Trust in the Markets: Audits, Accountability, and the PCAOB with Reflections on Metrics Disclosures and EQCF

Remarks as prepared for delivery

Good morning and thank you Allison [Drozd] for the warm introduction. It is a pleasure to be with you at the University of Nebraska at Omaha’s (UNO) 2026 Accounting Speakers Series. I want to congratulate UNO, and especially Dr. Roopa Venkatesh, the Director of the School of Accounting, on the enduring success of this speaker series. 2026 is the fifteenth year of the series and each year it has featured distinguished speakers and luminaries in the accounting, auditing, and financial reporting ecosystem. I am honored to play my part. I am also very pleased to share the stage this morning with Rich Huesken. I have known Rich for many years and have been in meetings with him in many parts of the world. I look forward to hearing his insights and perspectives.

Before I continue, I want to note that although I am here this morning 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.

Let me start by saying that this is my first time visiting Omaha. As is my custom, I performed some research and found an interesting fact: Omaha is the birthplace of the frozen TV dinner. In 1953, an Omaha company named Swanson & Sons found itself with a big problem: 260 tons of unsold Thanksgiving turkey in refrigerated railcars, with nowhere to go. While there is some debate about the origin of the inspired solution, one version is that a clever Swanson salesman, Gerry Thomas, noticed how airlines were plating meals in segmented aluminum trays for reheating, and he suggested the company do the same with its surplus turkey, adding cornbread dressing, peas, and sweet potatoes. Swanson’s TV dinners became a nationwide phenomenon, with more than 10 million sold in 1954 and more than 25 million sold in 1955.¹ 

While only a historical footnote, this story is a prime example of our free enterprise system at its most interesting – an insurmountable issue transformed through ingenuity into an opportunity – and it happened right here in Omaha. The drive to build something lasting out of resources that must be carefully counted, valued, and financed runs straight through Omaha’s history. After its 1854 founding, the city quickly became what its early boosters called the “Gateway to the West”²—a Missouri River crossing point, a terminus for the Union Pacific Railroad chartered in 1862, and, within a few decades, home to the Omaha Stockyards, which by the mid-twentieth century was the largest livestock center in the world.³ The city hosted the Trans-Mississippi Exposition in 1898, a world’s fair-style exposition that announced to the country that Omaha was a serious player in American commerce.⁴ That same spirit fueled the local companies that, with time, grew to be included in today’s Fortune 500: Mutual of Omaha, Union Pacific Railroad, Kiewit Corporation, and, of course, Berkshire Hathaway.⁵

None of that growth was inevitable. It happened because Omaha sat at the crossroads of capital and enterprise, and because generations of its business leaders understood that success and growth depend not only on raw ambition, but also on financing, and that financing requires demonstrating a basis for trust. Those enterprises that continue today grew with the assistance of something intangible but indispensable: confidence in financial information.

Capital markets are, at their core, machinery for turning savings into productive investment. An investor who commits capital to an enterprise hundreds or thousands of miles away must trust that the numbers describing that enterprise are accurate. When financial information is reliable, capital tends to be abundant and the cost of capital is low. When financial information is questionable, capital retreats, and its cost rises—sometimes exponentially. In 1933, George O. May spoke about the ethical obligations of the accountant to the investor. He observed that the investor’s confidence in a company’s results depends almost entirely on the accountant’s certification of the figures that the investor cannot verify personally.⁶

This is what the financial statement auditor provides: a basis for confidence that the financial information can be trusted. That trust, in turn, is what allowed Omaha to grow from a frontier trading post to a center of finance. Omaha’s story is, in miniature, the story of the American capital markets: honest information, faithfully reported, converted into growth.

The Value and Nobility of the Auditor

That brings me to the value—and, as I deeply believe, the nobility—of the audit profession.

