The Guardians of the Truth and the Need to Define Audit Quality

Remarks as prepared for delivery.

Good afternoon and thank you, Doug [Carmichael], for the invitation and the generous introduction. It is an honor to participate in this important conference, and I am looking forward to the conversation we will share shortly.

I understand there are a number of students with us this afternoon. Your presence here reflects not only your commitment to learning but also your curiosity about the future of auditing and the role you will take on as a member of this important and noble profession. You represent the next generation of accountants and auditors, and it is inspiring to see you engage in these vital conversations.

Before I continue, please know that my remarks this afternoon are my own, in my official capacity as an individual PCAOB Board Member, and do not necessarily reflect the views of the full Board, my fellow Board Members, or the PCAOB’s dedicated staff.

As I was listening to and thinking about today’s sessions, I kept coming back to the fact that not too far from here are Wall Street, the New York Stock Exchange, and more broadly, the capital markets.

I mention that because it underpins the seriousness of not only this dialogue, but also the importance of the work that everyone here does, whether it be as financial statement auditors, audit committee members, preparers, investors, the academic community, or regulators.

This proximity is not just physical, as former Federal Reserve Chairman Alan Greenspan wrote in his book, Capitalism in America:

“[Wall Street] constitutes the beating heart of American capitalism: it pumps credit through a continent-size economy (and far beyond) and registers the health of the entire American enterprise.”¹

Gatherings like this matter because each of us plays a role in upholding the “health of the American enterprise,” as Greenspan noted. That is why it is especially a privilege to participate in the 20th annual Baruch Audit Conference.

This impressive milestone marks two decades of sharing ideas, encouraging rigorous debate, and allowing for reflection on the importance of integrity, which is essential to safeguarding investor confidence that underpins the efficient allocation of capital in well-functioning markets. And Doug, the importance of your role in this conference and in the financial reporting landscape, including as the PCAOB’s first Chief Auditor, cannot be overstated. You are a large part of what makes this one of the preeminent and influential annual auditing conferences. 

While the theme of the conference has remained the same, much has changed over the past twenty years. For example, in 2005, the Dow Jones Industrial Average hovered around 10,700.² Today, it stands around 46,000—a more than fourfold increase.

The composition of the Dow Jones Industrial Average has changed, too.

In 2005, it included names such as General Motors, General Electric, and Alcoa.³ It now includes Apple, Amazon, Salesforce, and other tech giants that were barely on the radar back then.

And, while it may not seem possible, the iPhone was not launched until 2007—BlackBerrys dominated the market in 2005. The economy has transformed, the capital markets have evolved, and the technologies we use have become more complex and entirely intertwined in our lives.

And yet, the one thing that has not changed: the role of the financial statement auditor. The auditor’s responsibility—to serve the investing public, the public interest, and to pursue the truth—remains as vital as ever.

As the prolific auditing leader Robert Montgomery said in a 1937 speech: “Our profession always has had a vision—this urge to find and tell the truth—and we should cling to it and continue to strive for its accomplishment.”⁴

That vision still guides us today, but how auditors fulfill that mission is undergoing its own transformation with the confluence of the growth of private equity investments in accounting firms and the rapid adoption of artificial intelligence (AI).

It is too early to say whether these developments will be a net positive or a net negative for audit quality.

But, in my view, the opportunities and challenges these developments pose provide an important occasion for a kind of level setting—a collective focus on what we mean by "audit quality"—to provide a North Star by which we can navigate how to manage those developments, and by the light of which we can judge their effects.

In fact, the topic of defining audit quality has been top of mind throughout my tenure as a Board member and started with the question I posed at this conference two years ago: “Who is responsible for audit quality?”⁵

With my remaining time today, I want to discuss what we mean by audit quality and the potential benefits of having a shared understanding of its definition.

Developments Transforming the Audit

But before we fully examine the potential benefits of a definition of audit quality, I want to discuss the two developments I mentioned above that have the potential to reshape accounting firms and the audit.

The first is private equity investment in accounting firms. Five years ago, private equity investments in accounting firms were practically non-existent. Since then, private equity investment in accounting firms has increased with 81 deals in 2025, according to CPA Trendlines Research, with another 90 planned for 2026.⁶ It is estimated that private equity firms are investing more than $10 billion in the tax and accounting business, which has led to post-deal valuations of approximately $30 billion.⁷ These investments have the potential to transform particularly small and medium-sized accounting firms by providing capital to invest in people and technology, to enter new business lines, and to accelerate acquisitions and further consolidation. However, recent academic research suggests that because of the increased pressure on enhancing a firm’s profitability, private equity investments can influence how investors perceive risks associated with those accounting firms.⁸

The question we should ask then is not just whether private equity investments are reshaping accounting firms, but how can independence—in fact and appearance—and audit quality remain at the forefront of the auditor’s mind.

The second development impacting the audit is the use of AI. Dennis Yi Tenen summed up the significance of AI to society in his book, Literary Theory for Robots – How Computers Learned to Write, when he said “In the industrial age, automation came for the shoemaker and the factory-line worker. Today, it has come for the writer, the professor, the physician, and the attorney.”⁹

Anyone following this space can also see that automation is coming for the auditor. A recent Reuters survey of accounting firms found that 21% are already using GenAI technology, with 53% either planning to use the technology or considering it.¹⁰ A quarter of firms surveyed have no current plans to use GenAI, but this percentage is down from 49% last year.

Based on my observations and discussions, it appears that AI is poised to completely transform how audits are performed.¹¹ In fact, I have heard from those who are working to incorporate AI in every aspect of the audit, including academics who are studying the potential of a “one-click audit.”

