Chair Williams: Work of Protecting Investors Requires Communication and Cooperation

Remarks as prepared for delivery

Public Company Accounting Oversight Board (PCAOB) Chair Erica Y. Williams delivered the following remarks today at the 2023 PCAOB International Institute on Audit Regulation.

Thank you, [Olu Oluwole].

Good morning, everyone.

It’s my privilege to welcome you to our 15th International Institute on Audit Regulation. It is wonderful to be back in person with you for the second year in a row.

We know your time is valuable and we are truly grateful to you for making time to meet and exchange ideas face-to-face.

Thank you for coming.

I also want to thank our incredible PCAOB staff who work so hard to put this event together and the staff here at the National Housing Center for their support.

Before we begin, I must start with the standard disclaimer that the views that I express here are my own and not necessarily the views of the other Board Members or the talented PCAOB staff.

Looking around the room, I see nearly 90 officials from audit regulators in 35 jurisdictions from around the world with us, as well as representatives from several international organizations.

We are all united by a common mission to protect investors around the world – because audit quality protects people, from people saving for their families’ futures, to workers getting jobs because companies can raise money to fund growth through sound, liquid capital markets.

In a global economy, the work of protecting investors does not stop at our borders. Oversight of multinational companies and cross-border audits requires communication and cooperation.

In 2023, we will have inspected more than 60 non-U.S. firms covering more than 200 engagements.

Your cooperation makes much of that work possible. Thank you for your partnership.

Today, our work together is more important than ever, as we are seeing audit quality for both domestic and international firms trend in the wrong direction for the second year in a row.

When inspection reports are finalized later this year, PCAOB inspectors expect that approximately 40% of the audits they reviewed in 2022 will have had one or more deficiencies where the audit firm failed to obtain sufficient appropriate evidence to support its opinion.

That is up 6 percentage points from 2021, which was already 5 points higher than the deficiency rate in 2020.

This means audit opinions were signed without completing the audit work required to verify the accuracy of the financial statements. That is a serious problem at any rate, and 40% is completely unacceptable.

I have challenged auditors to sharpen their focus.

Some firms point to the continuing effects of COVID-19, including the great resignation and heightened competition for talent.

Three years after the pandemic began, these challenges are no longer new, and firms should have a strategy to meet them.

COVID-19 can’t simply explain away a 40% deficiency rate. Many of the deficiencies PCAOB inspectors identified have recurred for years, well before the pandemic.

Now is the time for solutions, not excuses. Firms must correct the problems that led to deficiencies in their audits.

At the PCAOB, one of the most powerful tools we have to improve audit quality is transparency. Sharing our inspection results empowers members of audit committees and boards of directors and investors to hold audit firms accountable directly.

And there is no substitute for the role engaged and informed audit committees play when it comes to maintaining and improving audit quality. They are the gatekeepers on the ground, vetting and hiring auditors, and overseeing their work.

So, we are working to arm them with even more information.

In May, we announced enhancements to make our inspection reports more transparent with a new section on auditor independence and a range of other improvements to make more relevant, reliable, and useful information available for investors, researchers, and others.

In July, we rolled out new features on our website to help users compare inspection report data.

And we are calling on audit committees to use this and all the information available through PCAOB inspection reports to ask tough questions on behalf of their investors and hold audit firms accountable for high-quality results.

At the same time, we are continuing our work to hold bad actors accountable through strong enforcement.

We are making sanctions count. We are expanding how we identify cases. And we are expanding the types of cases we are pursuing.

Last year, we imposed the highest penalties in PCAOB history against those who put investors at risk.

With less than two months to go in 2023, our total penalties are already higher than the total penalties in each of the five years before our record-breaking year in 2022.

That doesn’t happen in isolation.

Just this year, the Board has sanctioned 10 non-U.S. audit firms and two associated persons in nine jurisdictions for violations of PCAOB standards and rules.

Many of those matters involved PCAOB-registered firms located in countries where the PCAOB and the home-country audit regulator have entered into cooperative arrangements and where PCAOB enforcement staff coordinated with our non-U.S. counterparts.

By working together, our impact on audit quality goes further.

Over the next two days, we will discuss the inspections and enforcement work happening around the world.

We will talk about the importance of outreach to stakeholders, like audit committees and investors.

We will discuss how macroeconomic trends and evolving technology impact audit quality.

And we will have the opportunity to hear from some wonderful speakers.

We will share knowledge and ideas and work together to multiply our impact for investors.

Because they are why we are here.

So, I’d like to kick off this year’s institute by sharing a quote I think of often.

It is from U.S. Senator Paul Sarbanes, who co-authored the legislation that created the PCAOB more than 20 years ago.

“If you don’t protect the interests of the investors, it deals a major blow to the workings of the economic system,” he said. “Investors, after all, make the whole thing work.”

With that, I would love to welcome my fellow Board Members to the stage to join me in a conversation. 

*****

About the PCAOB

The PCAOB is a nonprofit corporation established by Congress to oversee the audits of public companies in order to protect investors and further the public interest in the preparation of informative, accurate, and independent audit reports. The PCAOB also oversees the audits of brokers and dealers registered with the Securities and Exchange Commission, including compliance reports filed pursuant to federal securities laws.

Contact

PCAOB Office of Communications and Engagement
[email protected]