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

Remarks as prepared for delivery

Thank you, Martin [Schmalz]. Congratulations to you and your colleagues in the Office of Economic and Risk Analysis or as we like to call them, OERA, on putting together another great conference for our guests.

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.

This is the 11th annual Conference on Auditing and Capital Markets. Congress created the PCAOB 22 years ago. The fact that this conference has been taking place for half of the PCAOB’s existence signals the importance of our relationship with the academic community.

Your insights and perspectives help us to build an understanding of the role of audit and audit regulation in our capital markets and how broader economic and technological forces may be impacting audits and audit quality—and ultimately—how investors are impacted.

That’s why Martin and his incredible team are working to expand opportunities for collaboration between the PCAOB and academia. Our 2024 joint registered reports conference with The Accounting Review (TAR) is a prime example of that effort.

We invited researchers to submit registered report proposals to be presented at the conference this last June.

The conference received more than 85 different proposals and nine were presented —in addition to the 81 working papers submitted for presentation at this conference.

To those of you who submitted proposals and working papers—thank you for your participation. I hope we see even more of your ideas and research findings in the future.

Events like the PCAOB-TAR registered reports conference and this week’s Conference on Auditing and Capital Markets showcase why academics play a critical role in our work at the PCAOB, and I know the next two days will provide even more opportunities for collaboration.

Protecting investors drives everything we do at the PCAOB, and we accomplish this mission by focusing our efforts on three key goals: modernizing our standards, enhancing our inspections, and strengthening our enforcement.

When the PCAOB was first getting off the ground in 2003, it adopted existing standards that had been set by the auditing profession on what was intended to be an interim basis.

I don’t have to tell you that two decades later, our markets have evolved. Practices have changed. Technology has advanced. And new risks continue to emerge.

This is why we are focused on modernizing our standards to make sure they are effective at protecting investors in today’s world.

I’m glad that the importance of paying attention to and keeping pace with current challenges is something you will be discussing later today, including in the panels that focus on machine learning and auditing, and changes in the labor market for accountants. 

Just as we must adapt to today’s challenges, so must our standards.

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.  

For example, one standard the Board adopted last year—the auditor’s use of confirmation—originally mentioned faxes as a regular form of communication.

For the teaching professors in the audience today, it would be interesting to poll your students and ask if they even know what a fax machine is. I think we can make an educated guess on the average answer and understand why modernizing standards is an important priority for the PCAOB, if we are to keep up not only with the market, but with the next generation of the profession.

Today, all six of the standard-setting and rulemaking projects adopted by this Board have also been approved by the SEC, including four very recently: Quality Control; AS 1000, which deals with the general responsibilities of an auditor; 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. We are committed to getting our agenda done and done right—and that requires robust economic analysis from our experts in OERA to help us see around the corner and anticipate the impact of our projects.

Among other things, we review amendments made to our standards and rules in terms of their likely economic benefits, costs, competitive effects, and potential unintended consequences.

Even after a project is approved, we often continue to examine its impact through our post-implementation review process by analyzing public and non-public data.

Public comment is an essential part of our standard-setting process. And that includes new ideas on harnessing market forces to provide incentives to audit firms to better protect investors. I look forward to hearing more on that topic as well. 

Ultimately, having modern, effective standards that live up to the protections investors expect is good for investors, good for the profession, and good for our capital markets.

I know you will hear more on our standard-setting agenda later today from our Chief Auditor Barb Vanich and Senior Associate Chief Auditor Jessica Watts, so I will let them get into even more details.

Of course, standards on paper don’t earn trust unless they are followed in practice, which brings us to key goal number two: Enhancing our inspections.

Our inspections team has been hard at work conducting inspections across the globe—and I’m excited for you all to hear more on this work in a panel discussion later today with our leaders in the Division of Registration and Inspections including our Director Christine Gunia, Tim Sikes, our Deputy Director, Glenn Tempro, our Inspections Associate Director, and Bob Busch, our Inspections Leader.

For our part, the PCAOB is using every tool in our toolbox to protect investors and drive audit quality improvements.

Part of how we enhance our inspections and improve audit quality is by increasing transparency.Last year, we launched new tools 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. And we continue to look for even more ways to increase transparency.

I’ll let Christine, Tim, Glenn, and Bob provide even more details on this topic, but I want to add that in order to stay responsive, our inspectors rely on OERA’s efforts as part of the inspections’ process.

Specifically, OERA collects data from the information provided to us by firms, from third-party data providers, and from internal sources. Then, they aggregate and analyze that data to help identify areas of risk and point our inspectors in the right direction.

That brings me to our third key goal: strengthening our enforcement.

Under this Board we are expanding how we identify cases, and we are making sanctions count.

The PCAOB has imposed $35 million in penalties in 2024—the largest ever in PCAOB history. That includes the largest civil money penalty as well—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 it again just four months into this year. 

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 are sending a clear warning to those who break the rules – if you put investors at risk, there will be consequences.

Once again, OERA helps make this work possible. Our enforcement team works closely with the OERA team for the data and analysis to help inform our investigations and enforcement. 

I’m glad you’ll hear more on our enforcement work tomorrow in a panel with our Division of Enforcement and Investigations or DEI leaders Kathleen McGovern, who is our Chief Litigation and Intake Counsel, as well as Mike Davis, our Chief of Staff in DEI, and Ian Anderson, our Managing Associate Director.

I know you have a packed agenda the next two days—but before I turn it back over to Martin, I want to ask for your help as we cultivate the next generation of auditors and public servants.  

In order to improve audit quality, uphold the integrity of our markets, and protect investors, we must have a healthy supply of CPAs, lawyers, economists, and others who are interested in investor protection.

And as academics, whether in the classroom or the research field, you have an incredible opportunity to reach your students and research assistants who are the future of accounting and auditing. Please continue to encourage them to explore careers in these fields where they can make a valuable difference to the effective operation of our capital markets.

At the PCAOB, we are working to do our part through our scholarship program. This year, we awarded a record 676 scholarships—nearly double from the year before. Additionally, for the first time ever, each Scholar received a $15,000 award—up from $10,000.

More than half of our 2024 scholars are women, nearly half self-identify as members of historically underrepresented groups in the accounting profession, and many are transfer students from community colleges.  

We are proud that our PCAOB Scholars Program helps outstanding individuals along this career path.

Our promotion of careers in investor protection doesn’t stop with budding CPAs. OERA’s Economic Research Fellows program allows the PCAOB to hire academics for a one-year appointment to work on staff projects and to perform original research. 

The deadline to apply for the Economic Research Fellows program is December 20th, and you can find more information on the PCAOB Careers page or by emailing [email protected].

OERA is also recruiting for full-time research positions, including roles focused on economic analysis of new rules and standards, and development of high-quality publishable economic research to inform PCAOB strategic initiatives. Our PCAOB Human Resources team is here today and would be happy to connect with you.

It has been gratifying to see how all these talent initiatives have developed and grown at the PCAOB. We will continue to look for ways to make investor protection a guiding career light, as it has been for me and so many others.

Again, thank you all for joining us for this important conference. I look forward to our continued work together to protect investors.

Martin, I’ll turn it back over to you.