Statement in Support of Releasing the PCAOB’s Proposed New Confirmation Standard for Public Comment

Remarks as prepared for delivery

I support today’s proposal.

Evidence obtained by the auditor from a knowledgeable third-party source outside the company generally is more reliable than evidence obtained only from internal company sources, and confirmations have long been used on nearly every audit.

A well-designed and well-executed confirmation process can be an effective and efficient way to validate various financial statement assertions—such as completeness, existence, or obligations. Confirmations can also be useful in validating terms of significant transactions, identifying related parties and addressing risk of misstatement from fraud.

Today’s proposal serves to modernize our “interim” confirmation standard adopted by the Board in 2003 to account for changes in the business environment since then, including the electronic transmission of confirmation requests and responses and the use of technology and third-party intermediaries to facilitate the confirmation process.

The proposal also strengthens and clarifies our existing confirmation requirements, maintaining a principles-based approach within the context of our risk assessment standards.

Of note, if adopted, the proposal will require auditors to confirm selected cash and cash equivalent amounts held by third parties; and the auditor also should consider confirming other financial relationships, such as lines of credit, guarantees or off-balance sheet arrangements. These procedures can improve the reliability of audit evidence obtained and increase the likelihood of detecting potential fraud.

Further, the proposal clarifies the auditor’s responsibilities to evaluate confirmation responses and confirmation exceptions, and to perform alternative procedures on incomplete or non-responses.

Taken collectively, the changes proposed today are intended to better ensure the auditor obtains sufficient and appropriate audit evidence in support of the auditor’s report.

Please let us know what you think by responding to our questions in the proposal. Your feedback is invaluable in helping us craft the best possible final standard.

I would like to recognize and thank all the staff from across the PCAOB’s Divisions and Offices who have contributed to today’s proposal, especially Barb Vanich, Dima Andriyenko, Lisa Busedu, David Hardison, and Dani Verbeck in the Office of the Chief Auditor; Mike Gurbutt, Tian Liang, Tasneem Raihan, and John Cook in the Office of Economic and Risk Analysis; and Annie Yan, Keisha Patrick, and Connor Raso in the Office of the General Counsel.

I also thank my fellow Board Members and their staff; Brent Simer, Katie Driscoll and Lucia Carromba from my team; and the staff from the SEC’s Office of the Chief Accountant for their collaboration and sharing of perspectives on this important project.