Unlike many professions whose primary duty is to advance the interests of a particular client, the auditor is charged with serving the public interest. While the auditor may be engaged by a client, the auditor’s work is performed for the benefit of investors, creditors, and society more broadly. That distinction is the source of both the auditor’s particular challenge and the auditor’s nobility. That obligation to serve the public interest has been part of the identity of the profession almost since its inception. In 1946, AICPA Executive Director and frequent commenter on the role and importance of accounting, John L. Carey remarked “[i]t is the peculiar obligation of the certified public accountant…to maintain a wholly objective and impartial attitude toward the affairs of the client whose financial statements he certifies.”⁷ Mr. Carey went on to say that “[t]he certified public accountant acknowledges a moral responsibility…to be as mindful of the interests of strangers who may rely on his opinion as of the interests of the client who pays his fee.”⁸

Nobility: it is the financial statement auditor who insists on getting it right when it would be easier, faster, and often more comfortable to take a shortcut. It is the resolve of the engagement partner who tells a client the answer they do not want to hear two days before the earnings release. It is the courage of the first-year associate who flags an inconsistency in a schedule, and it is the firm-cultivated culture that instills in them the understanding that they should do so and that they will be heard and taken seriously by those above them. The financial statement auditor’s calling is to ensure the accuracy and completeness of the numbers, plainly and without compromise, even when—especially when—doing so is inconvenient, unwelcome, or costly to the auditor’s own relationship with the client.

Recent PCAOB Activity

Let me turn now to the Public Company Accounting Oversight Board and its recent activity.

I have been a PCAOB Board member since October 2023. In 2026, I have been joined by four new Board members, including a new PCAOB Chair. Chairman Logothetis is the sixth Chair in the PCAOB’s history. That is not counting individuals who served as Acting Chair; though one of those Acting Chairs, Dan Goelzer, merits special recognition for having served in the Acting role for an unusually long time – 16 months – leading the PCAOB through a challenging period of uncertainty before and following the Supreme Court’s decision addressing the PCAOB’s constitutional validity.⁹

It is worth pausing to note the degree to which a PCAOB Chair shapes the PCAOB’s direction and activity. Although not mandated by statute, the PCAOB’s by-laws give the Chair broad authority to direct the PCAOB’s staff and much of the PCAOB’s activity. The Chair charts the PCAOB’s course, both with respect to its internal workings and in the execution and modification of its regulatory activity.

Over the past several months, the newly constituted PCAOB has been very active, even beyond the steady cadence of required inspections and the ongoing work of our enforcement group.

Let me start with what is, for me, a high point of our activities each year – the naming of PCAOB Scholars. By law, any civil money penalties that we collect through our enforcement work are used to fund a merit scholarship program for undergraduate and graduate students enrolled in accounting degree programs.¹⁰ We announce new recipients every year. This July, we selected 677 students from colleges and universities across the country, including two from here at the University of Nebraska at Omaha, who will each receive $15,000 as PCAOB Scholars for this academic year. That is a $10 million investment in the pipeline of talent that will benefit the profession for decades. Since launching its Scholars Program in 2011, the PCAOB has awarded nearly $53 million in scholarships to nearly 4,300 recipients.¹¹

Turning to regulatory activity, I will start with developments in our Office of the Chief Auditor, or OCA. Two new OCA-related initiatives warrant highlighting.

First, in March, the PCAOB commenced an Audit Practitioner Fellowship Program. We select practicing auditors to come in and work on standard-setting projects in OCA for a fixed fellowship period and then return to practice.¹² We anticipate that our standard-setting work will benefit from their very recent experience executing against existing standards. At the same time, they will have the satisfaction of supporting the PCAOB’s mission, and, ideally, will develop professionally in ways that will have benefits for their future audit work and their firms.

Second, in June, OCA launched a formal Firm Consultation Process. Registered firms now have a formal, direct channel through which to seek OCA staff views on questions about the application of our standards.¹³ Auditors who confront uncertainty about the meaning or application of a standard will get timely answers through this process. On more widely shared questions, the profession on the whole will get a consistent answer.

Turning to other standards-related activity, the PCAOB has long maintained a public description of ongoing and contemplated standard-setting projects, which we refer to as the standard-setting agenda. The agenda also includes research projects to inform our thinking about potential standard-setting projects. We are in the process of updating that agenda, and this year that process included seeking public comment on what topics we should include. We received thoughtful comments from auditors, investors, academics, preparers, and others. We also solicited and received input on possible ways to improve our process for developing standards.¹⁴

On the inspections front, Chairman Logothetis has publicly discussed his thoughts on ways to revise the PCAOB’s approach to conducting and reporting on inspections. Related work has included establishing an Inspections Modernization Council, or IMC. 

