PCAOB Chair Williams’ Statement on the Quality Control Proposal
Remarks as prepared for delivery
Today’s proposal is a watershed moment for the PCAOB as we propose to make significant changes to our requirements that address firms’ Quality Control systems – requirements that largely look the same today as they did 20 years ago when the PCAOB was founded.
I support the proposal that is before us, and I look forward to receiving input from our stakeholders.
Firms’ quality control or QC systems lay the foundation for how they approach audits. When a firm’s QC system operates effectively, audits are performed in accordance with applicable professional and legal requirements.
Simply put: Effective QC systems protect investors, while ineffective QC systems put investors at risk.
That is why it is so critical to ensure our QC standards are fit for purpose in today’s capital markets. The world has changed since 2003, and our QC standards must adapt to keep pace.
That is exactly what this proposal is designed to do.
Some key aspects of this proposal include:
- Requiring the use of a risk-based approach as a firm designs and implements its QC system;
- Providing that certain firms establish an oversight function for the audit practice that includes at least one person who is not a partner, shareholder, member, other principal, or employee of the firm;
- Directing the implementation of specific monitoring procedures, including in-process engagement reviews, to inform firm leadership of potential problems and where to devote resources to address such issues;
- Encouraging an ongoing feedback loop that drives continuous improvement; and
- Conducting an annual evaluation of the QC system and reporting the results to the PCAOB and audit committees.
Certain proposed requirements would apply to all firms registered with us, including those that currently do not audit public companies or SEC-registered brokers and dealers. Therefore, I encourage all registered firms to read the proposal and provide their perspectives.
I also encourage investors, investor advocates, preparers, members of audit committees, academics along with all other stakeholders to continue to provide us with valuable input.
Unlike changes made to individual auditing standards that address auditor performance or disclosures, the changes being proposed today affect the entire audit from accepting the engagement, to planning and performing the audit, and finally, to reporting out the results. By elevating all firms’ QC systems, this proposal directly aligns with our mission to protect investors and further the public interest in the preparation of informative, accurate, and independent audit reports.
I would like to thank the several individuals that are responsible for bringing this proposal to us. Specifically, I would like to thank in the Office of the Chief Auditor, Barb Vanich, Jessica Watts, Ekaterina Dizna, Linnette Klinedinst, Schuyler Simms, Karen Wiedemann; in the Office of Economic Risk and Analysis, Mike Gurbutt, Nick Galunic, and Dylan Rassier; and in the Office of General Counsel, Connor Raso, Drew Dropkin, Jennifer Williams, and Jayme Herschkopf.
I would also like to thank my fellow Board Members and their staff for their contributions to this proposal.
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.