I strongly support the Board's focus on improving the PCAOB's existing quality control standards.
Well designed and effectively operating quality control systems are fundamental to ensuring audits are consistently performed at a high level of quality, and I believe the concept release before us today is an important step forward in our shift towards a more preventative regulatory approach and in taking audit quality to the next level.
Since we adopted our existing standards, the financial reporting and auditing environments have changed significantly, with expanded and more complex accounting and disclosure requirements and significant technological innovations.
Audit firm structures and service delivery models have also changed, and across all industries corporate governance, enterprise-risk, internal control and quality management concepts and frameworks have evolved.
In recent years, audit firms (especially the larger firms) have devoted increased attention to their quality control systems.
While this is certainly positive, the focus on quality is not consistent across firms, and we continue to identify too many deficiencies in our inspections.
Now is the right time, then, for us to bring our standards up to date and to require firms to more consistently incorporate effective quality control elements into their practices.
Today's concept release seeks feedback on possible elements of a strengthened audit quality control framework, including elements not fully addressed in our standards today.
I particularly encourage stakeholders to provide us feedback in the areas of governance, risk assessment, monitoring, continuous improvement, and firm quality reporting. I believe these are areas in which our existing standards can be most improved, as I more fully detailed in a speech this fall that is available on our website.
Regarding our approach, I agree with using the IAASB's proposed ISQM1 as a starting point for our considerations.
Regional and global firms are increasingly managing audit quality on a centralized, network-wide basis.
Unnecessary differences between our standards and international standards could detract from audit quality by diverting firm focus and increasing execution risk.
Stakeholder input will be helpful to focus us on appropriate areas of difference for our standards to address unique US requirements and best ensure high audit quality in our environment.
Of note, consistent with the proposed ISQM1, today's concept release envisions an integrated risk-based and scalable approach to firm quality control, similar to the COSO Integrated Framework that many companies use under SOX for their internal controls over financial reporting.
I believe there is widespread consensus that the quality of US financial reporting has significantly improved since companies increased attention on their related internal controls. Indeed, as a former corporate controller, I saw first-hand the importance of a well-designed and effectively operating control system.
That is why I am passionate about the project we are kicking-off here today. By strengthening our quality control standards, we have the opportunity to similarly promote substantially improved audit quality.
I therefore look forward to and encourage stakeholder input on the concepts presented in our release
In closing, I want to recognize and thank the many staff in the Office of the Chief Auditor and across all our divisions and at the SEC for developing today's proposal and moving this important project forward. I also want to thank our Advisory Groups and the many other stakeholders who over the years have helped inform our thinking on quality control.