2025 PCAOB Small Business and Broker-Dealer Forum Board Member Thompson's Opening Remarks

Remarks as prepared for delivery

Good morning, everyone. I would like to welcome all participants, both in-person and online, to the PCAOB’s third in-person forum of the 2025 series here in Irving, TX. This Board has kept its promise to continue stakeholder outreach efforts, including through these Forums. The 2025 Forum series has included Board member visits to New Jersey in May 2025 and Chicago in April 2025. In March 2025, there was a Forum in Miami, which was a carryover from the 2024 series because of certain weather conditions last year. All to say that we value these engagements and appreciate your participation.

I will start by saying that the views I express here today are my own, and do not necessarily reflect the views of the PCAOB Board, individual Board Members, or any other members of the staff.

This is the fourth year that I have hosted a Forum. I find them to be energizing, and they reflect my commitment and the Board’s commitment to sharing insights and perspectives from our oversight activities with firms that audit smaller public companies and SEC-registered broker-dealers.

I believe that direct engagement with firms enables the PCAOB to be a more effective regulator. It is important for us to gain first-hand accounts about the impact of our regulatory actions to evaluate how we can continue to drive better audit quality. Based on registration information that I have obtained, it appears that we have approximately 180 non-PCAOB registrants, with registrants from approximately 48 separate PCAOB registered firms and 15 broker-dealer only firms, along with representatives from the AICPA, the SEC, various issuers, academia, and more.  I hope that today’s Forum will be a mutually enriching experience.

Many of you may not know that I am a father of two, a grandfather of two, and an uncle to many nieces and nephews. Because of that, over the course of my life, I have spent many a Saturday at youth sporting events, whether it was soccer, track, or basketball. One of the things that has struck me when attending these events is how passionate some kids are about their sport and their team. The passionate kids are easy to spot: they often don’t want to leave the field, or they might have the dirtiest uniform, or they anxiously bounce around waiting for their turn to get into the game, or they can’t wait for the next practice so that they can improve their results for the next matchup.  Passion brings them to the field or the court, and it drives them to improve. Being passionate is the start. Progress comes when they take steps to improve, including studying the rules of the game, regularly practicing, and working with coaches and mentors. When a player combines passion with disciplined skills development, it often yields improved results.

In my professional life, I have seen how passion coupled with disciplined development of technical skills accelerates progress. Since the start of my professional life as a young accounting and finance officer in the Air Force, I have been in mission-related roles. And, having spent decades in leadership positions in the military and in government service, I can identify when passion and technical expertise combine to drive results. I see it reflected in the care one takes to complete their work before that work is transmitted onward; I see it reflected in the questions one asks in meetings, evidencing their engagement and dedication; and I see it when one strives to deepen their knowledge and understanding to become a more effective contributor. Progress requires execution of expert capabilities to drive better outcomes.

When I joined the PCAOB Board in January of 2022, it was critical for me to understand the underpinnings of our regulatory activities. I knew, for example, that merely sitting at my desk reviewing inspection reports and recommendations from the PCAOB staff was not going to be enough. It was incumbent upon me to understand our process, its rigor, and the players. I needed to get out to the field and observe the players up close. With that in mind, I set out to observe our inspections program; thus far, I have observed a global network firm inspection, a non-affiliate firm inspection, a broker dealer inspection, and a non-U.S. firm inspection. From my observations, I was able to glean valuable insights about how we pursue our mission. Our inspectors are earnest about protecting investors and seek to conduct their procedures with care and professionalism. I also observed auditors that were earnest about demonstrating how they were executing their gatekeeping role. During those field observations, I witnessed constructive interactions, respectful exchanges, and extensive deliberations.

The inspections process is iterative. Firms are given opportunities to demonstrate to our inspectors the rigor in their audit work, the rationale for their professional judgments, and the steps taken to improve their QC systems through remediation. These iterative engagements are essential to advancing audit quality.

Investors in our capital markets are better protected when audits are executed in accordance with PCAOB standards. I know that is your goal; it is part of the reason that you are here today, it is why you share your perspectives and comments with us, the SEC, and advocacy groups, and it is why some of you volunteer your time to sit on PCAOB advisory groups.   

Auditors of smaller public companies and broker-dealers have a vital role in our capital markets. As such, it is incumbent upon the PCAOB to devise resources and tools that enhance their expertise in applying PCAOB rules and standards.

The Board’s oversight activities suggest that there is more we can do to help firms execute their gatekeeping function. I would like to highlight three ways in which we are doing just that: First we are providing additional time for the effective implementation of QC 1000. Secondly, the PCAOB is issuing more staff publications with a focus on firms that audit smaller public companies and broker dealers. And third, the PCAOB recently created a Smaller Firm Resource Group. Let me expand on these three points.

Probably by now, you are all aware that the Board has deferred the effective date for QC 1000 from December 15, 2025, to December 15, 2026. QC 1000 is one of, if not, the most pivotal standards that the PCAOB Board has adopted in a long time. Among other things, it enhances our risk assessment requirements and increases accountability for firm governance.

I continue to believe, as I noted in my public statement¹ when the PCAOB adopted QC 1000, that a firm’s robust and effective QC system is fundamental to it producing high-quality audits consistently. We have seen through our oversight activities that when firms, both large and small, have a strong QC system it positively impacts the quality of audits performed by the firm.

