PCAOB Chair Highlights Audit Quality Improvement, Defends Agency Independence
Commentary by Steven Lofchie
PCAOB Chair Erica Y. Williams reported significant improvement on audit quality across all firms and progress in "holding Chinese firms accountable and bringing historic enforcement cases." She also sounded alarms about proposed legislation that would dissolve the agency and transfer its responsibilities to the SEC.
In remarks before the PCAOB Investor Advisory Group, Chair Williams highlighted a projected "seven-point drop in the aggregate [] deficiency rate across all firms," and "a six-point drop among the four largest firms – which, at the end of last year, collectively audited approximately 80% of the market capitalization of public companies listed on exchanges." She cautioned, however, that "deficiency rates ... remain too high." She underscored the PCAOB’s role in deterring "wrongdo[ers]" and protecting investors through standards, inspections, and enforcement.
Chair Williams warned that proposed legislation to dissolve the PCAOB and transfer its responsibilities to the SEC - currently under consideration by the House Financial Services Committee - would pose serious risks to investors. She argued that "[t]he unique experience and expertise built up by the PCAOB over decades cannot simply be cut and pasted." She emphasized that such a change could take years to implement and be highly disruptive.
She also asserted that the legislation would jeopardize hard-won international inspection access, citing the recent Protocol with China. She said that the PCAOB holds agreements with foreign regulators—none of which - "would allow the PCAOB’s privileges and responsibilities under the agreements to be transferred to the SEC."
Addressing the challenges ahead for the Advisory Committee, Chair Williams outlined the need to enhance transparency, support smaller firms, address the talent pipeline and integrate new emerging technologies (i.e. AI) to improve oversight as the agency continues to prioritize investor protection.
Commentary
Chair Williams argues forcefully that the PCAOB must remain separate from the SEC. She seems to suggest its role is professional and, therefore, must remain independent. But any argument that the PCAOB requires independence from the SEC is strained, given recent history. Former SEC Chair Gensler fired leadership of the PCAOB and appointed his own people. (See, SEC Removes PCAOB Member, Seeks Candidates for All Board Positions.) His predecessor, Chair Clayton did the same. (See SEC Reappoints PCAOB Chair Williams For Second Term.)
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