The Investor Advisory Group, Investor Protection, and the Mission of the PCAOB

Let me welcome everyone to this 9^th meeting of the Investor Advisory Group.^[1] This is, I think, our first IAG meeting inside the PCAOB building itself. The location is symbolic. Your ideas and thoughts have less of a metaphorical distance to travel to gain access to officials inside the building.

I want to note that all of the Board Members are present and that, at the table, are members of the PCAOB leadership team including: George Botic from the Division of Registration and Inspections; Barb Vanich from the Office of the Chief Auditor; Liza McAndrew-Moberg from Office of International Affairs; Patricia Ledesma from the Office of Economic and Risk Analysis; and Mark Adler from the Division of Enforcement and Investigations.

I also want to recognize Wes Bricker and Marc Panucci from the SEC whose work facilitates just about everything we do. A few thank yous are in order. Lillian Ceynowa, my advisor, with an assist from Uzma Wahhab, knocked herself out to make this meeting happen. Finally, the trains are running on time because of the extra effort of our administrative staff, including Jill Boocock, Lucia Carromba, and JD Moore.

Just a few housekeeping issues. This meeting, like our previous meetings, is being live streamed and will be publicly available as webcast on the IAG section of the PCAOB website.

I also have to say that the views I express today are my own and do not necessarily reflect those of my fellow board members or the staff of the PCAOB. I should also note that this disclaimer applies to the comments of all PCAOB Board and staff members speaking today.

Let's go back in time a bit. In 2002, Congress confronted an "incredible loss of investor confidence" in the financial markets.^[2] I think it's not an understatement to say that the collapse of Enron and other public companies pretty much shattered trust in auditing and in the financial disclosure system. What Congress understood was that to regain investor confidence required something bold, something that would make clear that the conditions allowing Enron to happen would no longer be tolerated.

We know what happened. Congress responded with Sarbanes Oxley and I would say that in an Act full of bold steps, perhaps the boldest was the creation of the PCAOB.^[3] With a flick of the legislative wrist, self-regulation of the auditing profession was gone and in its place was one of the first independent regulators in the world assigned the task of writing standards, inspecting public company auditors – wherever they might be located – and enforcing our standards. Congress also bequeathed to us a singular, elegant mission. We were to oversee "the audits of public companies in order to protect the interests of investors and further the public interest . . ."^[4]

The straightforward nature of the mission notwithstanding, it was not and is not self-executing. We have the responsibility, the obligation to constantly ask ourselves whether our actions and operations in fact further the investor protection mission set out in the statute. In doing so, we can't just rely on our intuition and we can't just rely on our own experiences as individual investors, no matter how well we have managed our 401(k) plan. To truly understand and protect the interests of investors we need to hear from them directly.

Which brings me to the PCAOB's Investor Advisory Group. This Group has been instrumental in helping the PCAOB stay investor focused. Created by the PCAOB in 2009 under the leadership of then-Board Member, Steve Harris,^[5] you met for the first time in the shadow of the worst financial crisis since the Great Depression.^[6] Those days provided a stark reminder that investor confidence, however hard-earned, could just as quickly be lost.

The IAG has, through its discussions and recommendations, provided input on some of the toughest and most important issues in the auditing space. They have ranged from non-GAAP measures and other information,^[7] to audit quality indicators or AQIs,^[8] to the auditor's responsibility regarding noncompliance with laws and regulations.^[9] Whatever the specific topic, all of them, as Steve Harris said in his opening remarks at the very first meeting, were designed to answer the fundamental question: "How do we make audits more relevant to investors?"^[10]

In my opinion, the influence of the IAG has nowhere been more valuable and more direct than in connection with the auditor report model and enhanced auditor disclosure. Never shy, members of this Group raised this issue at the first meeting^[11] and never really stopped bringing it up.^[12] The frequency, depth, and intensity of these discussions left little doubt about the importance of this issue to investors.

As I look back on these efforts, I have to wonder whether there were moments when some of you weren't sure whether the PCAOB was listening. But as you now know, we were. The PCAOB adopted and the SEC approved enhanced auditor disclosure, including disclosure of engagement partners, firm tenure, and critical auditing matters. The IAG's influence in that outcome was essential, unmistakable, and necessary.^[13]

I should add that the new audit participant disclosure requirements are already having an impact. With the filing of the first Form AP on Feb. 1, 2017,^[14] AuditorSearch, the search engine on the PCAOB website, is a richly populated and frequented database.^[15] Through the date of this meeting, we have received almost 30,000 Form APs from around 550 audit firms, identifying more than 4,800 engagement partners.^[16] AuditorSearch has so far been searched more than 730,000 times^[17] and the data has been used by academics,^[18] investors,^[19] and other researchers.^[20]

So what will the future hold? The mission of investor protection is unchanged. The need for investor input if anything has become more important. As we will discuss today, we are in the midst of implementing a Strategic Plan with the goal of creating PCAOB 2.0.^[21] Implementation, as described recently by Chair Duhnke involves a reexamination of our oversight function and the need, "where necessary," to "transform the manner in which we conduct our oversight. . . " ^[22] We need investors to help guide us in this transformation.

But PCAOB 2.0 is not a static concept. Protecting the interests of investors is a task that requires continuous introspection on our part and continuous interaction with investors. What standards should we prioritize? What types of "useable" information should we include in our reports?^[23] What engagements should we inspect and what focus areas should we examine? How can we better execute our mission and how can we become more "agile" in doing so?^[24]

So today we will have a conversation, one I fully expect to be robust and insightful. But this conversation should very much be seen as, at most, part of a continuous process of advice on how the PCAOB can be more effective in advancing the statutory mission to protect investors and further the public interest.

With that I would like to ask my fellow board members and Wes Bricker if they would care to make any remarks. Thank you all for your comments.

Appendix A

Selected Data Regarding:  Form AP, AuditorSearch, and Audit Firm Tenure

I. AuditorSearch Website Analytics Since 2017*

• People have performed 730,000 searches
•  People have downloaded the entire data set 9,600 times.
• People have viewed pages in the AuditorSearch section 415,000 times

* AuditorSearch website analytics data excludes views from internal PCAOB IP addresses.

II. AuditorSearch Totals of Form AP data as of Oct. 29, 2018

• 28,387  Form APs have been filed.

• 15,549  Form APs have been filed for 8,240 unique issuers.*
• 545  audit firms have filed Form APs.
• 4,823 engagement partners have been disclosed on Form APs.

III. Audits with Other Accounting Firm Participants

IV. Auditor Tenure (Auditor Since)