After broadly soliciting interest in May, the PCAOB announced the composition of the IMC in July. The IMC consists of twelve individuals, including investors, auditors, financial executives, and academics, among others. In the interest of transparency, the PCAOB web site includes a page dedicated to the IMC. It includes materials the IMC has been creating and discussing, such as mock-ups of new approaches to inspection reports. It is important to keep in mind, though, the disclaimer that accompanies those materials – that they are solely for IMC discussion purposes.¹⁵

Regarding reconsideration of the PCAOB’s approach to conducting inspections, I want briefly to highlight a policy point that bears watching. Although the devil will be in the details, and the specific, relevant details remain to be worked out, much of the public discussion has focused on shifting the inspection process away from the longstanding approach to the number of engagements we select for review and how we select them. The contemplated alternative focuses more on a firm’s system of quality management and seems to lean toward reviewing fewer engagements, perhaps selected only on the basis of identified weaknesses in that system of quality management.

For my part, while I am all for a sharpened inspection focus on a firm’s quality management, I have reservations about moving too hastily away from our established approach to engagement reviews. Before such a decision is made, careful consideration should be given to the question of whether we would be sacrificing the element of our work that has been the single most important factor that has led auditors to make and sustain improvements in audit quality.¹⁶

Moving to other 2026 activity, the Board has been making progress toward updating its strategic plan. The Board’s practice has been to adopt and operate under five-year strategic plans. Unrelated to the turnover in four Board seats, 2026 is the year to adopt a fresh plan.

Toward that end, the Board requested public comment on what the PCAOB’s strategic priorities should be, posing seven broad questions to stakeholders. The questions centered around our registration and inspection activities, standard-setting, and the use of technology. I think it is fair to say the response exceeded our expectations. We received more than seventy comment letters from investors, auditors, audit committee members, academics, and others.

Taking those comments into account, we prepared a draft strategic plan for 2026 to 2030, and in July we solicited comments on that draft plan. The draft plan was built around three themes: advancing audit quality and investor protection; being clear and consistent about our expectations and the bases for our decisions; and transforming how we deliver oversight through investments in technology and data. The draft plan reflects recognition that effective oversight depends on how well the organization engages with the public, uses technology and data, and strengthens its own operations. With the benefit of commenters’ input, we are working toward a final plan.¹⁷

Last on this list, but certainly not least, is QC 1000, A Firm's System of Quality Control. As you may know, this new quality control standard is set to take effect on December 15 of this year. That will mark the culmination of years of deliberation, public engagement, and fine-tuning, including at a public Board meeting on Wednesday of this week. At that meeting, the Board adopted a package of amendments to the version of the standard that the Board previously adopted and the SEC previously approved but that had not yet taken effect.¹⁸

Whatever one’s views on whether the current version of QC 1000 goes far enough in all respects, it represents a significant step forward. It is not merely an updating of the quality control standards that have been in effect throughout the PCAOB’s existence. It constitutes a paradigm shift in how the PCAOB regulates firms’ quality management.

A Few Forward-Looking Thoughts: Metrics Disclosures and EQCF

Against the background of QC 1000’s imminent effectiveness, I would like to spend a few minutes looking at firms’ quality management from a different angle – what might be called an audit consumer’s-eye view of firm quality.

PCAOB efforts to drive improvement in quality management through a standard like QC 1000 can, I believe, generally be expected to lead to better quality management by firms. But no one would imagine that those efforts will lead to a world in which every firm in a particular competitive tranche – say, for example, the largest U.S. firms – can reasonably be presumed to manage quality equally as well as each other, or that any single firm can be presumed to perform all of its audits at the same level of quality.

Driving improved quality management through QC 1000 is only part of what is needed. Another part of what is needed is to get information about that quality into the hands of the people who depend upon audit services and who must choose among auditors. Our goal should be to make available to investors and audit committees information that helps them to identify differences between audit firms that are likely to bear on audit quality. For too long, consumers of audit services have been expected to accede to the idea that an audit is in essence what economists call a “credence good”— a black box into which consumers of the good cannot see.¹⁹ But it need not remain that way. It should be possible to shine enough light into the black box to create meaningfully informed consumers of audit services.

