Statement in Support of the Adoption of Firm Reporting

Remarks as prepared for delivery

Thank you again, Chair Williams.

I am pleased to support the adoption of Firm Reporting, which consists of amendments to the PCAOB’s annual and special reporting requirements to mandate the disclosure of more complete, standardized, and timely information by registered public accounting firms.

Prior to the adoption of these amendments, the basic framework of the PCAOB’s annual and special reporting requirements has not been substantially reconsidered since its adoption in 2008. The world has changed a great deal over the last sixteen years. Concerns over audit firm health and viability remain a priority for us and a focus of all our oversight activities, but the circumstances that impact those factors have changed. Significant investments in advanced technologies, transformations in firm governance and structure, including but not limited to investments from private equity and other financing arrangements, and an auditor pipeline challenge have ushered in a time of turbulence for the audit profession. Against this backdrop, the need for high-quality audits, independence, and a vibrant audit ecosystem, has never been greater. These amendments support these objectives by providing the PCAOB with the information it needs to conduct its oversight activities efficiently and effectively.

The recommendation before us today mandates the disclosure of additional information either annually, on Form 2, or as a special report when certain events occur, on Form 3. Our oversight activities and investor protection objectives depend on our receiving information from firms in a consistent and timely manner so that we may respond promptly and effectively.

These annual and special reporting rules benefit from staff experience over the past sixteen years. Because of my many years spent as a staff member in our Division of Registration and Inspections, I am particularly cognizant of the value that these new reporting requirements will bring to our inspection program. They will not only offer guidance on the firms that need monitoring, or the need for inquiry into a given firm, but will also help to identify wider concerns within specific sectors that merit additional attention. I am confident that our staff will put this information to good use across all our oversight activities.

I would like to highlight two features of this recommendation that I found of particular importance:

• First, enhanced audit firm fee information, governance and network information, and information related to a firm’s cybersecurity policies and procedures will be reported publicly. Access to this information will help investors, audit committee members, and other users of financial statements better understand how firms are functioning and therefore provide a valuable resource for their decision making.

• Second, as noted in the release, these reporting requirements have been designed to augment other aspects of our rules and standards. For example, the information they collect will be useful not only on its own, but also in conjunction with other public information regarding audit firms, including existing Form AP information and, pending SEC approval, Firm and Engagement Metrics. In addition, the reporting amendments require that firms provide a description of the firm’s external oversight function for the audit practice, which supplements certain requirements of recently adopted QC 1000. By focusing on firm structure and governance, as well as events that pose a material risk or represent a material change to a firm’s organization, operations, liquidity, or resources, this recommendation will provide information that integrates into many of our most impactful programs. Different standards have different focuses, but they work together to advance the PCAOB’s goals of investor protection and audit quality.

As I mentioned at the proposal stage, the PCAOB was established in response to a series of events that caused investors to question financial reporting and the audit itself. Those of us who were there have a vivid recollection of those days. While thankfully we have not experienced events similar to those of the early 2000s, we must remain vigilant to identify events that might affect the healthy functioning of audit firms, and by extension, the health of our capital markets. That is what this recommendation is designed to do.

I want to thank all the commenters who provided letters. Your thoughts and perspectives are always appreciated and helpful. I would also like to acknowledge the many staff members who worked tirelessly on this release and took the time to meet with me and my staff on multiple occasions and multiple drafts. I extend my gratitude to James Cappoli, Connor Raso, Katherine Kelly, Damon Andrews, and Marc Francis from the Office of the General Counsel; to Martin Schmalz, Erik Durbin, Dylan Rassier, and Carrie von Bose from the Office of Economic and Risk Analysis; to Jessica Watts, Karen Wiedemann, Linnette Klinedinst, and David Ellam from the Office of the Chief Auditor; to Kyra Armstrong, John Abell, Brett Collings, Tina Bell, and Kristin VanFossen from the Division of Enforcement and Investigations; and to Christine Gunia, Tim Sikes, Carol Swaniker, Michael Stevenson, Alan Kerwin, Pamela Robinson, Eugene Theron, Kathleen Ostasiewski, Kevin Taylor, and Abena Glasgow from the Division of Registration and Inspections.