Statement on Proposals Regarding False or Misleading Statements Concerning PCAOB Registration and Oversight and Constructive Requests to Withdraw from Registration

Chair Williams, I support issuing today’s proposals. 

Proposed PCAOB Rule 2400 is meant to ensure that when the public is assessing audit firms, including when investors are relying on services performed by a firm, that the public and investors are not misled about the extent of PCAOB oversight of the firm’s professional services. Our hope is that the public will not base its expectations of a firm’s expertise or quality solely on the fact that the firm is PCAOB-registered. 

Indeed, through our oversight activities, we have observed that certain firms are emphasizing the fact that they are PCAOB-registered to market themselves and, thereby, attract work. This type of marketing is problematic in cases where a firm’s professional services are not subject to the Board’s inspection or enforcement authority. The mere fact that a firm is registered with the PCAOB does not mean that it is inspected by the PCAOB. In fact, approximately 50% of firms currently registered with the Board do not perform work subject to the Board’s inspection authority. Through this rulemaking, we want to convey that PCAOB registration is not a “seal of approval.” 

Without a doubt, the process for a firm to become registered with the PCAOB is well-defined. The process requires applicant firms to present to the Board fairly detailed information, including identifying associated entities, describing quality control policies and procedures, and disclosing certain disciplinary proceedings. After reviewing a registration application and related materials, the Board determines whether approval of an application is consistent with the Board’s “responsibilities under the [Sarbanes-Oxley] Act to protect the interests of investors and to further the public interest in the preparation of informative, accurate, and independent audit reports.”¹ The Board’s approval of a firm’s registration application does not, however, amount to an endorsement of the firm and does not speak to the quality or excellence of the firm’s professional services. As such, it is important that a firm’s messaging regarding its PCAOB-registration status is precise and accurate, such that the public and investors are not unwittingly misled. 

With these considerations in mind, I fully support issuing the proposal to expressly prohibit false or misleading statements of material fact concerning a firm’s PCAOB registration status. Relatedly, I also support expansion of our Form 3 to require formerly inactive registered firms to publicly report when they have completed work that is subject to PCAOB inspection oversight. 

And, finally, I support the proposal to create a new mechanism for the Board to initiate the withdrawal of firms that appear to be defunct or non-operational. Chasing such firms to comply with annual reporting and fee payment requirements is often futile, as such firms typically do not engage with our staff. If ultimately adopted, this new mechanism will enable us to have a more accurate list of operating firms. 

As with each of our rulemaking projects, it is important that we hear from our stakeholders. Given that, I encourage commenters to share with us their perspectives on today’s proposals. 

In closing, I want to thank the PCAOB staff for their dedication and valuable contributions to this rulemaking project, including: from the Office of General Counsel: James Cappoli, Matt Goldin, Drew Dropkin, and Vince Meehan; from the Office of Economic and Risk Analysis: Martin Schmalz, John Cook, Hanna Lee, and Min Ren; from the Division of Registration and Inspections: Carol Swaniker, Michael Stevenson, and Abena Glasgow; from the Office of the Chief Auditor:  Karen Wiedemann; and from the Office of Internal Affairs:  Ted Serafini. I also want to thank my fellow Board members and my staff for their engagement with me on this rulemaking project. Lastly, I extend my gratitude to the Securities and Exchange Commission’s staff, including the staff of the SEC’s Office of the Chief Accountant, for their support and assistance on this project.

Thank you.