Statement on Proposed Amendments to AS 6101 – A Positive Step for Negative Assurance

Remarks as prepared for delivery

Thank you, Chair Logothetis.

I support issuing these proposed targeted amendments for public comment. I appreciate the work of the staff across the PCAOB. In particular, I would like to thank Dominika Taraszkiewicz, Jessica Watts, Lisa Calandriello, Kevin Lombardi, and Clair Sever in our Office of the Chief Auditor. I would also like to thank Ying Compton, Rahsan Inget, John Cook, and Shayna Vereen in our Office of Economic and Risk Analysis for their contributions to the proposal. I also want to start by recognizing the contribution of our former Deputy Chief Economist, Erik Durbin, who served with distinction on the PCAOB staff before leaving the PCAOB to explore new opportunities. I also appreciate the feedback already provided by investors, auditors, issuers, underwriters, and other interested parties.¹

A brief look at the history of the 135-day convention may help explain the need for these targeted amendments. The fixed day convention² in AS 6101 was based on SEC financial reporting requirements adopted in 1980.³ For perspective, that was before personal computers such as the Commodore 64 became commonplace, before widespread use of the World Wide Web, and before electronic filing through the SEC’s EDGAR system. The PCAOB inherited the convention when it adopted its interim standards back in 2003. The 135-day convention has now stretched across four decades. Longevity alone should not make a standard obsolete. After more than 30 years, we should ask whether the fixed day convention imposed by AS 6101 remains the most effective way to serve its purpose.

Against that backdrop, the proposal would replace the 135-day convention with an approach tied to applicable filing deadlines. Under the proposal, an auditor could provide negative assurance after the end of the most recent period for which the auditor performed an audit or review and before the filing deadline for the issuer’s next required annual or interim financial statements.

This change is sensible for several reasons. It better aligns our standard with issuers’ actual reporting obligations. It also accommodates different filing schedules and can adapt if those schedules change. Markets generally function better when regulation provides appropriate safeguards without tying transactions to an outdated calendar.

Still, feedback to date highlights an important tradeoff. Retaining the 135-day convention preserves a clear guardrail tied to recent audit or review work. But it may also restrict capital raising, encourage additional interim reviews, or effectively preserve quarterly practices for semiannual filers.

That tension underscores the need for additional evidence. We welcome feedback on how best to balance capital access, cost, auditor risk, and investor protection. Concrete evidence on these tradeoffs would be especially helpful.

The proposal also recognizes that timing alone cannot determine whether negative assurance is appropriate. I believe the proposed note to paragraph 46 provides useful direction. The auditor would consider the relevant circumstances—including management’s ability to answer inquiries, the effectiveness of internal controls, going-concern issues, restatements, changes in certain personnel, and any change in auditor. I welcome comment on whether the proposed note to paragraph 46 gives auditors sufficient direction in deciding whether to provide negative assurance.⁴

In addition to this principles-based direction, the proposal preserves a clear boundary: if an issuer fails to file its next required financial statements on time, the auditor may not provide negative assurance under the proposed framework.

The economic effects of the proposed approach deserve careful consideration. The current rule may affect the timing or cost of capital raising. In some cases, issuers may prepare additional interim financial information or obtain additional reviews. In others, underwriters may undertake further due diligence or delay a transaction.

At the same time, providing negative assurance over a longer period may involve added risk and cost. Audit firms may need to revise methodologies and train personnel. Some engagements may require more extensive procedures. Investors could also place too much weight on limited procedures performed long after the latest audit or review.

Public comment should help us assess the likely benefits, costs, and unintended consequences. In particular, useful evidence would address current market practices, transaction costs, capital formation and competition, auditor risk, investor understanding and protection, and effects on emerging growth companies and smaller issuers. That evidence will help us determine whether the proposal achieves the appropriate balance.

Thank you.