Statement in Support of the Adoption of General Responsibilities of the Auditor in Conducting an Audit, and Amendments to PCAOB Standards

Remarks as prepared for delivery

Good morning and thank you, Chair Williams.

I am pleased to support the adoption of AS 1000, General Responsibilities of the Auditor in Conducting an Audit, and related amendments to PCAOB standards.

When the Board adopted its Strategic Plan 18 months ago, modernization of the PCAOB’s auditing standards was the first goal. And rightfully so. AS 1000 replaces and improves a foundational set of four standards that had not been updated significantly since their adoption as interim standards 21 years ago (and have their roots decades before that). These foundational standards represent the general principles and responsibilities of the auditor when performing an audit and consist of reasonable assurance, due professional care, professional skepticism, independence, competence, and professional judgement. Collectively, these areas represent the necessary building blocks for high quality audits.

This standard is an evolutionary change that should not be considered trivial. AS 1000 and the related amendments modernize, clarify, and streamline the general principles and responsibilities of the auditor. These changes reframe the auditor’s fundamental obligations: those that address the general responsibilities of an auditor in the audit. Instead of changing or altering the auditor’s responsibilities, the standard and amendments serve to streamline and clarify auditor responsibilities while also enhancing the useability of the standard by making it easier to read, understand, and apply. These changes are informed by 20 years of the PCAOB’s inspection and enforcement experience.

I would like to emphasize what I view as key aspects of this standard.

First, the standard’s introductory language reaffirms the auditor’s fundamental obligation to protect investors through the preparation and issuance of informative, accurate, and independent auditor’s reports. As a foundational standard, it is critical to underscore the interests of investors in the bedrock of our standards.

As I have reflected on the importance of the standard’s introductory paragraphs, I encourage accounting professors and firms to make these required reading for all future and current auditors. For auditors advancing in their careers, this will serve as a good reminder and anchor of the fundamental purpose, importance, and ultimate consumer of their work. As William O. Douglas, one of the principal drafters of the Securities Act of 1933, U.S. Securities and Exchange Commissioner, and Supreme Court Justice, put it nine decades ago, “[T]he duty placed on experts such as accountants [and auditors] has not been measured by the expert’s relations to his employer but by his service to investors.”1

Second, the standard adds context to the concept of reasonable assurance. Existing standards require the auditor to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether caused by error or fraud, or, in an audit of internal control over financial reporting, whether any material weaknesses exist as of the date of management’s assessment. Reasonable assurance is defined as a “high level of assurance” but is not “absolute assurance” because of the nature of audit evidence and the characteristics of fraud.

AS 1000 does not change the meaning of reasonable assurance or the requirement to obtain it. The standard, however, continues to emphasize that reasonable assurance is a high level of assurance which is obtained by reducing audit risk to an appropriately low level through the application of due professional care.

Third, the standard notes the required components of the auditor’s report, including – if applicable – critical audit matters, or CAMs. The adopting release cites the determination of CAMs as an example of the auditor’s professional judgment. As the determination of CAMs is an important part of the auditor’s reporting responsibilities and one that is of great importance to investors, I am pleased to see the visibility of this important assessment in this standard.

Finally, the standard’s new requirement related to the acceleration of the documentation completion date from 45 days to 14 days is justified and also responsive to the unique circumstances of smaller firms. While this new requirement may not challenge larger firms, I paid particular attention to the two comment letters on this topic received from firms inspected on a triennial basis. One of these letters did not address the impact of this acceleration, while the other suggested a phased-in approach for the documentation completion date acceleration for smaller firms. I am pleased that this suggestion has been addressed within the standard.

Given that smaller firms may have less technologically advanced systems, it is reasonable that they may need more time to implement processes to comply with the accelerated documentation completion date requirement. The standard’s phased-in approach, which provides smaller firms additional time to comply with the 14-day documentation completion date, is warranted.

As with the operation of any complex system, a successful audit outcome is based on having a solid foundation of secure and interlocking building blocks. I am confident that AS 1000 will provide that solid foundation for auditors both now and well into the future.

I want to thank all those whose contributions brought us to adoption today. In particular, thank you to the individuals and firms that took the time to provide comment letters; this final standard was enhanced by your feedback. And I extend my deep gratitude to Barb Vanich, Dominika Taraszkiewicz, Ekaterina Dizna, Hunter Jones, Cheryl Hennig, and Akiko Upchurch in the Office of the Chief Auditor; Martin Schmalz, Michael Gurbutt, and Dylan Rassier in the Office of Economic and Risk Analysis; and Connor Raso, Vince Meehan, and Katie Reilly in the Office of the General Counsel for their hard work over these many months.


1 Willam O. Douglas and George E. Bates, “The Federal Securities Act of 1933,” 43 Yale Law Journal 171 (1933).