PCAOB Chair Williams Delivers Remarks at 2023 PCAOB Conference on Auditing and Capital Markets

Remarks as prepared for delivery 

Thank you, [Dr. Martin C. Schmalz, PCAOB Chief Economist and Director, Office of Economic and Risk Analysis].

And thank you to everyone here with us today and to those watching online. It is great to be back with you in person.

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

I hope the presentation this morning left you feeling excited about working with the PCAOB to protect investors.

Even in D.C. – which is a town full of wonks – there aren’t many rooms that would be energized by fun facts about auditing at 9:30 in the morning. But you all know better.

You understand that beyond the jargon and the data, auditing is fundamentally about people.

Whether it’s workers saving for retirement, parents saving to put their kids through college, or anyone who depends on the soundness of our capital markets to invest and build their own version of the American dream – quality audits protect people.

And that’s why we are here.

When we came together a year ago, the Board had recently released our five-year strategic plan, and I shared with you our three key pillars:

  1. Modernizing our standards,
  2. Enhancing our inspections, and
  3. Strengthening our enforcement.

We have been hard at work executing on all three.


Under this Board, we laid out the most ambitious standard-setting and rulemaking agendas in PCAOB history.

The projects on our agenda address more than half of our standards in one way or another.

Nearly all of the standards we are considering are so-called ‘interim standards,’ which the PCAOB first adopted in 2003 based on standards set by the profession on what was intended to be a temporary basis. Yet, they have not been significantly updated in at least 20 years.

I don’t have to tell you that our capital markets don’t stand still. They evolve constantly. Practices change. Technology advances relentlessly. And new risks emerge.

To keep investors protected, our standards must keep up.

Since this Board took over less than two years ago, we have issued proposals in five standard-setting projects and one rulemaking project and adopted two new standards and related amendments.

The Board unanimously voted to adopt a new standard and related amendments on the confirmation process just last week. And the Board finalized a new standard that strengthens requirements that apply to audits involving multiple audit firms last year.

The confirmation process touches nearly every audit. The new standard will help auditors detect fraud and better protect investors now and into the future. Subject to approval by the SEC, the new standard will take effect for audits of financial statements for fiscal years ending on or after June 15, 2025.

The new standard and amendments to requirements involving other auditors will require audit firms to ensure that lead auditors sufficiently plan, supervise, and evaluate the work of other auditors. The amendments take effect for audits of financial statements for fiscal years ending on or after December 15, 2024.

This summer we issued a proposal on a rulemaking project that would hold associated persons accountable when they negligently, directly, and substantially contribute to firms’ violations.

We also proposed amendments to give auditors additional direction addressing specific aspects of designing and performing audit procedures that involve technology-assisted analysis of information in electronic form.

And we proposed a new standard on noncompliance with laws and regulations, or NOCLAR.

When sanctions, fines, and civil settlements directly affect a company’s bottom line, or reputational damage causes a company’s stock value to decline, investors pay a price. The proposed NOCLAR standard aims to better protect investors by strengthening the requirements for auditors to identify, evaluate, and communicate information that may indicate a company’s noncompliance with laws and regulations.

In March, we issued proposed changes to modernize a suite of standards that address core auditing principles and responsibilities, including reasonable assurance, professional judgment, due professional care, and professional skepticism – known as AS 1000. The proposed changes will center investors by making clear that auditors have a fundamental obligation to protect them.

Finally, late last year, the Board issued a new quality control (QC) standard for public comment. I called it a watershed moment for the PCAOB, because QC systems lay the very foundation for how firms approach everything they do, including performing audits.

As much progress as we are making on standards, there is still much work ahead of us, and it will require high-quality economic analysis to ensure we get it right.


At the same time, our Inspections division has been hard at work on pillar number two: enhancing our inspections.

Our teams inspect roughly 800 audits in more than 30 jurisdictions around the world each year.

Last year we expanded the PCAOB’s reach even further by securing access to inspect completely in China for the first time in history.

In May, we released the inspection reports for a firm located in mainland China and another firm headquartered in Hong Kong, which were both inspected in 2022.

