Statement on the Adoption of Amendments Related to Aspects of Designing and Performing Audit Procedures that Involve Technology-Assisted Analysis of Information in Electronic form – Catching up to the Technology Advancements

Remarks as prepared for delivery

Thank you, Chair Williams. In my June 2023 statement in support of the proposal, I noted that although limited in scope since the proposal did not address the use of emerging technologies in audits such as artificial intelligence (AI), advanced automation or emerging areas such as digital assets, I considered the proposal an important step in setting auditing standards for the 21st century. I appreciate all the thoughtful comments from our stakeholders. Commenters were supportive of modernizing the relevant standards due to technological advancements in the past two decades. Today I am pleased to support the final adoption.

Although I support the adoption of this standard today, I have concerns about the number of standards that will become effective by next year and the associated impact on the firms’ capacity to effectively implement all the newly adopted standards. Subject to SEC approval, this standard will become effective for audits of financial statements for fiscal years beginning on or after December 15, 2025. Other standards that will become effective within the next two years include¹:

• Other Auditors: effective for audits of financial statements for fiscal years ending on or after December 15, 2024.
• AS 1000: subject to SEC approval, generally effective for audits of financial statements for fiscal years beginning on or after December 15, 2024.
• Confirmations: effective for audits of financial statements for fiscal years ending on or after June 15, 2025.
• Quality Control: subject to SEC approval, effective on December 15, 2025.
  

Ultimately, it will be the auditors’ responsibility to implement these standards; however, there will also be an effect on issuers, including the likely increase of audit fees resulted from additional auditing procedures as well as additional documentation requests. Only time will illuminate the associated impacts of these standards. The PCAOB can help by continuing to conduct and publish the results of our Post Implementation Reviews (PIRs) and associated analyses on the above standards. One commenter who generally supported this particular initiative also stressed the importance of monitoring the impact by stating “We believe that the PCAOB should monitor the impact of the implementation of these standards to ensure that they do not serve as a deterrence or reduction in their use. The use of these powerful technology-based tools in audits, when used appropriately, can be impactful in reducing audit risk and audit failures – which benefits the public.”²

Separately, the adopting release indicates that “The amendments are focused on addressing certain aspects of technology-assisted analysis, not specific matters relating to other technology applications used in audits (e.g., blockchain or artificial intelligence) or the evaluation of the appropriateness of tools under the firm’s system of quality control.” In other words, this standard was not intended to cover the use of AI and other similar technologies in conducting public company audits. Some commenters took note of this scope limitation in the proposal and encouraged PCAOB to expand the scope to include AI.³ I agree that AI is an important area for regulators to consider given the opportunity to improve audit quality as well as potential risk of misuse, and I believe that PCAOB should continue to learn more about AI and gain further insights regarding the impact on issuers and auditors. Many technology companies have invested in AI for years. The American public has already adopted AI technology in many aspects of their lives with the proliferation of smart wearable devices to monitor personal health and use of smart phones as well as home devices with voice generated AI. Furthermore, I learned from my time working with federal agencies that some federal agencies started to explore use cases on AI over twenty years ago. Within the auditing context, large audit firms started making significant investments in AI technology in the past several years. For example, two of the Big 4 firms recently announced significant upgrades to their AI capabilities related to their audit and assurance work.⁴ Another Big 4 firm recently agreed to become OpenAI’s first reseller of ChatGPT to clients⁵. Since the beginning of my appointment on the PCAOB Board, I have been an advocate for the PCAOB to be forward-thinking in the technology area. We cannot afford to be silent observers. We have the opportunity to learn more about AI in relation to auditing and be proactive with respect to auditors’ responsible use of AI in public company audits. Although not addressed in this specific standard, the PCAOB has not lost sight of AI’s fast development and potential significant impact on audits. Our Investor Advisory Group (IAG) recently provided a valuable presentation to the Board on AI. The Technology Innovation Alliance Working Group that the Board launched 18 months ago has focused on advising the Board on the use of emerging technologies including AI. Under Chair Williams’ leadership, the PCAOB has not only been focused on updating and strengthening our auditing standards but also looking toward the future of auditing.

In closing, I support the adoption of this new standard. I would like to express my appreciation to the Office of the Chair, the Office of the Chief Auditor, especially Dima Andriyenko and Donna Silknitter for their continued leadership from the proposal to this adopting release, and the Office of Economic and Risk Analysis for their contributions to this final standard.

Thank you. Back to you, Chair Williams.