Chair Williams’ Statement on Firm Reporting Proposal

Remarks as prepared for delivery

For the second time today, we are taking action to bolster confidence in our capital markets, strengthen oversight and accountability, and empower investors and audit committees with consistent, comparable information.

The Firm Reporting proposal would modernize the PCAOB’s framework for collecting information from audit firms by amending the annual and special reporting requirements which have not been substantively updated since 2008.

Today’s proposal would facilitate the disclosure of more complete, standardized, and timely information by firms to empower investors and audit committees through greater transparency while also strengthening the PCAOB’s work to protect investors.

As with the Firm and Engagement Metrics proposal, many of the proposed changes are changes that were called for in the U.S. Department of the Treasury’s Advisory Committee on the Auditing Profession Report from 2008 and that have been recommended by the PCAOB’s Investor Advisory Group and Standards and Emerging Issues Advisory Group. We have also seen other jurisdictions implementing transparency reporting requirements, as well as firms voluntarily publishing some of this information on their own. Unfortunately, the voluntarily reported information is not complete or comparable. Additionally, our staff’s experience tells us that more complete, consistent, comparable information will be useful for the PCAOB’s work of protecting investors.

The amendments cover five key areas:

First, Financial Information. Under the proposal, all registered firms would report actual dollar amounts of various fee categories, rather than percentages that are currently required. The new requirements would also provide more disaggregated fee information that is more consistent and easier to compare across firms. Fee reporting would help investors, audit committees, and other stakeholders better understand how a firm’s audit practice fits into its overall business and the incentives that may influence resource allocation within the firms.

The largest registered firms would also confidentially submit financial statements to the PCAOB. These firms play an essential role in our capital markets and overall economy. Their financial stability impacts their ability to invest in resources necessary to ensure quality audits and to withstand various financial events.

Second, Audit Firm Governance Information. Firms’ leadership and governance have a direct impact on their incentives and ability to provide high-quality audit services investors deserve. Tone at the top and the priorities of firms’ leadership strongly influence the level of commitment to audit quality. The proposal would require all registered firms to report additional public information regarding their leadership, legal structure, ownership, and other governance information, including information on the structures and policies that would govern a change in the form of the organization.

Third, Network Information. The proposal would require a more detailed public description of firms’ network arrangements, which provide an important window into the accountability and oversight structure the firm is subject to in addition to the resources the firm has available to devote to high-quality audit work.

Fourth, Special Reporting. Currently, special reporting covers certain events such as whether a firm is the subject of a lawsuit or regulatory action. The proposal would shorten the timeframe for special reporting from 30 days to 14 days or more promptly as warranted, making certain information available to investors, audit committees, and the PCAOB inspection and investigation staff in a timelier manner.

In addition to the existing special reporting requirements, the proposal would add a new confidential special reporting requirement for events material to a firm’s organization, operations, liquidity or financial resources, or provision of audit services. These events have the potential to significantly impact audit quality and investor protection, yet they are not covered under the current standard. For example, the additional requirement might include a determination that there is substantial doubt about the firm’s ability to continue as a going concern; or a planned or anticipated acquisition of the firm, change in control, or restructuring.

Fifth, Cybersecurity. Cybersecurity threats are among the greatest risks to many businesses in today’s world, and audit firms are particularly attractive targets. The proposal would require public reporting of a brief description of the firm’s policies and procedures, if any, to identify and manage cybersecurity risks, and confidential reporting of significant cybersecurity events to the PCAOB within five business days.

Together these provisions strengthen the PCAOB’s ability to protect investors, while also providing investors with additional data to inform their own decisions and empowering audit committees with consistent data to analyze and compare as they are selecting and monitoring audit firms.

I’d like to thank the many members of the PCAOB’s staff who have worked on this rulemaking project, including, from the General Counsel’s Office James Cappoli, Connor Raso, Katherine Kelly, Damon Andrews, and Marc Francis; from the Office of Economic and Risk Analysis Martin Schmalz and Dylan Rassier; from the Office of the Chief Auditor Jessica Watts, Lisa Calandriello, Linnette Klinedinst, and David Ellam; from the Division of Enforcement and Investigations Kyra Armstrong, John Abell, Brett Collings, Tina Bell, and Kristin VanFossen; and from the Division of Registration and Inspections Christine Gunia, Tim Sikes, Carol Swaniker, Michael Stevenson, Alan Kerwin, Pamela Robinson, Eugene Theron, Kathleen Ostasiewski, Kevin Taylor, and Abena Glasgow.

In addition, I would like to express my gratitude to my fellow Board Members and their staff for their contributions to this project. I would also like to thank the Securities and Exchange Commission’s staff, including the staff of the SEC’s Office of the Chief Accountant, for their support and assistance.

I encourage all interested stakeholders to weigh in and look forward to thoroughly reviewing your comments.