Statement in Support of the Quality Control Proposal

Remarks as prepared for delivery

Thank you, Chair Williams.

I am pleased to support today’s quality control proposal. It is a game changer in our efforts to modernize PCAOB standards. I believe the proposal will improve audit quality and contribute to investor protection.

A firm’s system of quality control is foundational to the performance of high-quality audits in accordance with PCAOB standards. Under the Sarbanes-Oxley Act, the PCAOB must promulgate quality control standards that address critical aspects of a firm’s system of quality control. The Board adopted its current quality control standards on an interim basis in 2003. Auditing, as well as the structure of many audit firms, have changed significantly since that time. It is therefore appropriate that we modernize and strengthen our quality control standards.

There is no doubt that audit quality has improved under the PCAOB’s watch. Part I.A deficiency rates decreased significantly from just under 40% in 2010 to 28% in 2020. It is important to note, however, that we have seen a modest increase in the number of Part I.A findings over the last couple of years. Moreover, we continue to see repeat and persistent deficiencies in audit procedures performed in important areas, including internal controls over financial reporting, revenue recognition, and estimates. These inspection findings suggest that some firms are struggling to make effective changes to their quality control systems.

The proposed quality control standard is far more comprehensive than current PCAOB standards. I believe the proposal would have a positive influence both on how individual audit engagements are conducted and on the firm’s audit and assurance practice as a whole.

The proposal aims to –

• Incentivize firms to think proactively about emerging risks to quality control and have an ongoing risk assessment process;
• Require firms to have robust monitoring systems in place that contribute to effective corrective actions and improved audit quality;
• Emphasize “tone at the top” and individual accountability;
• Provide additional direction regarding monitoring activities and remediation of identified deficiencies on completed engagements; and
• Expand quality control-related reporting to the PCAOB to reinforce our oversight activities.

The proposal builds on parallel standards adopted by the IAASB and AICPA and includes appropriate elements of scalability for the various size firms that we regulate. I look forward to reviewing comments on today’s proposal to enhance our quality control standards.

I would like to thank the PCAOB staff for the long hours and hard work they have devoted to preparing the recommendations before us today. In particular, I want to thank Barb Vanich, Jessica Watts, Ekaterina Dizna, Linnette Klinedinst, Schuyler Simms, and Karen Wiedemann, in the Office of the Chief Auditor; Mike Gurbutt, John Cook, Nick Galunic, and Dylan Rassier in the Office of Economic and Risk Analysis; and Drew Dropkin, Jennifer Williams, and Connor Raso, in the Office of the General Counsel.

Thank you.