Vigilance Across Borders: The Global Imperative for Audit Quality

Remarks as prepared for delivery

Good morning and thank you, Michelle [Wildstein], for the introduction.

It is my pleasure to welcome you to Washington, D.C., and to the PCAOB’s 17^th annual International Institute. I see so many familiar faces, and I am very much looking forward to catching up with old friends and colleagues and making new ones, especially at this evening’s reception.

Each year, I always look forward to the informal and engaging discussions that occur in the morning over breakfast, and I am happy to report that the dialogue that I had this morning did not disappoint.  

I want to begin by thanking Karen Dietrich and the entire Office of International Affairs for bringing this event to life and for convening such a remarkable group of well recognized and accomplished audit regulators, standard setters, and professionals from around the world. I encourage you to take full advantage of the vast, global expertise in this room over the next few days. This is truly a unique opportunity and a highlight of the year.

I also want to acknowledge that there are both travel and budget considerations for you to be here these few days, and we are grateful for your efforts and do not take them for granted.

Before I continue, please know that my remarks this morning are my own 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. 

Looking back, 2007 proved to be a productive year for global audit oversight and collaboration: The International Forum of Independent Audit Regulators (IFIAR) held its first meeting in Tokyo¹, and the PCAOB hosted its first International Institute in Washington, D.C.²

Since then, as individual regulators, we have grown together to identify shared challenges and risks and then translate them into practical, forward-looking solutions – solutions that have meaningfully strengthened audit oversight across jurisdictions. Through our collaborative oversight activities, including joint inspections, we have demonstrated time and time again that our collective impact is greater than the sum of our individual efforts.

Together, we are not only enhancing audit quality – we are shaping a more resilient and accountable global audit oversight regime. This necessitates our continued commitment and vigilance.

I am always grateful to see how well attended the Institute is. As I was thinking about why the Institute, IFIAR, and other international oversight bodies and gatherings are so critical to what we do, I was reminded of something President Ronald Reagan said in his first inaugural address, “We must act today in order to preserve tomorrow.”³

That simple truth – of our collective action, forward-thinking, and vigilance – frames why we are gathered here this week. The experiences we will have over the next two days are essential to strengthening investor protection in capital markets around the world.

This morning, I would like to speak about three themes that underscore why global collaboration is critical to protecting investors and the public interest: First, the acceleration of financial and technological change across the financial reporting ecosystem, including with accounting firms; second, the evolution of the PCAOB’s role; and, finally, the vigilance that is necessary to ensure consistent audit quality. 

Acceleration of Financial and Technological Change Across the Financial Reporting Ecosystem

We are living in a time of rapid change. Markets are volatile. New asset classes and investment vehicles are reshaping the landscape. Valuations can be complex and require specialized skills. And the demand for transparency, accountability, and ethical governance continues to grow.

Investor confidence is a cornerstone of economic resilience, and audit quality is a critical line of defense against material misstatements, fraud, and the erosion of trust.

Ultimately, just as the Institute is a forum for the sharing of ideas, perspectives, and insights, I believe the PCAOB is, and must be, a marketplace of ideas, bringing together diverse voices from other regulators and standard setters, investors, auditors, audit committee members, preparers, and the academic community to candidly discuss perspectives and practices that improve audit oversight and protect investors.

As we convene this marketplace of ideas, there are two emerging trends that I would like to discuss and that deserve our collective focus: private equity investments in accounting firms and the rapid adoption of artificial intelligence in the audit.

These trends have the potential to transform auditing as we know it and require our continued attention.

First, private equity investments and other alternative financing arrangements in accounting firms are reshaping ownership structures. These investments can be used to acquire advanced technologies, streamline operations, and assist in attracting and retaining professionals, which can lead to enhanced audit quality.

But there are concerns from regulators and standard setters around the globe. This summer, the International Ethics Standards Board for Accountants (IESBA) issued a warning about the risks that private equity investments in the audit pose to auditor independence and the potential for conflicts of interest.⁴

Additionally, data from the Dutch Authority for the Financial Markets (AFM) shows the following trends in private equity-backed audits: a decline in statutory auditor involvement, reduced identification of significant risks, and increased threats to independence.⁵

I, too, have my own concerns that the private equity model focused on short-term ownership and possible cost-savings may change long established incentive structures and behaviors within accounting firms and may, over time, undermine the core principles of audit quality.

Having said that, I recognize that many of today’s accounting firms face new and additional demands for capital that must be met to remain competitive, and those demands may not be achieved through the traditional partnership structure.

As regulators, we must ensure our oversight remains vigilant as this trend continues.

This vigilance requires engagement with all stakeholders, and in particular, it requires encouraging academic research to ensure we have a comprehensive understanding of not only the challenges and risks, but also the benefits of these investments and structures.

I look forward to hearing more about Professor Maria Borysoff’s research and insights on this topic tomorrow morning.    

The second trend I want to raise is how the ever-expanding use of artificial intelligence (AI) is transforming the way companies operate and how audits are performed.