But this new way of working also poses new challenges. AI can reinforce bias, overlook context, or hallucinate responses with no bearing in facts.¹²

The use of AI in the audit raises critical questions such as how do we validate AI outputs? How do we ensure transparency in algorithmic decision-making? How do we ensure professional judgement and skepticism remain at the center of the auditor’s work? And how do we keep the human in the lead?

The Enduring Challenge: Defining Audit Quality

As I mentioned earlier, I have been thinking about the potential benefits of a definition of audit quality.

The current state of change—accelerated by these developments—has only heightened my belief that there could be great value in a shared understanding about what we mean by audit quality.

The quest for a definition, to be clear, is not new. In fact, in 1961, Robert Mautz and Hussein Sharaf articulated eight postulates or principles in their seminal book, The Philosophy of Auditing.¹³ Although I do not have time to list all eight, I believe these three are worth repeating: First, auditing is based on the assumption that financial statements are verifiable. Second, the auditor acts with independence, which is “of the essence in auditing.” And finally, Mautz and Sharaf stress that the professional status of the independent auditor imposes commensurate professional obligations.

Over the years, other standard-setters have offered definitions of audit quality, each reflecting the priorities and pressures of their domain.

For example, the International Auditing and Assurance Standards Board (IAASB) developed a comprehensive Framework for Audit Quality that emphasizes the interplay of inputs, processes, and outputs.¹⁴ 

The U.S. Big Four Firms have their own frameworks, often tailored to metrics such as inspection results, client satisfaction, and adherence to firm wide quality control systems.¹⁵

Meanwhile, academics such as Linda DeAngelo have approached audit quality through a more empirical lens. In 1981, DeAngelo focused on a definition of audit quality that includes the probability that an auditor will detect an existing misstatement and report the misstatement once detected.¹⁶

A more academic recent paper added onto DeAngelo’s definition with “the auditor’s ability to accurately assess the ex ante probability of a material misstatement.”¹⁷

Other scholars have explored how the allocation of audit hours shapes audit quality,¹⁸ the association between auditors’ use of in-house specialists and audit quality,¹⁹ how firms’ use of shared service centers²⁰ and quality control systems²¹ influence audit quality and fees.

Some suggest the absence of material misstatements is the defining element of audit quality, while others focus on the strength of an accounting firm’s system of quality control. Still others emphasize transparency and that audit quality is only meaningful when investors and stakeholders can see it and understand it.

Together, these perspectives form a mosaic rich in insight but are fragmented in the overarching audit landscape.

While each contributes to our understanding, I believe that much could be gained from forging a unified definition.

What we need, I believe, is a definition that reflects the complexity of the work and the diversity of the arguments being made. A definition that is comprehensive and multidimensional.

Defining Audit Quality

That is why I have suggested, as a starting point, a PCAOB definition of audit quality with four key concepts:

• Integrity and independence: the foundation of public trust.²²
• Technical competence: the ability to apply accounting and auditing standards rigorously and consistently.
• Audit performance: the execution of the audit itself—planning, risk assessment, evidence gathering, and documentation.
• And finally, outcomes and impact: the real consequences of the audit on investors, markets, and public confidence.

These core concepts are a starting point and an invitation for collaboration and robust discussions.

But we need your help to accomplish this task. We need your feedback, your ideas, your academic research and scholarly work, and your studies to move from debating what audit quality means, ensuring that it is consistently delivered and that a widely accepted definition is then turned from the abstract into practice.

Ideally, I believe together we can develop a definition of audit quality that can be used as a broad benchmark that will benefit the entire financial reporting ecosystem.

This will not be easy, but nothing worth accomplishing is ever easy.

Possible Benefits of a PCAOB Definition of Audit Quality

A PCAOB definition would represent broad based input from stakeholders, including investors.

The definition could ground discussions among various market participants about the state of auditing and audit quality.

Defining audit quality could assist audit committee members as they engage with their auditors and have discussions around the audit, including PCAOB inspections results.

A definition could also help the academic community with research topics and provide valuable perspective in the accounting education process. Lastly, a definition could assist the PCAOB in all that we do, particularly around standard setting activities. 

I believe a PCAOB definition of audit quality will serve as an anchor for all participants in the financial reporting ecosystem—especially as developments like private equity investments in accounting firms and AI pose fundamental opportunities for and challenges to the auditing profession and the audit itself. 

“The Guardians of the Truth”

As I begin to close, I want to go back to where I began today and say a few words directly to the students in our audience. I want to underscore how incredibly rewarding a career in auditing can be.

For those in the audience studying accounting, you have my profound thanks for continuing in this calling. If any of you are still deciding your career path, I hope you seriously consider auditing.

This is a noble, vibrant, and profoundly resilient profession that demands integrity, judgment, and a steadfast commitment to investors and the public interest. I would also add that I believe that auditing itself is a public good.

I am reminded of something that former SEC Chairman Arthur Levitt, Jr., once said, which is that “CPAs…perform a very real function without which our economy would be crippled. Can there be a more important role, or a greater responsibility?…Accountants are guardians of the truth.”²³

I want to amplify these words with my own thoughts which are that auditors are guardians of the truth—and integrity. While the financial statement auditor’s work may not always be visible, its impact and value are profound. As I am here before the current and future members of the auditing profession—at a renowned conference centered on integrity—the work of auditors has never been more important to steward truth and integrity in our capital markets.

Thank you, and Doug, I welcome your questions.