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After having been sworn in for a second term as Chair of the PCAOB last week, PCAOB Chair Erica Williams delivered a speech outlining the PCAOB’s efforts toward meeting its strategic plan yesterday at the 2024 PCAOB International Institute on Audit Regulation. The speech outlines steps that the PCAOB has taken to meet its objectives of modernizing its standards, enhancing its inspections and strengthening enforcement.

On the topic of modernizing standards, Chair Williams notes:

Today, the PCAOB is taking unprecedented action, and our actions are necessary. Protecting investors depends on updated standards and rules—and that’s why this Board is taking great strides to meet this challenge.

While we are committed to getting this agenda done to meet the rapidly evolving capital markets, we are even more committed to making sure it’s done right.

We take public comments very seriously, reading each and every one, and ensuring that the full range of voices and feedback are taken into account. We will—and we have—reopened comment periods when necessary and have asked follow-up questions to ensure we understand the feedback received before moving forward.

Additionally, ahead of the effective dates for these standards and rules, we are committed to providing firms with resources to help them update their methodologies and train their staff on the upcoming changes.

On the topic of enhancing inspections, Chair Williams notes in her speech:

In recent years, the PCAOB has found that audit deficiencies, particularly Part I.A. deficiencies, are unacceptably high.
Part I.A findings are serious. They mean the audit firm failed to obtain sufficient appropriate evidence to support its opinion, and audit opinions were signed without completing the audit work required to verify the accuracy of the financial statements.

Part I.A deficiencies include things like failing to perform any procedures at all to test revenue or the costs of inventory, as well as instances where the auditor did not identify and test any controls over long-lived assets and depreciation expense. Simply put, these deficiencies are not just serious, but they go to the heart of the audit.

These Part I.A deficiencies are relevant when assessing the quality of work done by an audit firm. But audit quality is complex, and it escapes simplistic proxies or measures.

And on the topic of strengthening enforcement, Chair Williams states:

Enforcement has been a critical tool at our disposal, and we focus on cases that involve serious matters that put investors at risk: audit failures in cases involving financial statement fraud, taking on client work that firms can’t complete, altering work papers, and not performing sufficient work before signing audit opinions.

We examine the facts and circumstances of every case and have not hesitated to impose bars on bad actors, revoke firms’ registrations, and impose civil monetary penalties—among many other options on the table under this Board.

We have issued approximately $35 million in fines this year alone. We have also required functional changes to a firm’s supervisory structure for the very first time. And we have required firms to retain an independent monitor to drive improvements and best protect investors.

The speech wraps up by noting: “Protecting investors is a noble profession—and one that I’m proud to be part of. Trustworthy audits help give people confidence, which powers investment and capital formation to move our economies forward and improve the lives of the people we serve.”

– Dave Lynn