PCAOB Chair Williams Remarks at Baruch College’s 22nd Annual Financial Reporting Conference

Remarks as prepared for delivery

Thank you, Professor Davis-Friday. I always enjoy our discussions, and I am thrilled to be able to share the stage with you in person.

Thank you to Dean Weber, Conference Chair Strauss, and all of you for being here today.

I also want to acknowledge Rocky Srdanovic and Matt LePere – and all the staff whose hard work makes this conference such a success.

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.

Since we last connected at the Annual Audit Conference in the Fall, the PCAOB has been hard at work furthering our three strategic goals of modernizing our rules and standards, enhancing our inspections, and strengthening our enforcement – all in service of our mission to protect investors.

Last year, the Board took more formal actions on standard setting and rulemaking than any year in the previous 10.

If you’ve followed our rulemaking agenda, then you know: 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.

In order to keep investors protected, our standards must keep up.

So, we have committed to moving the most ambitious rulemaking agenda in PCAOB history.

And that work continues in 2024 with three proposals so far this year.

In February, we proposed a new rule to protect investors from misinformation about firms’ PCAOB registration status, or what that status means.

Unfortunately, we have seen too many instances of firms promoting their PCAOB registration in a way that could mislead clients, investors, and others.

PCAOB registration is not a “seal of approval” or “mark of excellence,” as some firms have advertised on their websites. The PCAOB does not sponsor, recommend, or endorse firms.

PCAOB registration is not a system for grading the quality of a firm’s professional work.

And it certainly is not a marketing gimmick for firms.

So, this rule would ensure there are consequences when firms misrepresent their PCAOB registration status or what it means.

In April, we issued two proposals designed to empower investors, audit committees, and others with more consistent, comparable data about audit firms and their audits.

Both proposals reflect input from our Standards and Emerging Issues Advisory Group and our Investor Advisory Group, who told us that better information is needed to help investors make more informed decisions.

The Firm and Engagement Metrics proposal is more than 10 years in the making. It sets out a standardized set of 11 metrics for every firm that audits at least one public company classified as either an “accelerated filer” or a “large accelerated filer” to disclose each year.

The metrics are grounded in countless hours of research by our professional staff. They include information about firms’ overall audit practice – for example, how partners’ quality performance ratings affect their compensation – and information about individual engagements, such as the time incurred by partners and managers on the engagement team related to areas of significant risks, critical accounting policies and practices, and critical accounting estimates.

Collectively, these metrics would help investors make more informed decisions about how they invest their money. And they would provide audit committees with consistent data to analyze and compare as they are selecting and monitoring audit firms.

The Firm Reporting proposal would modernize the PCAOB’s framework for collecting information from audit firms by amending the annual and special reporting requirements, which have not been substantively updated since 2008.

It would facilitate the disclosure of more complete, standardized, and timely information by firms to empower investors and audit committees through greater transparency while also strengthening the PCAOB’s work to protect investors.

Of course, at the same time, our Inspections team has been hard at work conducting inspections across the globe.

Unfortunately, we continued to see deficiencies trend in the wrong direction in our recently released 2022 inspection reports. 

While all of our 2023 reports are not yet finalized, I can say overall deficiency rates are still far too high and the PCAOB is continuing to demand firms improve. 

At the same time, we are starting to see some small signs of improvement in our 2023 reports. Preliminary results indicate a modest improvement in Part I.A deficiency rates at some of the six U.S. Global Network Firms. At the same time, we are seeing a decline in the number of deficiencies for certain of these firms’ quality control systems.

It will take time for the quality control improvements to take root. But, because firms’ systems of quality control lay the foundation for how they perform audits, quality control improvements often signal a first step toward improving overall deficiency rates. 

Again, these signals are modest, and firms have much more work to do. The PCAOB will continue demanding the high-quality audits investors deserve. 

We also continue strengthening enforcement, so bad actors know there will be consequences for anyone who puts investors at risk.

Last month we announced 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.

As of this month, the PCAOB has imposed $34 million in penalties in 2024, and we’ve only just begun.

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

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

As many of you may know, the money from PCAOB enforcement penalties goes toward scholarships for accounting students. And we are proud to have two PCAOB Scholars with us today.

Kaiyin Tan and Yiyang Sun – please stand up.

Now, I would love to turn the floor back to you, Professor Davis-Friday, and I look forward to your questions.