Last year at the New Jersey Small Business and Broker-Dealer Forum², I reflected on the long history of this standard-setting project. The PCAOB has, in fact, dedicated more than a decade to this standard-setting project and ensured that there were numerous opportunities for stakeholder input. That input informed the QC standard that the Board adopted in 2024 and that the SEC subsequently approved also in 2024. The standard, as adopted, is risk-based to allow for scalability for all firms.

During the course of this year, we were informed that some firms were well on their way to implementing QC 1000, and others had encountered some challenges. While some firms have benefited from implementing ISQM1, which has similarities to QC 1000, other firms are much earlier in the process of implementing the risk-based requirements. Given the challenges we learned of, particularly for smaller firms, we delayed the effective date of the standard to provide firms with an additional year to tackle the challenges.

Effective implementation is the goal. I am optimistic that the additional time facilitates effective compliance across all firms by the new effectiveness date. Given the significance of this standard, our staff has published numerous resources on our website to assist firms in their implementation efforts. I encourage firms to contact our staff with questions and suggestions for additional implementation resources that could be helpful.

For those firms who were on track to implement QC 1000 by December 15, 2025, its originally announced effective date, I encourage those firms to consider electing to comply with the requirements of QC 1000 before the effective date, except as to reporting to the PCAOB on the evaluation of the quality control system. Those firms should stay on course and not let their foot off the gas. A strong QC system leads to better audit outcomes. Investors in our capital markets deserve the added protection that QC 1000 will provide.

Second, the staff is issuing more publications geared toward auditors of smaller public companies and broker dealers. We want firms to build on their audit successes and to progress in areas where they may have fallen short. A central way that we can drive audit quality is by sharing insights into our regulatory activities on a regular basis.

Improved audit quality is not a sprint; it takes continuous monitoring and at times adjustments to processes that yield better results. Investors rely on auditors to execute their audits faithfully and effectively. Auditors rely on us to increase their awareness and understanding of audit requirements. To be fair and consistent, I strongly believe that where there is complexity or confusion, we should bring clarity; and where there is challenge, we should encourage conversation and cooperation.

In the past few years, the PCAOB staff has prioritized issuing Spotlight publications that highlight specific inspection focus areas, which summarize PCAOB inspections results and good practices, and that outline PCAOB inspection priorities for the coming year. Additionally, late last year, the staff launched its Audit Focus series, which was developed with auditors of smaller public companies in mind. This series focuses on areas where we continue to identify deficiencies, but also good practices. This ensures we highlight not just areas of concern, but also what is working well in audits.

The staff has already covered six topics in this series, including critical audit matters, journal entries, and auditing accounting estimates. And just last week, the staff published the first installation of a new series focused on broker dealer audits: Broker Dealer Audit Focus, with a focus on deficiencies related to review procedures required by Attestations Standard No. 2. We want to hear from you. Tell us whether these resources are beneficial or your ideas for improvement. And tell us whether there are topics you would like the staff to address to drive continuous improvement of audit procedures.

Lastly, the PCAOB has established a Smaller Firm Resource Group.

For much of its history, the PCAOB has relied on its advisory groups to provide insight and perspective on certain regulatory activities. While we have had smaller firm representatives in our Investor Advisory Group and our Standards and Emerging Issues Advisory Group, there was a need to reach more firms from this segment of firms. As such, this summer, the Board announced the establishment of the Smaller Firm Resource Group. Comprised of twelve individuals who have volunteered their time, the Group includes representatives from a range of smaller firms that audit public companies and broker-dealers.

I anticipate that the Smaller Firm Resource Group will provide our staff with greater perspective on the practical application of our rules and standards, including how we can make them scalable for smaller firms. I hope that the Group will also share any challenges or obstacles they encounter in implementing requirements under our rules and standards.

It goes without saying that the PCAOB’s investor protection mandate encompasses investors who rely on financial information that is audited by smaller firms. As such, forming the SFRG made a lot of sense. It is critical for the PCAOB to have expansive knowledge of how all firms approach their gatekeeper role in the capital markets, and how the Board can further drive improved audit quality across the spectrum of audit firms.

These developments and resources make clear that the PCAOB continues to develop new ways to help firms improve their audit quality. The stakes are high for our capital markets; when audits fail, investors can experience devastating losses. We know that academic research supports the view that the PCAOB’s oversight promotes trust in our capital markets.³

As such, I hope we can agree that with fervent efforts and the passion to succeed, we can chart a course that drives audit quality forward for the benefit of investors.

In closing, I anticipate that you will gain key insights and useful information from today’s panels. Our dedicated Inspections staff will provide practical guidance relating to both public company and broker dealer audits, and you will hear updates from the PCAOB’s Division of Enforcement and Investigations and our Office of the Chief Auditor. Importantly, you will also hear from the SEC and FINRA on matters within their purview.

Before I take some questions, I want to thank you again for joining us today, here in person and online. I also would like to thank all members of the PCAOB staff who contributed to today’s program, including all presenters and the staff from our Office of Communication and Engagement who coordinated this event.

I am thankful for the many contributions of our staff day-in and day-out to protect investors. Most of them are unknown and unseen but they shoulder a significant responsibility in protecting our capital markets. I appreciate their passion, technical expertise, and commitment to the mission.