Those of you who have been paying attention to audit regulation over the past few years recognize, of course, that I am not describing a new idea. The idea goes back at least as far as the 2008 report of the Treasury Department’s Advisory Committee on the Auditing Profession, known as ACAP, which recommended that the PCAOB “determine the feasibility of developing key indicators of audit quality and effectiveness and requiring audit firms to publicly disclose these indicators.”²⁰

The ACAP report described the potential benefits of such disclosures, but it also recognized that developing the right indicators and how to measure them “could take significant PCAOB time and effort.”²¹ I know certain individuals who have long labored over the issue and would likely regard that ACAP prediction as an understatement.

The PCAOB has devoted a great deal of time and effort to this issue over the years, including soliciting comment on a concept release as early as 2015, which itself was the product of substantial time and study. Since that time, the nomenclature has shifted from “audit quality indicators” (or AQIs) to “metrics,” including two distinct categories: metrics about the firm broadly, and metrics concerning the firm’s performance of a particular engagement. Because the important question is not just what gets measured, but what gets disclosed, I will refer here to “metrics disclosures.”

As an aside, it occurs to me now to wonder whether the right label is something more like “ingredients.” I have in mind how a consumer’s regard for their own well-being leads them to compare competing brands of food products – say, frozen TV dinners – by considering the ingredients and nutrition details rather than just the packaging and the price. And they would do that with awareness of evidence indicating, for example, a consequential difference between consuming 300 milligrams of sodium and consuming 1,300 milligrams of sodium. Audit committees and investors should likewise be able to compare audit service providers by considering how the “ingredients” of their services differ from each other’s.

In any event, you might also know that the PCAOB’s years of effort led us, in 2024, to adopt a rule requiring firms to disclose certain firm metrics and engagement metrics.²² Although the Board eventually withdrew its request for SEC approval of that rule in early 2025, that withdrawal did not mark the end of the possibility of such a rule.

And it is clear that interested parties have not interpreted that withdrawal as marking the end of that possibility. In fact, among the comment letters that we have received this year, both with respect to our standard-setting agenda and with respect to our strategic priorities, several urge that we continue our work toward identifying relevant metrics, at both the firm level and the engagement level, and require disclosure.

I supported the PCAOB’s 2024 adoption of the metrics disclosure rule,²³ and I continue to believe that the PCAOB’s statutory mission would be greatly advanced by continuing to work toward identifying the right metrics and requiring their disclosure.

Regarding that undertaking, I think it is important to be clear about the philosophical underpinning. Any PCAOB rulemaking project should have a plain connection to the PCAOB’s statutory mission. That mission is to “protect the interests of investors, and the public interest, in the preparation of informative, accurate, and independent audit reports,”²⁴ including by taking appropriate steps “to improve the quality of audit services.”²⁵

In my view, for a disclosure requirement to meet that test, it must be more than just a response to a broad desire for access to information, whether on the part of investor groups, academics, or others. The connection to the statutory mission is clear, though, with respect to disclosure of data that there is sufficient reason to believe is relevant to assessing the likely quality of a firm’s audit services.

In other words, the point is not disclosure for the sake of disclosure. Rather, the point is to unleash old-fashioned capitalism by revealing information that is meaningful to the relevant market. Mandating public disclosure of relevant data will cause business to flow toward firms with better metrics. That, in turn, will incentivize firms to work toward metrics that the market rewards, and those metrics should correlate to improved audit quality.

To be clear, I do not pretend that I am describing fundamentally new insights here. What I am describing, in addition to being my view, is the essence of the reasoning at the core of the PCAOB’s 2024 adoption of metrics disclosure requirements, and at the core of the related ACAP recommendation.

I believe the objective remains very worthy of the PCAOB’s attention. Reasonable people could disagree about aspects of the rule the Board adopted and then withdrew. But the tremendous amount, and the high quality, of effort and public engagement that led to that adoption remains relevant. I hope that we will be able to pick it back up in the near future and attempt to address concerns about aspects of the previously adopted rule that may be reasonably resolvable.

