Statement on the Board's Discussion of the Auditor's Reporting Model

Thank you for that presentation, Marty. I would like to acknowledge your leadership as Chief Auditor in developing this ground-breaking project. I would also like to thank Jennifer Rand, Deputy Chief Auditor, and the project team — Jessica Watts, Dan Mutzig, and Diane Jules — for their hard work.

Embedded in investors' call for more information from the auditor, is a call for auditors to better serve investors. I dare say most auditors don't see investors as their direct or even ultimate masters, unless they are dealing with a private investor, such as to conduct due diligence for a potential acquisition.

This disconnect explains and permeates the disagreement in advice we have received. To my mind, the Board's evaluation of recommendations on the model form of the audit report should start with the unique nature of U.S. securities markets.

U.S. securities markets serve a purpose that is fundamentally different from others in the world. Our markets provide for formation of capital, and ownership, by dispersing minority interests widely, among millions of individual savers who are dependent on the preservation and growth of their investments for their livelihoods.

Other markets provide for some dispersed ownership, but no markets are as deeply committed to this model as ours are. That commitment has paid off. Indeed, the dispersed ownership model has been so successful in the U.S. that we rely on it to protect and grow savings for retirement and other expenses of more than half the families in America, not to mention foreign investors who seek the protection of U.S. markets.

Our audits and audit reports ought to reflect the needs of dispersed owners as they would majority owners who hire the auditor directly. This is a starting principle, for me. It is not the conclusion of the analysis. Based on this principle, we will need to consider many practical challenges, such as what auditors are capable of producing for mass consumption within the short filing periods now required.

We will also need to consider ways to enforce consistency of reporting. "Boilerplate" has a negative, even evasive connotation. At the same time, investors ought to be able to expect that differences in reports reflect differences in the quality of the financial reporting subject to audit, not differences between engagement partners.

Before I turn to these and other questions, let me say a word about process. Marty, you and your staff have done extensive work to obtain the views of investors, auditors, preparers of financial statements, and others in order for the Board to determine an appropriate way forward. Given the wide-ranging impact this project could have, I am pleased that the PCAOB is able to hold today's meeting to provide the public insight into the Board's consideration of the issues presented at an early stage.

This is the first time the Board has received a staff presentation on a standard-setting project in public, without a concrete proposal before us. There is no particular proposal before the Board yet, and we will not take any votes today. Given the nature of this project, I think providing some transparency about the Board's thinking and direction at this stage is helpful.

Now I would like to ask the staff a few questions, and then I will invite other Board members to make statements and ask additional questions.