Statement in Support of Firm Reporting Proposal

Remarks as prepared for delivery

Good afternoon and thank you again, Chair Williams.

I am pleased to support the Firm Reporting proposal before us today.

Audit firms serve a critical role in our capital markets. They act as public stewards in a gatekeeping role to protect investors and provide trust within the public company reporting framework.

As a result, information concerning firms’ ability to conduct quality audits is of paramount importance. Investors, audit committee members, and issuers use this information to inform their assessments and related decisions. And we ourselves use it to perform our oversight activities in pursuit of the public interest.

This proposal’s focus is enhancing firms’ disclosure of this type of information. By requiring new or additional information about firms’ governance, finances, and, to the extent applicable, network information, as well as more timely and detailed reporting on certain events, this proposal strives to improve our view into firms’ operations. And, to the extent it is permissible, we would make that information available on our website for the benefit of investors and other stakeholders.

The PCAOB was established in response to a series of events that caused investors to question financial reporting and the audit itself. It was abundantly clear to those of us at the time that the auditing profession was thrust into a crisis. It is not surprising, then, that concerns over audit firm health and viability remain a priority for us and a focus of all our oversight activities. While thankfully we have not experienced events similar to those of the early 2000s, today we do find ourselves in a rapidly evolving and challenging audit environment. In addition to wider geopolitical and economic events that require new responses and approaches, we are seeing transformations in firm governance and structure, including but not limited to investments from private equity. Against this backdrop, the need for high-quality audits, independence, and a vibrant audit ecosystem, has never been greater. We, and others in that ecosystem, all have a role to play. The information in this proposal supports these goals.

As I noted in connection with the proposal for Firm and Engagement Metrics, we endeavor to issue standards and rules that promote transparency. However, such transparency must be weighed against the risk of disclosing certain types of information, as well as our own statutory obligations. Some of the information in this proposal -- financial statements and certain material events and cyber security incidence reporting -- would be collected on a confidential basis. The proposal notes that staff has weighed the “potentially sensitive and developing nature of the information requested, and the Board’s obligations under Sarbanes-Oxley” (p.19). I encourage commenters to offer thoughts, particularly if there are other factors to consider in this assessment.

While this information would not be available to the public, it would be used to inform the PCAOB’s own oversight activities. Before stepping into my current role as a Board member, I spent many years in our Division of Registration and Inspections, so I recognize the particular value of such information to our inspections program. It would not only offer guidance on areas to monitor or inquire after for a specific firm, but also identify wider concerns within specific sectors that merit additional attention.

Indeed, many of the details of this proposal derive from previous staff experience with the existing reporting requirements from 2008. As part of our ongoing oversight activities, we have received important information about firms’ operations on a voluntary ad-hoc basis in which firms may call and “alert” various PCAOB staff of pending matters or firm actions. Having been the recipient of many of these voluntary calls, I can confirm how helpful this information was. It allowed the staff to be more informed and able to respond and ask further probing questions and perform other oversight procedures, as warranted. This proposal takes the insights gained from those interactions and standardizes them to allow for comparable and timely collection that facilitates access and efficient sharing with offices and staff across the PCAOB.

I mentioned earlier that we all have a role to play in the auditing ecosystem to identify and respond to risks and ensure its continuing vibrancy. That is why I support issuing this proposal, and also why I welcome and encourage comments from all stakeholders on it. No voice is too small for us to consider. I note a few specific features that I would particularly appreciate comment on.

• First, the proposal requires the filing of financial statements, on a confidential basis, from firms with over 200 audit reports for issuers and over 1,000 staff, explaining that we weighed this subset of firms’ significance to the overall audit market against the cost of such statements. Do commenters have thoughts on the proposed scope of this requirement, or the nature of financial statements required? Do commenters believe that this requirement should extend to all annually inspected firms?
• Second, the proposal includes several changes to Form 3’s reporting requirements. It would revise the reporting deadlines from the current 30 days to 14 days, or more promptly as warranted. And it would add a general special reporting obligation for certain material risks or changes. Again, do these proposed changes strike an appropriate balance between the need for this information and the burden imposed on firms? And are the proposed requirements clear?

I will end once again with thanks to the staff for all of their hard work on this project. I am particularly appreciative of the time they spent answering my questions on this proposal. From the Office of the General Counsel, James Cappoli, Connor Raso, Katherine Kelly, Damon Andrews, and Marc Francis; from the Office of Economic and Risk Analysis, Martin Schmalz, John Cook, Dylan Rassier, and Carrie Von Bose; from the Office of the Chief Auditor, Jessica Watts, Lisa Calandriello, Linnette Klinedinst, and David Ellam; from the Division of Enforcement and Investigations, Kristin VanFossen, John Abell, Kyra Armstrong, Brett Collings, and Tina Bell; and from the Division of Registration and Inspections, Christine Gunia, Tim Sikes, Carol Swaniker, Michael Stevenson, Alan Kerwin, Pamela Robinson, Eugene Theron, Kathleen Ostasiewski, Kevin Taylor, and Abena Glasgow.