Related to that, at least one of those concerns might well be viewed now as overtaken by events. Specifically, reasons articulated for opposition to the rule included a concern that the Board was adopting new rules and standards in such volume, and at such speed, that the burden on firms of trying to keep up could actually begin to contribute to a reduction in audit quality.²⁶ Whatever might be said of that argument at the time, it cannot fairly be argued that it applies now.

If I try to maintain a “glass half full” perspective on it, I can see upsides to having an opportunity to revisit and improve the rule now. The landscape has evolved in ways that we should consider in connection with metrics disclosures. 

For one thing, it may be useful to consider whether there are disclosure metrics that would be uniquely useful with respect to firms that have accepted private equity investments. More and more accounting firms, including long-established traditional partnerships, have been restructuring their operations to accommodate the hard-to-ignore appeal of an injection of private equity capital. It remains too soon to tell whether they can – as I am confident they all intend – navigate the related economic pressures over time without cutting corners in ways that put audit quality at risk.

A former auditor who is now an academic recently said to me that with an audit there can be only one decision point that is a business decision, and that is the decision whether to accept (or continue) the engagement. All other decision points must be governed by the objective of audit quality, whatever the business consequences. I could not agree more. And I hope that firms that restructure to accommodate private equity infusions will hold fast to that principle. But I believe there is good reason for the PCAOB to focus on whether there are disclosures specific to this category of firms that would help the market spot developments that could portend a risk to audit quality.

In addition, because of the increasing use of artificial intelligence in performing audits, we may want to reconsider our 2024 judgment not to include a metric related to the use of technical resources.²⁷ Especially when it comes to AI, if it is true, as is often said, that change is the only constant, then we are living through the most constant time ever. The 2024 release cited a 2021 academic article titled The Robots are Coming…But Aren’t Here Yet: The Use of Artificial Intelligence Technologies in the Public Accounting Profession.²⁸ But in 2026, we see evidence of small accounting firms undertaking to compete through innovation by attempting to build their whole audit operation around artificial intelligence.

More generally, I note that while ample academic research informed our deliberation before our 2024 rule adoption, relevant, fresh academic literature continues to appear.²⁹ Another look at a metrics disclosure rule will have the benefit of that more recent work. And on that note, let me pause here to sound a call for the academic community to continue to pursue research on this topic. My personal view is that the rationale for some version of a metrics disclosure rule is too compelling to imagine that the idea will simply fall by the wayside. At some point, the momentum for it will be irresistible, and the rulemaking process – and the financial reporting ecosystem – will be better off in direct proportion to the volume of relevant, high-quality academic research.

In addition, for academics here today or who later read these remarks, I want to suggest the possible relevance of another area of inquiry that was not addressed in the 2024 rule. It is fresh on my mind because two days ago, and to my disappointment, the PCAOB rescinded the QC 1000 requirement for larger firms to have an “External Quality Control Function,” or EQCF. That requirement called for a firm to incorporate into its governance structure one or more persons who have no other ties to the firm and who would, at a minimum, evaluate the significant judgments made and the related conclusions reached by the firm when evaluating and reporting on the effectiveness of its quality control system.

As I said at Wednesday’s open Board meeting, I do not view the rescission of that provision as a death knell for the possibility of some form of such a requirement. I do not understand that rescission to reflect categorical rejection of the concept but, rather, to rest essentially on doubt about the potential benefit of the rescinded requirement “[a]s designed.” But, as I also said, I take seriously the possibility that the specifics of a requirement could benefit from additional public debate and dialogue.³⁰ 

I would like to encourage academic consideration of that issue on two dimensions. First, it could be very helpful to have research that explores the relationship between realistic aspirations for the benefits of such a requirement – which would contribute to designing the requirement – and the costs that would be entailed. Second, even apart from the possible PCAOB imposition of such a requirement, it could be helpful to have research that explores the possible value of a related metrics disclosure. Would the market for audit services benefit, for example, from a firm’s disclosure of whether its system of quality management incorporates any role for persons who are independent of the firm? If so, would the market benefit from disclosure of some level of summary information regarding their relevant activity and contribution during the reporting period?

Conclusion

In conclusion, I want to thank you for your attention and the opportunity to be with you this morning. I welcome any questions and comments you may have in our remaining time.