Remarks at the 2025 Los Angeles Forum on Auditing in the Small Business Environment and on Auditing Broker-Dealers

Remarks as prepared for delivery

Good morning. Thank you, Kent, for that kind introduction. 

I am always thrilled to be here in the City of Angels—and, for baseball fans, the home of the 2025 World Series champion Los Angeles Dodgers, congratulations! More importantly, I am happy to welcome you to today’s PCAOB Forum on Auditing in the Small Business Environment and on Auditing Broker-Dealers. This is the latest in a two-year series of meetings in cities around the nation, dedicated to issues facing smaller audit firms and their clients. ¹

Before I continue, I want to thank the team from our Office of Communications and Engagement for organizing this event. And I should make clear that the views I express today are my own and do not necessarily represent those of the full Board, my fellow Board members, or the PCAOB’s staff.

It is fitting that our last Small Business Forum for 2025 is in California. More than 10 per cent of the triennially inspected U.S. accounting firms registered with the PCAOB are headquartered in the state. These forums are directed at you: the partners and staff of smaller accounting firms.

Our hope is to explain our operations with an emphasis on issues that affect smaller firms. But more than that, we hope to learn from you, whether through questions, comments, and even criticism, about our work and your experience of our work. What parts of our work do you find helpful? Where would additional guidance reduce difficulties? Do you have questions or face challenges as you implement QC 1000, or are there unclear parts of our inspection procedures?

I look forward to meeting and hearing from you during the day. I want to encourage you to participate in each session and to engage with us during breaks. I hope to hear your ideas about what we can do together to support America’s vibrant capital markets.

Today, you will hear presentations, with illustrative examples, about PCAOB inspections of broker-dealer audits, PCAOB inspections of issuer audits, PCAOB enforcement, and PCAOB standard-setting. Presentations will include a discussion of audit risks associated with revenue, cash flow projections, and related party transactions, a review of exemption reports, and a discussion of resources that the PCAOB has recently released to assist auditors in their implementation QC 1000, A Firm’s System of Quality Control, and other audit standards. ² You will also be hearing from staff from the Financial Industry Regulatory Authority. I want to thank them for their participation.

My colleagues and I have regularly found these events to be very informative and invigorating. We also return with new ideas and insights for our common goal of enhancing audit quality.

We naturally hope that you will find this to be a day of education and engagement. Equally important, I hope you will conclude that this Forum, and others like it, show that we at the PCAOB are committed to supporting a vibrant audit profession of all sizes that is ready, willing, and able to provide high quality audit services to support public companies and broker-dealers. 

My colleague George Botic likes to point out that Boeing, Coca-Cola, Bank of America, and Kroger have something in common: 

“Before they were household names and [industry] leaders [,] they were all audited by . . . smaller local accounting firms.” ³

Among the raft of smaller public companies today, in a time of great change, you may be auditing companies with a similar trajectory. Your commitment to audit quality and investor protection are both critical. It is exciting to see that the firms attending today audit nearly 150 issuers and 24 broker-dealers.

Smaller firms have real, and critical, strengths, such as a focus on certain industries, deep knowledge of certain localities, the ability to mentor staff through the classical apprenticeship model, and, ultimately, the possibility of knowing their clients as members of the community and as business leaders. 

We all acknowledge that this is a time of rapid and perhaps unequaled change for auditors. Advances in technology, especially AI, raise basic questions about how financial statements will be prepared and how they, and the issuer’s internal controls, will be audited. AI may produce operating benefits, but we know that it can also create millions of fake invoices at the speed of light. Of course, similar issues are affecting knowledge industries across the economy.

The costs of responding to advances in technology, coupled perhaps with the costs of partner retirement benefits, have led an increasing number of firms – not just in the United States – to either merge with one another, take on substantial debt, or split into two parts, linked by a services agreement, with the non-attest function taking on substantial equity investment.

Fewer young people are pursuing accounting as a career, whether it is because of compensation or work-life balance. I note that California has eliminated the 150-hour rule, although there will be a one-year implementation period before the new licensure requirements kick in at the beginning of 2027. ⁴

So, lots of changes are happening at the same time and very quickly. As you navigate these changes, we at the PCAOB are committed to supporting a vibrant audit profession of all sizes that is ready, willing, and able to provide high quality audit services that support public companies and their investors—of all sizes. To achieve that goal, audit quality—grounded in honest risk assessment and firm governance and leadership—remains the touchstone. That’s not only because audit quality is foundationally important to investors in every public company, large or small. It’s also because audit quality is vital for capital markets to deliver its benefits to the broader economy. 

Quality audits support efficiency across our economy, assuring that when investors make decisions, they are doing so on the basis of good information. I want to note that in this regard the greatest improvement in audit quality (or decrease in Part I.A deficiency findings) in our 2024 inspections was for U.S. triennially inspected firms. This is important not just for audit firms, but for the strength and resiliency of our smaller public companies and broker-dealers. Audit committees, boards, and management depend on their independent auditors to support them with the quality information they need to help steer companies away from problems, and towards their strengths and even new opportunities. Of course, audit quality helps support the strength of smaller audit firms themselves, enhancing choice and competition in the marketplace. 

We at the PCAOB, together with our sister capital markets regulators, want to understand how we can better support you through these challenging times. How can we innovate, not only in terms of providing greater clarity in standards and around inspections but also to help you address the fundamental challenges of this rapidly changing landscape. Whether involving technology, the need for capital, or changes in the young auditor pipeline, there may be a number of ways we can be helpful, such as offering new guidance or publicly available training, providing new ways to utilize our data, and more. But we want to hear from you what is the most effective for you. And, we want to hear your new ideas for how we can support new innovations in the smaller auditor marketplace. In other words, we want to know how we can support you in addressing the challenges you face. Because we know that one size does not fit all.

Thank you again for joining us today, and for sharing your thoughts, ideas, and questions. Working together, we can support a vibrant smaller audit sector that is strong and resilient for whatever comes next.