The Importance and Positive Impact of Independent Audit Oversight

Good morning, and welcome to the 8^th annual PCAOB International Auditor Regulatory Institute.

You have traveled from many places around the globe to Washington, DC, to share your knowledge and points of view about audit regulation. We have with us participants from 30 non-U.S. jurisdictions and five international organizations, in addition to those from the PCAOB, the SEC, and the U.S. Treasury Department.

We look forward to hearing from you today. The Institute — once a place to tell you about the US experience in independent audit oversight — is, today, as much about us listening and learning from the perspectives you bring from other countries and jurisdictions.

The growth and evolution in audit regulation around the world is manifest in our changed agenda for this Institute. The agenda reflects an interactive exchange of information, experiences, and expertise on maturing approaches to audit regulation and cooperation among independent regulators.

So, now, it may be time to ask, What has been the impact of independent audit regulation on the audit profession? And the capital markets? I believe the impact has been positive. Are investors better protected as a result? I believe the answer to that is yes. But there is a lot that still needs to be done. During this Institute, we will discuss many areas where additional work and focus are needed.

Before I get started, as is our policy, I have to tell you that the views I express are my own and do not necessarily reflect those of the Board or staff of the PCAOB.

Need for International Regulatory Collaboration

First, let's remember how we got here: This Institute began in 2007 as a venue for representatives from independent audit regulators and government agencies to come together "to learn more about the PCAOB's programs and how it carries out its mandate under the Sarbanes-Oxley Act of 2002."^[1]

The PCAOB's continuing objective for the Institute has been "to provide a forum for open discussion about how audit regulators around the world can better protect the interests of investors and increase efficiency, reliability and transparency in accurate and reliable financial reporting."^[2]

The first Institute was held only a matter of months after 18 independent audit regulators joined together in September 2006 to establish the International Forum of Independent Audit Regulators, or IFIAR.

Since then, IFIAR has grown to 50 members, and their approaches to audit regulation have evolved as well. I know that many of you here today represent jurisdictions that also belong to IFIAR and participate in its meetings and working groups.

Since its establishment, IFIAR's activities and the direct participation of its members have increased considerably. And IFIAR's inspection workshop has become the primary vehicle for inspectors to share methods and experiences.

To these ends, I commend the IFIAR Chair, Lewis Ferguson, and Vice Chair, Janine van Diggelen, for their leadership in setting a clear path for IFIAR to mature as an organization that provides for robust international regulatory cooperation and information sharing.

You will hear from them about IFIAR's mission and current activities during the Institute this week.

Evolving Agenda for the Institute

This year, the Institute agenda continues to call for the PCAOB to share information about its activities and operations. It also, however, has a heavy emphasis on dialogue among peer regulators on a variety of regulatory topics that are of shared interest.

We are honored and grateful for the participation of speakers from 11 countries and jurisdictions around the world — and a variety of other government agencies and organizations. We look forward to discussing, among other matters, common inspection findings, European audit reforms, the role of audit in combating fraud and global corruption, the evolving audit report, and audit issues in emerging markets.

I call your attention to the evaluation form for this Institute, and I invite you to share your feedback about how we can further develop the agenda for this venue to achieve our objective of having "open discussion" in the context of evolving international regulation.

Impact of Independent Audit Regulation

Last year, in light of PCAOB's 10^th anniversary, we discussed the growth and evolution of independent audit regulation around the world. This year, I want to talk about the impact of independent audit regulation on the audit profession and the capital markets.

In other words, have the growth and evolution in independent audit regulation, since it began in earnest in 2003, had a positive impact on audit quality and the protection of investors? The answer is an unequivocal, "yes."

Through inspections and other oversight activities, audit regulators have identified and called attention to weaknesses, risks, and challenges in the audit profession.

For example, the annual and periodic public reports of IFIAR and its members have consistently drawn sharp attention to common inspection findings around the world for the past two years.^[3]

In the United States, for example, in addition to individual inspection reports, the PCAOB has issued a number of general reports, staff audit practice alerts and other public documents that highlight a range of findings that arise during inspections of registered audit firms.^[4]

In response to such matters -- and in response to the demands of investors and other market participants for improvement in audit practice -- regulators around the world have also revised auditing standards and taken enforcement actions for violation of those standards and related laws and regulations.

There is no question that public transparency about audit deficiencies and risks has had a salutary effect on the audit profession. The vast majority of audit firms have reacted responsibly by taking actions to improve compliance and overall audit quality.

I also believe that regulatory oversight by the PCAOB and others has driven needed improvements in auditor behavior and practices.

In my view, our actions as audit regulators have had a positive impact on audit quality. This is not to say that we can declare success and consider the job done. We all know there is much more to do to achieve and maintain high audit quality on a consistent basis. But we have seen positive change, and we know it is possible.

As we discussed last year, and will again this year, however, measuring any changes in audit quality is difficult. Some of our fellow regulators measure and report on progress in certain aspects of audit quality.^[5]

Yet, we don't have a consistent and broadly applicable set of measures that provides a common reference point for further analysis and collaboration. In the United States, the PCAOB plans to issue a concept release in the very near future to help advance a discussion about potential indicators of audit quality.

In my view, a key component of the future evolution in independent audit regulation is to find common approaches to measure and candidly discuss the state of audit quality. This will facilitate more consistent and effective audit regulation for the protection and benefit of investors.

At this point, I would like to turn the program over to our first speaker on this morning's introductory session on the PCAOB, Mr. Gordon Seymour, the PCAOB's General Counsel. Gordon will provide you with an overview of the PCAOB and its operations.

Thank you and enjoy the Institute.