Statement on the PCAOB’s Adopting Release for Rule 6100, Board Determinations Under the Holding Foreign Companies Accountable Act

First, I want to congratulate and thank the members of the PCAOB’s staff who drafted the proposed rule, carefully considered the comments we received from the public, and thoughtfully revised the rule so that we can timely respond to Congress’s mandate in the Holding Foreign Companies Accountable Act. I also want to thank the SEC’s staff for their assistance and review. 

In particular, I want to thank Ken [Lench], Liza [McAndrew Moberg], Beth [Colleye], and Drew [Dropkin] for presenting today’s recommendation. I also would like to thank Martha [Kidd], who is my special counsel for all of her assistance as well. It is with great pleasure that I support the adoption of this rule.

Consistent and accurate financial statements are one of the fundamental features that allow our equity markets to operate efficiently and effectively. As I said in my statement at the time that we proposed this rule, investors who are saving their hard-earned money for important things, like college tuition and retirement, by investing in the U.S. capital markets need to be able to trust that the information in companies’ financial statements is accurate. High-quality audits and the PCAOB’s regulation of auditors play critical roles in enabling investors to rely on the information in financial statements. 

Registered audit firms that audit companies traded in the United States are subject to the PCAOB’s rules and standards, and all of those firms should be subject to the same inspection and enforcement oversight, regardless of where they are located. The PCAOB strives to protect all investors who purchase securities in the U.S. capital markets, as we must to fulfill our statutory mandate. Issuers who are availing themselves of the U.S. capital markets should not be listed on our exchanges if their auditors are not subject to our inspections and investigations to the same extent as firms located in the United States. The Holding Foreign Companies Accountable Act seeks to address any potential regulatory gap created by positions taken by authorities in foreign jurisdictions, and to ensure that auditors of issuers in those jurisdictions are subject to the same oversight. This is imperative for the PCAOB to facilitate its statutory mandate to protect investors; I know that is somewhat repetitive of what I just said, but it is important to reiterate that point.

With that being said, I want to also emphasize two additional points. First, it is paramount for us to formalize the PCAOB’s determination mechanism in a rule to promote transparency and consistency. It is important to me that, as we implement Congress’s will, we strike the right balance. I want to ensure that all firms auditing issuers listed in the United States can be inspected and investigated completely. And, I want to balance that goal with careful stewardship of our capital markets. I want to ensure that our markets continue to operate efficiently, effectively, and without unintended consequences. The determination mechanism that we have described is designed to provide a transparent process that will allow investors to understand which firms we are unable to inspect and to consider how that might affect the issuers in which they are investing.

Second, the ultimate effect on issuers will be the result of a multistep process, and the PCAOB’s rulemaking today — and any eventual determinations in the future — are only some of the steps that the HFCAA requires. For example, the SEC has also engaged in rulemaking to implement the HFCAA. And, if the PCAOB determines that there are firms that it cannot inspect and investigate completely, the SEC will need to identify issuers who have retained those firms and designate non-inspection years for those issuers. The SEC will also need to develop and implement a process for prohibiting the trading of those issuers’ securities if the PCAOB is ultimately unable to investigate or inspect those issuers’ audit firms completely for three consecutive inspection years. However, the PCAOB’s adoption today of this new rule marks a critically important step in this multistep process, and I am proud of the work done to get here.

While I was pleased with the proposed rule that we released in May, I believe the final rule includes several improvements. Thank you to all of the commenters who provided thoughtful and helpful feedback on the proposed rule. We carefully considered your comments and were able to make improvements to the rule as a result.

One of the changes to the rule that I am most pleased with is the decision to require that our determination be reassessed on an annual basis. The combination of the annual reassessment, and the ad hoc reassessment performed when facts and circumstances warrant, will help to make sure that the most up-to-date information is considered when we provide our determinations to the SEC, and provide additional transparency to investors. The annual reassessment also aligns with the HFCAA’s cadence, including the SEC’s identification of issuers and designation of non-inspection years. 

I am pleased and proud to support the adoption of this rule, and I congratulate and commend all of the staff who worked to draft the rule on an expedited basis to fulfill Congress’s mandate.