Statement on Concept Release on Potential Approach to Revisions to PCAOB Quality Control Standards
Thank you Mr. Chairman
A firm's effectively functioning quality control (QC) system is at the heart of our statutory mandate. That is, when it is functioning as intended, the firm issues informative, accurate, and independent audit reports.
Since the PCAOB was created, audit quality has generally improved across firms of all sizes. However, using the last two years of PCAOB inspection reports issued for the six U.S. global network firms as a data point, we are seeing audit quality leveling off. Of those six firms, only three had the percent of inspected audits with identified deficiencies go down (or improve) from prior year results. Further, we are seeing inconsistencies in practice with how these firms QC systems are designed and operate. Consequently, more needs to be done – not just by the firms we regulate, but by us – to facilitate firms improving audit quality. As a result, I support the staff's recommendation to issue the concept release before us today.
I believe the concept release suggests a practical approach to improve our quality control standards by leveraging the work performed by the International Auditing and Assurance Standards Board on their proposed standard, ISQM 1, and supplementing it with requirements on certain aspects of a firm's quality control system that we believe warrant greater attention. It is my intention that we employ an approach that avoids unnecessary differences from our regulatory counterparts – both in the U.S. and abroad – as this will only lead to confusion and challenges for firms whose quality control systems must comply with more than one regulator's requirements. I believe the principle and risk-based approach described in the concept release will provide the necessary flexibility for firms to comply with the requirements regardless of their size and complexity and the nature of the engagements they perform.
Although informed by our oversight activities, I'm interested in understanding the views of investors, audit committees, preparers, audit firms, academics, and others. The concept release includes numerous questions, including questions within questions, in order for us to make sure no stone is left unturned before we consider moving forward with a proposal.
Thank you to our staff in Office of the Chief Auditor for all their hard work in bringing this concept release before us today. In addition, I would like to thank our staff in the Office of Economic and Risk Analysis and the Office of General Counsel for their contributions. I also would like to express my appreciation to the staff at the SEC for their assistance.
 BDO USA, LLP; Deloitte & Touche LLP; Ernst & Young LLP; Grant Thornton LLP; KPMG LLP; and PricewaterhouseCoopers LLP