Thank you, Mr. Chairman. First, I would like to thank all of the PCAOB’s staff who worked so diligently to draft this proposed Rule in response to Congress’s mandate in the Holding Foreign Companies Accountable Act (HFCAA). Today’s proposed Rule is the result of a remarkable collaboration between our General Counsel’s Office, the Office of International Affairs, the Office of the Chief Auditor, the Office of Economic and Risk Analysis, representatives from the Division of Enforcement and Investigations, and representatives from the Division of Registration and Inspections. We also appreciate the SEC staff’s assistance that was offered to us as our dedicated staff worked to prepare what is being recommended to the Board today. Everyone who worked on this project is to be congratulated and commended.
I want to specifically express my gratitude to Ken [Lench], Liza [McAndrew Moberg], Beth [Colleye], and Drew [Dropkin] for presenting the recommendation today. I am pleased to support the proposal of this Rule for public comment.
The PCAOB’s mission is to protect investors and further the public interest in the preparation of informative, accurate, and independent audit reports. In executing that mission, the PCAOB plays a critical role in the U.S. capital markets. I believe that in order for investors, for example, to save for retirement and college tuition through our capital markets, they must be able to trust that the information that is provided to them is accurate, and that they can rely on issuers’ financial statements. High-quality audits and the PCAOB’s regulation of auditors are critical to that reliance.
For too long, there has been a gap in the PCAOB’s ability to inspect and investigate completely auditing firms located in some foreign jurisdictions. Inspections and investigations are the main mechanisms through which the PCAOB executes its important mission. For the protection of investors, all firms performing issuer audits should be subject to our inspections and investigations, without impediments from foreign authorities. Investors should be able to rely on the financial statements of issuers traded in the United States, regardless of where the issuers’ audits take place. My hope is that the Holding Foreign Companies Accountable Act will help the PCAOB close the gap in its ability to inspect and investigate foreign firms and help us to fulfill our mission to protect investors.
The PCAOB has successfully worked with foreign regulatory authorities in most jurisdictions to enable the PCAOB to complete inspections and investigations, and we look forward to continuing those cooperative relationships. The HFCAA and this rulemaking aim to address instances where foreign authorities have interfered with or limited the PCAOB’s ability to inspect and investigate firms. The PCAOB’s inability to inspect certain firms has been to the detriment of investors, and I support Congress’s work to address these problems.
As Drew has already discussed, the HFCAA requires that the PCAOB determine whether it is unable to inspect or investigate completely registered public accounting firms located in foreign jurisdictions because of a position taken by one or more authorities in that jurisdiction. Today’s proposed Rule sets out the mechanism for the PCAOB to make its determinations. I believe it is important to formalize the determination mechanism in a rule to promote transparency and consistency.
The HFCAA and this proposed Rule represent a new approach that has not been tried before, and so receiving feedback on this proposed Rule from our stakeholders is especially important. The HFCAA was passed on a bipartisan basis and provides needed protections for investors. I want to ensure that we are responding to Congress’s mandate in the best way possible. I strongly encourage you to comment on all aspects of the Rule, including the questions posed in the Release. I would also like to draw your attention to several aspects of the proposed Rule where your feedback would be particularly helpful:
- The frequency of the Board’s determinations and whether you believe the combination of periodic and ad hoc determinations provides sufficient flexibility and predictability to offer a fair process to stakeholders and to allow the Board to fulfill its mission;
- The process of notifying firms that the Board has determined it is not able to inspect or investigate them completely and whether you believe the process as currently described is sufficient;
- The duration of Board determinations;
- Whether the Rule should provide the Board with exceptive and/or exemptive powers;
- Whether there should be a process for requesting that the Board reconsider its determinations and, if so, what that process should be and when it should take place.
This is an important rulemaking, and I am proud to be part of it. Thank you in advance for your thoughtful comments.