The deficiencies we found during those inspections are unacceptable. And we are using every tool we have to hold the firms accountable for fixing them, including shining a light through our public reports and referring inspection findings to our enforcement team where appropriate. If enforcement violations are found, we will not hesitate to order sanctions, including imposing significant money penalties and barring bad actors from performing future audits.

The fact that our inspectors found these deficiencies is a sign that the inspection process worked as it is supposed to.

Of course, last year was only the beginning of our work. Firms in China and Hong Kong are in the process of being inspected this year and will be inspected on a regular basis going forward.

The two firms we inspected in 2022 audited 40% of the total market share of U.S.-listed companies audited by Hong Kong and mainland China firms, and we are on track to hit 99% of the total market share by the end of this year.

We are continuing to demand complete access with no loopholes and no exceptions. Should People’s Republic of China (PRC) authorities obstruct or otherwise fail to facilitate the PCAOB’s access – in any way and at any time – the Board will act immediately to consider the need to issue a new determination.

This is just one aspect of our busy inspection work. Our team likes to say that “the sun never sets on PCAOB inspections,” because at any given moment odds are an inspection is taking place somewhere around the world.

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.

This was just the beginning of our work to increase transparency and make PCAOB data more accessible.

Transparency is one of the most powerful tools the PCAOB has to improve audit quality. Sharing our inspection results empowers audit committees and boards of directors – which are responsible for hiring auditors of public companies – to hold audit firms accountable directly.

That 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 and called on audit committees to hold their firms accountable.


Of course, as our third pillar of strengthening enforcement suggests, the PCAOB has not hesitated to bring enforcement cases against auditors when appropriate.

Last year we doubled the number of enforcement orders compared with 2021 and imposed the highest total penalties in PCAOB history.

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

Each of these three pillars is supported by high-quality economic analysis.

Economic analysis informs every standard and rule on our agenda.

To stay effective, our inspections team must constantly adjust to new and emerging risks around the world, which requires data, analysis, and high-quality economic research.

And our enforcement team relies on data and analysis to help develop a list of risk factors to focus on.

We are thrilled that Dr. Martin Schmalz joined the PCAOB in August to lead that work as Chief Economist and the Director of the Office of Economic and Risk Analysis. 

Martin is a tenured Professor of Finance and Economics at the University of Oxford, Saïd Business School, serving as the Academic Area Head for the Finance, Accounting, Managerial Science, and Economics faculty group.

Martin also serves as the Academic Director of the Blockchain Strategy Program, and co-director of the Open Banking and AI in Finance Program. Outside Oxford, he serves as a Director of Global Corporate Governance Colloquia.

Martin is the author of The Business of Big Data - a book on the economics of machine learning and AI that is accessible to non-technical audiences. He has published nine articles across all top finance journals as well as the journal of political economy, has edited a volume in a law journal, and serves as associate editor of the review of corporate finance studies.

Martin holds a graduate degree in mechanical engineering from the University of Stuttgart and a Ph.D. in economics from Princeton University.

Martin brings extraordinary expertise to the great work Michael Gurbutt and the team in our Office of Economic Risk and Analysis are doing. And I know he is excited to work with all of you.

We depend on our Office of Economic and Risk Analysis for evidence-based analysis that helps ensure our decision-making is infused with the best available data, information, and research. And they depend on you, the broader academic community, to expand our knowledge and understanding of the economic impact of auditing and audit regulation on our capital markets.

The team mentioned our fellowship program at the beginning of today’s program. I encourage you to get involved. We’d love to work with you.

I know Martin is looking at ways to make it even more attractive for you to work with the PCAOB. I encourage anyone who is interested in working with the PCAOB to talk with Martin or a member of his team over the next two days. I know they have a long list of research questions waiting to be answered.

You have an exciting two days ahead of you filled with brilliant speakers, interesting research, and plenty of data.

As you take it all in, I ask you to remember what it’s all about: protecting people.

As U.S. Senator Paul Sarbanes said shortly after he helped create 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…Investors, after all, make the whole thing work.”

Thank you, and please enjoy the conference.