AI’s rapidly advancing capabilities are already disrupting traditional professional services and business. I will highlight this with two examples:

First, Walmart is using AI-powered chatbots to automate supplier negotiations to reduce costs and increase productivity.⁶

Second, AI is also upending the model used by consulting firms as the work of junior consultants – gathering data, analyzing it, and modeling scenarios in support of senior consultants – can now be done by AI. In fact, McKinsey’s proprietary AI system is used by more than 72% of its workforce, reducing research and synthesis time by approximately 30%.⁷

More specific to auditing, a recent study found that 70% of U.S. audit professionals say they use AI weekly in their role, and more than three-quarters of firms plan to increase their AI investments.⁸ 

Furthermore, an Accounting Today survey shows that 72% of respondents are “comfortable using technology for work that traditionally required human effort” with more than half of respondents reporting that “AI makes them more effective.” ⁹A challenge then lies in the deployment of this technology and what exactly it is being used for.¹⁰

These examples illustrate how AI is already reshaping core functions across different businesses, but what lies ahead may be even more transformative. While still theoretical, the possibility of artificial super intelligence emerging within the next decade, as predicted by OpenAI CEO Sam Altman, signals just how rapidly this technology is evolving.¹¹ There is a critical balancing act of embracing technology while keeping the human-in-the-loop, or as I recently heard someone say in a meeting, keeping the human-in-the-lead.

So, as AI tools begin to influence judgments traditionally made by humans, auditors must grapple with how to preserve due professional care, professional skepticism, independence, and accountability in a rapidly changing digital landscape.

In summary, I know private equity and AI are topics many of us are exploring in our own organizations. In addition, IFIAR has been working on topics related to technology and AI through its technology task force and has recently established another task force to consider alternative investments in accounting firms. I look forward to hearing the results of their continued work.

Additionally, we will have an opportunity to learn more during a technology panel later today and a discussion on private equity tomorrow. 

Evolution of the PCAOB’s Role

I would now like to move to the second theme, which is the evolution of the PCAOB’s role. Our mission is clear: to oversee the auditors of public companies and broker-dealers to protect the interests of investors and further the public interest in the preparation of informative, accurate, and independent audit reports.

To exercise our statutory oversight effectively, the PCAOB has conducted inspections in more than 50 jurisdictions and has entered into more than 28 bilateral agreements. These relationships enable joint inspections, enforcement actions, when necessary, and shared practices and experiences, and they help create a united front in the best interest of the investors and the public.

Building on our presence across the world, the PCAOB’s inspection program reflects the depth and breadth of our global oversight activities. In 2024, our inspectors inspected 171 firms and reviewed portions of 803 audits of public companies including, in cooperation with many of you, inspections of 78 non-U.S. firms, in which we reviewed portions of 221 audits.

These inspection results not only reflect the extent of our global oversight, they also inform and reinforce the evolution of our standards, ensuring our standards remain responsive to emerging risks and aligned with the realities of a dynamic audit environment.

As the theme for this year’s Institute suggests, we are focused on accounting firms’ systems of quality control. Although its implementation has been delayed until next year, QC 1000, A Firms’ System of Quality Control ¹², is designed to strengthen firms’ quality control systems and promote accountability and further audit quality.

I think we will all agree that an accounting firm’s system of quality control is the foundation for consistently performing high quality audits.

Both QC 1000¹³ and ISQM 1¹⁴ share a common goal to elevate audit quality through proactive, scalable systems. We welcome the opportunity to learn from you about how the new QC standard functions across jurisdictions.

As we consider how systems of quality control are implemented, it is important to remember that quality control is just one piece of the larger puzzle.

Because while strong quality control systems are essential, they are ultimately in service to something broader: audit quality itself. That brings me to another area I want to highlight – how we define audit quality, and why that definition matters.

I believe the PCAOB should endeavor to create a definition of audit quality that can act as an anchor for participants in the financial reporting ecosystem. Some of you here today have already established such a framework, and we would welcome your insights and feedback.

Vigilance Necessary to Advance Audit Quality

Our third and last theme is the need for our vigilance. As global momentum moves toward stronger standards, as evidenced by QC 1000 and ISQM 1, shared accountability reflects the importance of global collaboration.

To this point, an academic paper identified the work that we collectively do as audit regulators as “one of the most significant changes in the history of the auditing profession.”¹⁵

Audit oversight is global – this room is a testament to that – and the auditing profession finds itself at a crossroads: where innovation, investment, and international complexity converge.

Whether it is the influence of private equity or the rise of AI, we face shared challenges that demand shared solutions.

That is why this Institute matters. The PCAOB wants to hear what is happening in your jurisdictions, how you are approaching emerging risks, and where we can learn from one another. We know that trust is built through transparency, consistency, and dialogue. And we are committed to all three.

A Shared Future

In closing, I want to go back to President Reagan’s urge to “act today to preserve tomorrow.” 

Meeting that call requires our collective vigilance. So often throughout history, economic calamity has struck when we least expect it. Though, in the cold air of hindsight, the problem almost always looked obvious.

This call to action resonates deeply in our work: protecting investors and safeguarding the future of auditing through the choices we make today. And together, our collective work helps to enable a financial reporting ecosystem that is resilient and responsive.

Thank you again for your presence this week. I look forward to the conversations ahead, and now I would like to invite my fellow Board Members to join me on stage for our panel discussion and your questions and comments – all are welcome.