Preventing False or Misleading Statements Concerning PCAOB Registration and Oversight, and Constructive Requests to Withdraw from Registration

Remarks as prepared for delivery

Thank you, Chair Williams.

The proposal before us today attempts to remedy two concerns. The first is what I call the “Good Housekeeping Seal of Approval” problem. The other is audit firms being allowed to remain on the Board’s registration rolls, despite failing to pay the required fees or report the required information.

The first issue occurs because almost any audit firm can register with the PCAOB. This is a prerequisite to being able to audit issuers listed on American stock exchanges, broker-dealers, registered investment companies, certain employee benefit plans, and certain business combinations.

It is a bit like a driver’s license. Having a license is an important first step – and necessary to get on the road, but it does not guarantee the quality of your driving, or that you will even get behind the wheel.

The PCAOB inspects registered firms involved in the performance of audits and activities related to the audits of issuers or broker dealers.

Many of the PCAOB’s registered audit firms do not perform such audits or activities related to them.

At present, almost 50 per cent of audit firms registered with the PCAOB do not audit or play a substantial role in the audit of issuers or broker dealers.

Some registered audit firms could emphasize PCAOB registration when performing services or issuing audit reports, despite the fact many of those services are not subject to PCAOB inspection.

For example, a PCAOB-registered audit firm might issue audit reports on a major cryptocurrency enterprise. If the cryptocurrency enterprise was not registered with the U.S. Securities and Exchange Commission or required by law or regulation to have an audit that followed PCAOB standards, the audit work of a PCAOB-registered audit firm could not be inspected by the PCAOB.

Imagine if colleges and universities simply allowed for registration, with some registered students attending classes and being graded, while other registered students did not attend classes and were not graded.

The proposed rule would require registered audit firms to be up front about the work they do - and whether this work can be inspected by the PCAOB.

The second issue involves firms that fail to file their annual reports and to pay their annual registration fees.

The proposal would allow the Board to treat repeated failures to pay annual fees and file annual reports for at least two consecutive years as a constructive request for withdrawal of registration if additional notice is given to the audit firm involved.

Today's release provides practical solutions to some practical problems, and I support issuing it for public comment.

I want to acknowledge the work of some of our staff in bringing this project to fruition. I want to thank the following: From the Office of the General Counsel: James Cappoli, Vince Meehan, Matt Goldin, and Drew Dropkin. From the Office of Economic and Risk Analysis: Martin Schmalz, John Cook, Hanna Lee, and Min Ren. From the Division of Registration and Inspections: Carol Swaniker, Michael Stevenson, and Abena Glasgow.

From other divisions and offices: Noah Berlin in the Division of Enforcement and Investigations, Karen Wiedemann in the Office of the Chief Auditor, and Ted Serafini in the Office of International Affairs.

I look forward to receiving feedback on all parts of today’s proposal.