PCAOB Chair Williams Delivers Remarks at the 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.

It’s great to join the IAG today. And I want to especially welcome our newest members. Thank you for volunteering your time and energy on behalf of investors. The work you do as part of the IAG is valued and appreciated.   

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 the talented and dedicated PCAOB staff. 

For years now, you have heard me raise the alarm about a troubling trend in audit quality. In 2021, our inspectors began to see an increase in deficiencies across the audit firms we inspect. That trend continued in 2022 and across smaller firms in 2023. 

The PCAOB demanded better on behalf of the investors we serve.

And today, I am able to report that our 2024 inspections found significant improvement across firms.

This includes an expected seven-point drop in the aggregate Part I.A deficiency rate across firms inspected, and a six-point drop among the four largest firms – which, at the end of last year, collectively audited approximately 80% of the market capitalization of public companies listed on exchanges.

This is meaningful progress in our effort to better protect investors in U.S. markets. Still, while deficiency rates have dropped significantly, they remain too high.

Our work is far from over. And today that work is as important as ever.

History tells us that when the economy is tight, the risk of fraud goes up. Companies have targets to hit, and when they can’t make their numbers honestly, the temptation to cook the books is always there.

Fortunately, so are we. PCAOB standards set the rules of the road auditors must follow to ensure financial statements and related disclosures are accurate. PCAOB inspectors are watching to keep them honest. And the threat of PCAOB enforcement deters wrongdoing that puts investors at risk.

So, like many of you, I am deeply troubled by draft legislation being considered by the House Financial Services Committee that proposes to eliminate the PCAOB as we know it.

The SEC was my professional home for 11 years. I have deep admiration and respect for the incredible professional staff there. They are excellent at what they do.

It is different from what we do here at the PCAOB.

The unique experience and expertise built up by the PCAOB over decades cannot simply be cut and pasted without significant risk to investors at a time when markets are already volatile.

The disruption to inspections alone while a new program gets up and running could last years.

We do not have to guess what could happen in the interim when no one is looking. We already know from the accounting scandals of the early 2000s, from Enron and WorldCom, that brought us to where we are today. Investors lost billions of dollars in savings, workers lost their jobs and their retirement, and trust in our markets eroded.

It takes a minimum of 480 experienced staff to conduct the inspections required by the Sarbanes-Oxley Act in addition to many others who are essential to supporting their work and hiring them would come at considerable cost to the SEC – that is assuming it is possible to hire them at all. As we will hear more about later today, there is currently an industry-wide shortage of accounting and audit talent, and our team members are some of the most respected and employable members of the profession.

PCAOB inspections staff average 22 years of experience, including a decade in public accounting before ever joining the PCAOB.

They have experience in more than 30 different industries from banking to energy, and expertise across 40 different subject matters from revenue recognition to derivatives and technology. They speak 33 different languages.

That language expertise is necessary because the PCAOB regularly conducts inspections in more than 50 jurisdictions around the world. Local laws in many of those countries require cooperative agreements that the PCAOB has secured over years of negotiation to ensure we have the access necessary to inspect and investigate completely.

None of the agreements contain provisions that would allow the PCAOB’s privileges and responsibilities under the agreements to be transferred to the SEC. They would have to be renegotiated before inspections could be conducted, which could take years.  

Of course, this includes China, where for the first time in history, the PCAOB has been successfully inspecting and investigating completely, holding Chinese firms accountable and bringing historic enforcement cases.

The PCAOB secured every concession we demanded from China in the Statement of Protocol that facilitates our access to inspect and investigate completely.

We have their feet to the fire.

Scrapping that agreement and starting over gives China the opportunity to exploit the uncertainty in order to avoid scrutiny of its audit work once again, to the detriment of investors.

These are just some examples of the challenges posed by eliminating the PCAOB.

Of course, our inspections program is strengthened by tough enforcement carried out by our expert investigators. And without the talented team working to keep PCAOB standards up to date, there is nothing to inspect against.

Every member of the PCAOB team plays a critical role in executing our mission of protecting investors on U.S. markets. And they are irreplaceable.

Before we dive into today’s meeting, I want to thank members of the IAG for the feedback you provided us about ways we can make PCAOB data more useful for investors. Yesterday, we published the new and enhanced downloadable datasets you all asked for.

These datasets are machine-readable and contain public inspection information from inspection reports going back to 2018 for annually inspected firms and 2019 for triennially inspected firms. We plan to update these datasets on a quarterly basis going forward.

The PCAOB under this Board continues to make transparency a priority. We continue to work to better tell the story behind the inspection reports—what they mean for investors, how firms can improve, and ultimately, how users can better understand the results.

Since we last met in the fall, our staff have also been working hard to provide firms with resources to implement the new standards and rules undertaken by this Board.

Our staff has published guidance documents, expert recordings, quizzes, and materials on QC 1000, AS 1000, and other new standards and rules—all of which can be found on our website.

We are also expanding our support for smaller firms by hosting multiple in-person forums across the country for auditors of smaller companies and broker-dealers. In fact, I kicked off this year’s forum series in Chicago earlier this month, and Board Member Botic will host our second forum of the year this Thursday in Jersey City with more planned for later this year—all hosted by Board Members.

Additionally, we’re planning two workshops— one on May 13 in Washington, DC, and another on June 17 in Irving, Texas—to assist smaller firms with QC 1000 implementation.

Even more information, resources, and tools can be found on our website—including ways for firms to contact us should they have any questions.

Ultimately, we want firms to be successful in properly implementing these new standards, because that means investors are better protected.

Again, I want to thank the IAG for your continued work highlighting investors’ need for more transparent information from audit firms. We, too, continue to search for ways to bring our insights to investors, audit committees, and other stakeholders, and we will soon publish our latest Spotlight detailing our conversations with audit committee chairs.

I found the conversation we had last fall on the role of audit committees to be fascinating and incredibly important.

I’m also glad we will hear from you all about AI and emerging technologies today, which is, of course, a focus area across the PCAOB. As markets evolve, innovation is essential. And when it comes to auditing financial statements, it must always be done with an eye toward the ultimate purpose, and that is to protect investors. This means firms must have strong controls in place to ensure they are meeting their responsibilities to investors and complying with PCAOB rules and standards anytime they are considering using new tools, whether that is AI or anything else.

Finally, I’m looking forward to your presentation on the talent pipeline and its impact on audit quality. This is something I hear about nearly everywhere I go, as it’s something the entire industry is focusing on, and I look forward to today’s presentation on this important topic.

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