PCAOB Chair Williams Delivers Remarks at Standards and Emerging Issues Advisory Group Meeting
Remarks as prepared for delivery
Thank you, [Chief Auditor Barbara Vanich].
Before we begin, I want to issue the standard disclaimer that the views that I express here are my own and are not necessarily the views of the other Board Members or the PCAOB staff.
From workers saving for retirement to parents saving to put their kids through college and anyone who depends on the integrity of our capital markets to invest for their future, people are at the heart of everything we do at the PCAOB. And it’s critical we elevate the voices of the everyday retail investors who we serve.
As you know, reconstituting this Standards and Emerging Issues Advisory Group, the SEIAG, was the first major action we took as a Board. We are grateful for your ongoing feedback as we execute our mission to protect investors.
I want to join Barb in welcoming [Investor Advocate Saba Qamar] and [Stakeholder Liaison Todd Cranford]. I know many of you have already worked with Saba and Todd. If you have not, I encourage you to reach out. We are thrilled to have them on our team.
Together as a Board, we have set ambitious goals for the PCAOB: modernizing our standards, enhancing our inspections, strengthening our enforcement, and improving our organizational effectiveness through initiatives like reimaging our approach to stakeholder engagement.
We have a lot of work ahead of us. The SEIAG will continue to serve a critical role in advising us along the way.
Already we are off to a strong start.
Earlier this year the Board announced one of the most ambitious standard-setting agendas in the PCAOB’s history. Last month we posted an update to that agenda.
We are working actively to update more than 30 standards within 10 standard-setting projects. And we are just getting started. PCAOB staff have put pen to paper on every single project, and they are diligently working to move them as quickly as possible.
Barb is going to provide us with a detailed update on our progress in a moment.
We have already finalized the Other Auditors standard, and we expect to move forward with the Quality Control and Confirmations standard-setting projects before the end of this year.
I want to thank many of you for your input on the importance of performance metrics at both the firm and engagement level. We are taking action.
As Barb will talk more about in a moment, we took the first step by putting this project on our research agenda. Make no mistake, placing this project on our research agenda is a signal this Board is actively working to move it, and we are serious about getting it done.
As you know, this Board was very clear from the beginning that projects would not stay on our research agenda for more than a year. My plan is to move this project to the standard-setting agenda in 2023 and advance it in short order from there. We will continue to rely on your consultation and input along the way.
Inspections are one of the most important tools we have to hold firms accountable and keep investors protected.
Our 2021 inspection reports for the big six accounting firms will be coming out later this year. And we will be issuing a spotlight document highlighting major trends and findings in the coming weeks. So, we encourage everyone to keep an eye out for that.
Our inspections division is constantly adjusting to be responsive to new and emerging risks across the globe – whether it’s SPACs and de-SPAC transactions, cryptocurrencies, or how firms are addressing the effects of supply chain disruptions and rising costs on company operations. This includes our target team, which consists of inspectors who focus on the latest risks and execute in-depth reviews across audit firms using information-gathering inspection procedures that extend beyond traditional inspection procedures. This inspection approach has enabled us to (1) develop observations across audit firms, (2) provide timely insights to inspected audit firms, and (3) inform and shape our future inspection focus areas. Your input is critical as we identify areas for our target team to inspect.
Our inspectors like to say that the “the sun never sets on PCAOB inspections,” because each year, the PCAOB inspects approximately 250 audit firms and reviews 900 audits from across the globe.
But as you know, for more than a decade, our access in mainland China and Hong Kong has been restricted.
In August, we took a first step toward opening up our access in mainland China and Hong Kong. I joined the China Securities Regulatory Commission and the Ministry of Finance of the People’s Republic of China in signing the most detailed and prescriptive agreement we have ever reached.
On paper, the agreement guarantees the PCAOB complete access to inspect and investigate any firm we choose, with no loopholes and no exceptions.
Now we must find out whether what we have on paper holds up in practice.
In September, PCAOB teams began arriving in Hong Kong where they are conducting inspections of firms headquartered in mainland China and Hong Kong and putting that agreement to the test.
By the end of this year, the PCAOB will make determinations whether the PRC authorities have allowed us to inspect and investigate completely or they have continued to obstruct our efforts.
If I sound like a broken record saying, “no loopholes, no exceptions,” good.
The law demands complete access. The agreement we signed with our Chinese counterparts guarantees complete access. And the PCAOB will accept nothing less than complete access when we make our determinations.
This Board is approaching enforcement with a renewed vigilance.
We intend to use every tool in our enforcement toolbox and impose significant sanctions, where appropriate, to ensure there are consequences for putting investors at risk and that bad actors are removed. This includes substantial monetary penalties and significant or permanent individual bars and firm registration revocations.
We are rethinking how we identify cases, the types of cases we pursue, and the sanctions we impose. Those who break the rules should know we won’t be constrained by the types of cases the PCAOB has pursued in the past. We won’t be limited to the level of penalties that have previously been assessed. And we will seek admissions of wrongdoing in appropriate cases – for example, where the conduct is intentional or egregious.
Under this Board, we’ve more than doubled the total dollar amount of penalties imposed against individuals in 2022 as compared to each of the past five years. This includes breaking the record for the largest money penalty ever imposed on an individual in a settled case – twice.
At the same time, we’ve quadrupled the average penalty against firms in cases where firms fail to meet PCAOB reporting requirements. And we’ve increased the average penalties against firms in all other cases by about 50%.
In the past five years, the PCAOB assessed penalties against individuals less than half of the time and firms only about 86% of the time. This year it’s 100%.
None of this is possible without the expertise, dedication, and hard work of our incredible PCAOB staff. Along with Barb, I want to thank Michael Gurbutt, Patrick Kastein, Sky Simms, Jessica Watts, Jonathan Fluharty-Jaidee, Brian Degano, and Stephanie Hunter for presenting here today, and the teams from our offices of Communications and Engagement; Chief Auditor; and Data, Security, and Technology, who work behind the scenes to make this meeting possible. They have put together a robust and informative agenda covering an array of topics. We are interested in hearing your perspectives.
As Barb mentioned, during the meeting today she will share additional details on all the work her team is doing to modernize our standards.
Each one of those projects requires robust economic analysis from our team in the Office of Economic and Risk Analysis, or as we refer to them, OERA. Later today you will hear from Michael and Patrick who will provide an overview of the great work performed by OERA. This includes, in addition to economic analysis, post-implementation reviews, risk analysis to support our inspections and enforcement efforts, economic modeling, business intelligence, and research.
Next, we will hear from Sky, Jessica, Jonathan, and Michael on firm and engagement performance metrics, including metrics that are publicly available today. As part of their presentation, we look forward to discussing how such metrics are used today and what additional metrics would be useful when evaluating firms.
We will then close with Brian and Stephanie, who will lead a discussion where we hope to hear your views and experiences regarding how auditors consider fraud. They will cover certain fraud-related topics, including anti-fraud programs and controls, lessons that can be learned from other professions, the competence necessary to be able to detect fraud, and the role that technology is playing in performing audit procedures to identify fraud.
Thank you again to all the members of our Standards and Emerging Issues Advisory Group for being here today. Now I would like to turn the program back to Barb to get us started.