PCAOB Chair Williams Delivers Remarks at Investor Advisory Group Meeting

Remarks as prepared for delivery

Thank you, Saba [Qamar], for that introduction and thank you Amy [Copeland McGarrity] for your service as co-chair. Good morning. It’s great to join the IAG today.  

Before we begin, I must provide the usual disclaimer that the views I express today are my own and do not necessarily reflect the views of my fellow Board Members or PCAOB staff. 

As this is our last meeting of 2024, I want to take a moment to thank you all for volunteering your time and energy on behalf of investors. The work you do as part of the IAG is valued and appreciated.   

Since our last formal meeting in the spring, the talented and dedicated PCAOB staff have been hard at work furthering our strategic goals of modernizing our standards, enhancing our inspections, and strengthening our enforcement. 

Under this Board, the PCAOB has issued proposals for 10 standard-setting and rulemaking projects and finalized six—nearly all of which replaced standards or rules that were decades old.  

All six of those rules and standards adopted by the PCAOB have also been approved by the SEC, including four since the last time we met: Quality Control; AS 1000; Technology assisted analysis; and Rule 3502, which deals with contributory liability. 

Together, these changes will leave investors better protected, which is what our entire agenda is all about.    

You will have a chance to hear more about our standard-setting and rulemaking agenda directly from our Chief Auditor Barb Vanich and Connor Raso, a Deputy Director in the Office of General Counsel. And I want to thank you all for the valuable insights you shared in your comment letters.  

Moving onto the second pillar of our strategic plan—enhancing our inspections—our inspection team has been hard at work conducting inspections across the globe. 

Since we last met, PCAOB staff issued the 2023 inspection reports for annually inspected firms—six months sooner than reports have been released in recent years, thanks to the hard work of our staff. 

In the reports, staff identified small signs of movement in the right direction– namely, when we look at the U.S. Big Four firms, which collectively audit approximately 80% of the market capitalization, their aggregate Part I.A deficiency rate appears to be leveling off.
 
Still, I want to be very clear: overall deficiency rates remain unacceptable, and firms must do better. Now is the time to double down on efforts to improve and deliver the audit quality investors deserve. 

As you know, part of how we enhance our inspections and improve audit quality is by increasing transparency. Making our report findings public is one of the most powerful tools the PCAOB has to drive audit quality improvement, and we have engaged in a deliberate effort to call attention to the rising deficiency rates and to publicly demand improvements from firms.  

Last year, I told you about new tools we launched on our website to help users find and compare inspection data. This year, we added new charts and graphs to make it easier for users to understand and compare data across firms. We also continue to search for new ways to bring our insights to investors, audit committees, and other stakeholders.

There is no substitute for the role engaged and informed audit committees play when maintaining and improving audit quality.

They are the gatekeepers on the ground, vetting and hiring auditors, and overseeing their work.

Audit committees are vital to the work we do at the PCAOB, and we are working to arm audit committees with even more information, so they can ask tough questions on behalf of their investors and hold audit firms accountable for high-quality results. 

In fact, we recently sent those audit committee chairs—who participated in our Audit Committee Chair Dialogues—the most recent inspection report of the firm that audited the company where they served on the audit committee. 

I look forward to today’s presentation on this important topic.

I’m also glad there’s a discussion today on cybersecurity, which is a focus area for our inspections. Cybersecurity threats are among the greatest risks to many businesses in today’s world, and audit firms are particularly attractive targets. A cybersecurity event at an issuer or broker-dealer may impact the auditor’s risk assessment and related audit response. I believe today’s presentation will be critical to understanding more about this topic. 

Finally, with respect to the third pillar of our strategic plan, we continue our work to hold bad actors accountable through strong enforcement.

Earlier this spring, I told you about the largest civil money penalty in the history of the PCAOB – a $25 million fine against KPMG Netherlands for violations of PCAOB rules and quality control standards relating to exam cheating and misinforming investigators. 

We set a record in 2022. We broke that record in 2023. And we broke that record just four months into 2024.  

As of this month, the PCAOB has imposed approximately $35 million in penalties in 2024, and the year isn’t over yet. 

Cases we have brought involve serious matters that put investors at risk: Audit failures in cases involving financial statement fraud, taking on client work that firms can’t complete, altering work papers, and not performing sufficient work.

We have sent a clear warning to those who break the rules—if you put investors at risk, there will be consequences. 

2024 has been an incredibly busy year at the PCAOB as we work to advance our investor-protection mission, and none of this work would be possible without the expertise, dedication, and hard work of our incredible PCAOB staff.  

So, I want to again thank all our PCAOB staff and all of you, as IAG members, for sharing your insights and perspectives with us.  

Before closing, I would also like to point out—ahead of the discussion today on Emerging Issues in Audit Firm Ownership Structures and Funding Arrangements—the PCAOB is particularly interested in this area, including specifically:

• The effect of these structures on audit quality;
  
• The potential risks to auditor independence; and
  
• The effect, if any, on audit firm consolidation.
  

As such, I’ve asked Board Member Botic and his team to lead a project to research these developments and advise the Board on potential issues they may pose. I look forward to a robust discussion.

With that, we have a packed agenda today, so Saba, I’ll turn things back over to you.