in November 2022, which generated substantial public comment followed by careful analysis by the Board and staff. It culminated in the Board’s adoption of QC 1000 in May 2024.

Since its adoption, however, firms have identified various implementation challenges. We learned of these challenges through outreach with firms, during QC 1000 implementation workshops hosted throughout 2025 by staff from our Office of the Chief Auditor, as well as from the staff’s interaction with members of the Smaller Firm Resource Group.

In addition to feedback from those activities, in a July 2025 letter,¹ the Center for Audit Quality (CAQ) urged the PCAOB to defer the effective date of QC 1000 and encouraged the PCAOB to gather input on whether targeted amendments to QC 1000 would enhance the scalability of the standard and address unintended consequences. In August 2025, the Board deferred the effective date of QC 1000 by one year to December 15, 2026.

I encourage the full range of stakeholders within the financial reporting ecosystem to provide input on this Supplemental Request for Comment. I am eager to hear from investors, audit committee members, firms, preparers, and the academic community. These proposed revisions, together with the related questions, are consequential, and we will benefit from broad public comment.

While the Supplemental Request for Comment identifies nine areas with proposed amendments, I want to highlight and provide a few thoughts on two proposed areas of change. These two areas are the external QC function (EQCF) and roles and responsibilities.

External QC Function

I will begin with the proposal to rescind the requirement for firms that issue audit reports for more than 100 issuers in a calendar year to have an EQCF. The Supplemental Request for Comment proposes to eliminate the EQCF requirement altogether. In my view, that is not a minor adjustment. It raises a significant question about whether those firms that have the greatest reach in our capital markets should be subject to a structural form of independent external oversight within their quality control framework.

It is worth briefly mentioning some history. The 2019 concept release used International Standard on Quality Management (ISQM) 1² as a baseline, but the PCAOB expressly considered whether it should go further to incorporate governance measures tailored to the needs of the U.S. capital markets. One part of that effort involved independent oversight mechanisms—outside perspectives that could help mitigate the commercial pressures and structural conflicts that can arise within firms. We received comments supporting a structural, independent oversight layer. In the proposal, that concept took form as a requirement to incorporate an oversight function containing at least one independent person. At adoption, that approach evolved into EQCF.

The notion of involving independent individuals in firm governance roles goes back at least to the 2008 final report of the U.S. Treasury Department’s Advisory Committee on the Auditing Profession (ACAP report),³ which recommended that the PCAOB explore the possibility of firms giving independent individuals full voting power on boards with meaningful governance responsibilities. In my view, independent external perspectives can strengthen trust in governance, reinforce accountability, and support a sustained commitment to quality.

At the same time, I do not approach this issue from a rigid perspective. The Supplemental Request for Comment reflects information suggesting that implementation of the EQCF requirement may be more difficult and more costly than originally anticipated; I take those concerns seriously. But I do not believe we should lose sight of what could be lost by rescinding the EQCF requirement entirely. For the largest firms, the quality control system is not simply an internal compliance mechanism. It is part of the architecture that supports confidence in the audit reports on which our capital markets depend.

The question, in my view, is whether we can calibrate this requirement in a way that preserves the benefits of independent external input where those benefits matter most. The Supplemental Request for Comment asks commenters to consider and address, as an alternative to eliminating the EQCF requirement, applying it only to firms that issue audit reports for more than 500 issuers. Applying that threshold would currently include five firms that audit issuers that comprise approximately 98% of U.S. public market capitalization.⁴ I am keenly interested in receiving public comments from all stakeholders on both the proposed rescission and the alternative targeted application of the requirement.

Roles and Responsibilities

The second area on which I am eager to solicit feedback relates to changes to the standard on roles and responsibilities. I am sympathetic to the feedback we have received about the complexities of implementing the original requirement, particularly where the most qualified individuals to fill these roles may be from another network member firm or an associated entity.

Similar to my thoughts on EQCF, however, I believe we should carefully explore whether applying the existing requirements to a more targeted category of firms would be preferable to revising the requirements as described in the Supplemental Request for Comment. I understand the primary operational concern raised to date is that certain firms, predominantly non-U.S. network firms, must broaden the pool of individuals possessing the appropriate experience, competence, and authority to perform these specified roles. I question, however, whether any similar concerns warrant these proposed changes for firms that issue audit reports for more than 100 issuers. Although my preliminary assessment is that these firms have access to skilled personnel and resources to continue to apply the requirements as adopted, I look forward to considering feedback from commenters.

Conclusion

In conclusion, I am mindful that I am the only current Board member who voted on the adoption of QC 1000. That background helps form my views about these proposed changes. I supported the adoption of QC 1000 because I believed—and continue to believe—that a robust quality control framework is essential to protecting investors and advancing the public interest. At the same time, I believe it is appropriate to revisit particular provisions if feedback suggests that certain features may be more prescriptive than necessary or that a more tailored approach could better achieve our regulatory objectives.

Finally, I want to acknowledge the significant effort our staff expended to develop this Supplemental Request for Comment on a compressed timeframe. I extend my deep gratitude to Barb Vanich, Jessica Watts, Karen Wiedemann, Ekaterina Dizna, Linnette Klinedinst, Schuyler Simms, David Ellam, Carla Del Monico, and Kevin Lombardi in the Office of the Chief Auditor; Erik Durbin, Nick Galunic, Zoey Xie, Harsha Samaraweera, Kelly Poy, Matt Hodge, John Cook, and Shayna Vereen in the Office of Economic and Risk Analysis; and to Matt Goldin, Drew Dropkin, and Jennifer Gurzenski in the Office of General Counsel for their hard work and dedication to bring this document before us today.