Making the House More Functional and Comfortable

Remarks as prepared for delivery

Thank you, Chair Williams. In my December 2022 public statement regarding the release of the Confirmation proposal,1 I referred to a multi-pronged approach to the standard setting initiative as an analogy for renovating a 20-year-old house. As I previously stated, “Rethinking the layout and making the house “smart” would take more time and has a more pervasive impact, but we still want our house to be functional and comfortable”. In that context, I view today’s proposed amendments as applying fresh paint and rearranging some furniture to make this house more functional and comfortable. For clarity, this proposal does not address the use of emerging technologies in audits such as artificial intelligence (AI), advanced automation or emerging areas such as digital assets. As indicated in the proposal on page 7, “The proposed amendments address only one area of auditors’ use of technology – aspects of designing and performing audit procedures that involve technology-assisted analysis. Other areas continue to be addressed as part of the staff’s ongoing research activities. In addition, we launched the Technology Innovation Alliance Working Group, which will advise the Board on the use of emerging technologies by auditors and preparers relevant to audits and their potential impact on audit quality. These ongoing activities may inform future standard-setting projects.

Although limited in scope, I consider this proposal an important step in setting auditing standards for the 21st century. Since the Board launched the Technology Innovation Alliance Working Group in November 2022, I have been learning about some of the significant opportunities and challenges in the use of emerging technologies such as AI. AI was conceptualized in the 1950s, but it did not mature until computer storage capacity was no longer a constraint in the 2000s.2 Fueled by the age of “Big Data,” it continues to thrive, and its recent speed of development is stunning. For example, ChatGPT, with over 100 million active monthly users worldwide, is already on its 4th version, released four months after its initial release in November 2022.  I have no doubt that data and technology can improve audit quality and enhance investor protection, but embracing it effectively and responsibly requires expertise, collaboration, and ongoing iterations in an agile and transparent environment.

For this proposal, I am particularly interested in responses to question 3 regarding additional requirements needed to address the use of technology-assisted analysis in audits, questions 4 and 5 related to the relationship between the test of details and substantive analytical procedures as well as the sufficiency of audit evidence in both contexts. From the responses to these questions, I hope to gain insights on how our standards can incentivize an increase in the extent of the testing which could improve audit quality. I also believe the comments on these questions will not only help to refine this proposed standard, but also to inform our other standard setting initiatives. 

In conclusion, I support this release today as it is one step closer to formally encouraging the audit profession to better integrate technology into their audit methodologies. Lastly, I want to thank the staff from the Office of the Chief Auditor, with a special thank you to Donna Silknitter for her collaboration and responsiveness; the Office of Economic and Risk Analysis; the Office of the General Counsel; the Division of Registration and Inspections, and the Division of Enforcement and Investigations.