PCAOB Chair Williams Statement on Firm and Engagement Metrics Adoption

Remarks as prepared for delivery 

Quality audits boost confidence in our capital markets, which is essential for investor protection. The PCAOB plays a critical role in advancing quality audits. But so do auditors, audit committees who select the auditor, and investors who ultimately ratify an issuer’s choice of auditors.  

Since at least 2008, investors have made clear that they do not have access to transparent, reliable, and comparable information relating to the audit. Those views helped shape the recommendations of the U.S. Department of Treasury’s Advisory Committee on the Auditing Profession (“ACAP Recommendations”) in 2008. The ACAP recommendations, along with over a decade of PCAOB staff’s regulatory experience, eventually led to a concept release approved by the Board in 2015. The purpose of that release was to garner feedback from investors, audit committees, and other stakeholders on the disclosure of a proposed set of metrics related to an issuer’s engagement team and the engagement team’s respective audit firm. Today’s release has also been informed by international regulatory requirements or disclosure requirements of the same or similar metrics in other jurisdictions.  

When the Board approved our 2022-2026 Strategic Plan, which guides the work we do to achieve our investor protection mission, we acknowledged the importance of transparency through objectives focused on the PCAOB providing more information to the public related to our inspection and enforcement activities. To advance those objectives, we proposed Firm and Engagement Level Metrics in April of 2024.   

The goal of this project before us today is to provide additional information about audit firms and their audits in both a consistent and comparable manner to bolster confidence, strengthen oversight, and empower investors and audit committees to make better informed decisions and help drive audit quality forward. Today, investors and other stakeholders lack information about audit firms’ practices and their engagements – some of which may be shared with company management or their audit committees. Through this project, investors, audit committees, and other stakeholders will have access to the same valuable information on firms and their engagements to help them make knowledgeable decisions regarding audit firms and investment related choices. For example, collectively, the information disclosed will provide a basis for audit committees to make more informed decisions in retaining and monitoring auditors, and it will provide a basis for investors to make more informed decisions when ratifying auditor appointments, electing board members, and allocating capital.

This project also could benefit firms if they choose to use the metrics in the monitoring and remediation process as part of their quality control (QC) system. And finally, the PCAOB will also benefit from having additional tools to use in its oversight activities, including its inspections program.

Over time, the benefits stakeholders will receive from these metrics will increase as trends become more apparent, enabling the benchmarking of information across engagement teams and firms.

Ultimately, the disclosure of this information will allow consumers of audits to make more informed decisions as they fulfill their role in driving audit quality.

Before I speak about the Adopting Release, I want to acknowledge the tireless work of so many people over the last 16 years – starting with the ACAP Recommendations – and members of the PCAOB staff who have been working on this project since at least the 2015 Concept Release. I also want to thank all of you who commented on our proposal. Building on the countless hours of research and outreach by our professional staff leading up to the proposal, your input was extremely helpful in leading us to arrive at the set of metrics addressing the eight topical areas just presented to us by the Office of the Chief Auditor (OCA). And, as you just heard, if approved by the SEC, based on the feedback received, the requirements will have a phased implementation period, with an effective date for annually inspected firms following two years after such approval – providing firms sufficient time to update their systems and take other measures to prepare for the reporting requirements. All other firms that meet the reporting criteria will have three years to prepare for the disclosure requirements.

As our professional staff noted in their recommendation, earlier this year, this Board approved a proposal for public comment that set out a standardized set of 11 metric areas 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.

As we noted in the proposal, since the concept release in 2015, many annually inspected firms have been disclosing information about their audit practices through their audit quality reports, transparency reports, or other published documents. However, most of the metrics disclosed are not necessarily consistently disclosed or calculated, are not necessarily consistent between firms, and in the rare cases that the same metric is disclosed, there is no guarantee that the calculation is consistent between firms. And, to find such information, one must search through a firm’s various publications. Critically, as members of the auditing profession recognize, reliability and comparability of information is critical in deriving confidence in the audit.

This project will lead to reliability and comparability of the metrics to be disclosed by requiring the calculations be consistently applied across firms that meet the disclosure criteria. And, the information will be maintained on our website, so that it is easily accessible by all stakeholders.

Ultimately, as the presentation from the Office of the Chief Auditor noted, we proposed 19 metrics in 11 areas; 10 at the firm level and nine at the engagement level. The final requirements include 14 metrics in eight areas; metrics at both the firm and engagement level for six areas and metrics at only the firm level for two areas. We eliminated four metrics that were proposed in response to comments received and made the disclosures more scalable with lagged implementation to provide additional time for firms to prepare for the disclosures.

Almost all of the metrics we are adopting today are disclosed by almost all of the top eight Global Network Firms (GNF) in some manner.  

I would like to thank the many staff at the PCAOB for their work on this project. Specifically, I would like to thank in the Office of the Chief Auditor, Barb Vanich, Jessica Watts, Stephanie Hunter, Karen Wiedemann, Clair Sever, Schuyler Simms, and Akiko Upchurch; in the Office of Economic and Risk Analysis, Martin Schmalz, Erik Durban, Nick Galunic, and Eric Carlson; and in the Office of General Counsel, James Cappoli, Connor Raso, Katherine Kelly, Vince Meehan, and Marc Francis.

In addition, I would like to express my gratitude to my fellow Board Members and their staff for their contributions to this project. Since June of this year, when the Board received substantially all of the comments on this project, my fellow Board members and their staff have engaged with our Office of Chief Auditor for countless hours. For the last nearly two months, they have provided multiple rounds of written comments in addition to meeting with my staff to improve the release before us. 

I would also like to recognize the support provided by staff from the Division of Registration and Inspections (DRI), the Division of Enforcement and Investigations (DEI), the Office of International Affairs (OIA), and the Office of Communications and Engagement (OCE).

Finally, I would like to thank the Securities and Exchange Commission’s (SEC) staff, including the staff of the SEC’s Office of the Chief Accountant, for their support and assistance.