Statement on Negative Assurance Related to Comfort Letters

Remarks as prepared for delivery

Thank you, Chairman.

I support putting this proposal out for comment.

Let me start with how I think about this proposal, because the issue is actually pretty simple.

In securities offerings, underwriters often ask auditors to provide negative assurance about whether certain financial information has changed since the most recent financial statements. Our current standard puts a limit on how far back that financial information can go.

That is where the 135 days comes in. Once the most recent financial statements are 135 days or older, you can end up with a gap where the auditor cannot provide that negative assurance until more current financial information becomes available.

But here is the thing about 135 days. There is nothing magic about that number, even though there was a reason for it. It reflected the reporting framework at the time. But 135 days was never the point. The point was to make the standard work with the reporting framework.

And this is not just a hypothetical problem.

There can be a period today where a company is completely current with everything it is required to file with the SEC, but its most recent financial statements are already 135 days or older. During that gap, the auditor may be unable to provide negative assurance even though the company is not yet required to file its next set of financial statements.

So we have a reason to address this regardless of what may or may not happen with future SEC rulemaking.

This also connects to something I talked about in my first statement as a member of this Board.

10 years ago, I served on the SEC's Advisory Committee on Small and Emerging Companies, and much of that work involved pre-IPO companies. Compliance and reporting requirements were part of their decisions about whether to go public at all or whether to list in the United States.

I mentioned that then because I think we need to pay attention to how our requirements work in the real world, including their effect on capital formation.

This proposal is a good example.

Companies do not plan their capital needs around a 135-day clock in a PCAOB auditing standard. Opportunities arise. Markets change. A company may determine that it is the right time to raise capital. Our standard should not unnecessarily get in the way simply because a certain number of days has passed.

And that gets me to what I think is really the question here. Why replace 135 with some other number? If what matters is the reporting deadline, why not tie our standard to the reporting deadline?

That is what this proposal does. And I think it gives us a more durable standard. If reporting requirements change again down the road, we should not have to come back here just to change the number again.

And just to be clear, this does not mean the auditor automatically provides negative assurance all the way up to that deadline.

The auditor still has to decide whether providing negative assurance is appropriate under the circumstances. The proposal gives the auditor factors to consider in making that decision. That judgment does not go away.

So, for me, the proposal makes sense. It addresses a problem that exists today, it avoids putting an unnecessary obstacle in the way of capital formation, and it gives us an approach that can continue to work if the reporting framework changes.

I want to thank Dominika Taraszkiewicz, Jessica Watts, Lisa Calandriello, Clair Sever, Ying Compton, Rahsan Inget, and all of the other PCAOB staff who worked on this proposal. I also want to thank our colleagues on the SEC staff for their help and engagement. I appreciate all the work that went into getting us here.

And this is a proposal. I am looking forward to hearing from issuers, auditors, underwriters, investors, and others who actually deal with these issues.

I want to know whether this works in practice, whether we have gotten the balance right, and whether there are consequences we have not thought about.

I look forward to the comments and to engaging with those commenters as we consider where to go from here.

Thank you.