PCAOB Chair Williams Delivers Remarks at Investor Advisory Group Meeting

Remarks as prepared for delivery

Thank you, [Saba Qamar]. 

Reimagining our approach to engagement with investors is a critical priority for this Board. We are thrilled to have you on the team as the PCAOB’s first-ever Investor Advocate.

Before we begin, I want to 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.

From workers saving for retirement to parents saving to put their kids through college and anyone who depends on the integrity of our capital markets to invest for their future, people are at the heart of everything we do at the PCAOB. And it’s critical we elevate the voices of the everyday retail investors who we serve.

As you know, reconstituting this Investor Advisory Group (IAG) was the first major action we took as a Board. Thank you, Board Member Stein, for your efforts in coordinating and leading the IAG’s first meeting and setting the foundation as we move forward.

Thank you, [Amy Copeland McGarrity] for your service as co-chair. And thank you to all of our IAG members for your time and your insights.

We have a packed agenda today, and I know the Board is really looking forward to hearing the presentations.

Data and technology continue to evolve and are taking on a greater role for both preparers of financial statements as well as their auditors. However, it is not just preparers and auditors affected by these advancements. Of course, we need to consider these advancements from a standard-setting perspective as well as when we inspect firms. But we also need to consider potential opportunities to change how we have traditionally presented information on our website and what enhancements we can do to make this information more accessible to our stakeholders. We are looking forward to learning from [Gina Sanchez]’s presentation.

We are very lucky to have the expertise of Jennifer Joe on the IAG and excited to hear her presentation on diversity. As you know, we are the most diverse board in PCAOB history. The diverse ideas and perspectives each Board Member brings make us stronger.

We made increasing diversity a key focus in our strategic plan. And we are thinking about it on multiple fronts. First, how can we increase diversity internally with initiatives like our affinity groups? And, second, how can we use our platform to increase diversity across the auditing profession through our scholarships and other programs?

We are grateful to David Pitt-Watson for bringing his expertise to the IAG. We look forward to learning from him today. And to learning from all of you throughout our discussions.

Together as a Board, we have set ambitious goals for the PCAOB: from modernizing our standards, enhancing our inspections, strengthening our enforcement, and improving our organizational effectiveness through initiatives like reimaging our approach to stakeholder engagement.

We have a lot of work ahead of us. The IAG will serve a critical role in advising us along the way.

And just over nine months into our term, we are off to a strong start.

Standards

Earlier this year the Board announced one of the most ambitious standard-setting agendas in the PCAOB’s history. Today we posted an update to that agenda.

We are working actively to update more than 25 standards within eight standard-setting projects. And we are just getting started. PCAOB staff have put pen to paper on every single project, and they are diligently working to move them as quickly as possible.

[Acting Chief Auditor Barbara Vanich] is going to provide us with a detailed update on our progress in a moment.

We have already finalized the Other Auditors standard, and we expect to move forward with Quality Control before the end of this year.

I want to thank the IAG for your input on the importance of performance metrics at both the firm and engagement level. We are taking action.

As Barb will talk more about in a moment, we took the first step by putting this project on our research agenda. Make no mistake, placing this project on our research agenda is a signal this Board is actively working to move it, and we are serious about getting it done.

As you know, this Board was very clear from the beginning that projects would not stay on our research agenda for more than a year. My plan is to move this project to the standard-setting agenda in 2023 and advance it in short order from there. We will continue to rely on your consultation and input along the way.

Inspections/China

Inspections are one of the most important tools we have to hold firms accountable and keep investors protected.

Our 2021 inspection reports for the big six accounting firms will be coming out later this year. And we will have a Spotlight highlighting major trends and findings in the coming weeks. So, we encourage everyone to keep an eye out for that.

Our inspection team is constantly adjusting to be responsive to new and emerging risks across the globe – whether it’s SPACs and de-SPAC transactions, cryptocurrencies, or how firms are addressing the effects of supply chain disruptions and rising costs on company operations.

Our team likes to say that the “the sun never sets on PCAOB inspections,” because each year, the PCAOB inspects approximately 250 audit firms and reviews 900 audits from across the globe.

But as you know, for more than a decade, our access in mainland China and Hong Kong has been restricted.

In August, we took a first step toward opening up our access in mainland China and Hong Kong. I joined the China Securities Regulatory Commission and the Ministry of Finance of the People’s Republic of China in signing the most detailed and prescriptive agreement we have ever reached.

On paper, the agreement guarantees the PCAOB complete access to inspect and investigate any firm we choose, with no loopholes and no exceptions.

Now we must find out whether what we have on paper holds up in practice.

Last month, PCAOB teams began arriving in Hong Kong where they are conducting inspections of firms headquartered in mainland China and Hong Kong and putting that agreement to the test.

By the end of this year, the PCAOB will make determinations whether the PRC authorities have allowed us to inspect and investigate completely or they have continued to obstruct our efforts.

If I sound like a broken record saying, “no loopholes, no exceptions,” good.

The law demands complete access. The agreement we signed with our Chinese counterparts guarantees complete access. And the PCAOB will accept nothing less than complete access when we make our determinations.

Enforcement

This Board is approaching enforcement with a renewed vigilance.

We intend to use every tool in our enforcement toolbox and impose significant sanctions, where appropriate, to ensure there are consequences for putting investors at risk and that bad actors are removed. This includes substantial monetary penalties and significant or permanent individual bars and firm registration revocations.

We are rethinking how we identify cases, the types of cases we pursue, and the sanctions we impose.

Those who break the rules should know we won’t be constrained by the types of cases the PCAOB has pursued in the past. We won’t be limited to the level of penalties that have been seen before. And we will seek admissions of wrongdoing in appropriate cases – for example, where the conduct is intentional or egregious.

Under this Board, we’ve more than doubled our average penalties against individuals compared to the last five years. This includes the largest money penalty ever imposed on an individual in a settled case.

At the same time, we’ve increased our average penalties against firms by more than 65%.

In the past five years, the PCAOB assessed penalties against individuals less than half of the time and firms only about 86% of the time. This year it’s 100%.

Last month, we announced a settled disciplinary order permanently revoking a firm’s registration and barring the firm’s owner, as well as imposing a significant penalty for interfering with the Board’s inspection process.

It was the first settled action in PCAOB history with both a permanent revocation or bar and a significant penalty. And it demonstrates our commitment to remove bad actors from the profession and to deter misconduct.

As you know, we have been conducting more sweeps to get additional information from a number of firms at the same time on areas where we suspect violations may be occurring. And just last week we announced results from one of those sweeps, which resulted in sanctions against four firms that failed to disclose who worked on their audits by not filing their Form APs.

None of this is possible without the expertise, dedication, and hard work of our incredible PCAOB staff. I want to thank Barb and all PCAOB staff who are here to share their expertise with us today.

With that, I will turn the program back to Saba to get us started.