The conference began with opening remarks from Richard Jones, FASB Chair, who stressed that even as the board values its independence, it needs to continuously earn that right and be held accountable for staying true to its mission. Ryan Wolfe, acting chief accountant, SEC Office of the Chief Accountant, agreed that having an independent standards setter is important to the regulator. This was followed by a panel discussion about the changing personnel and policies taking place at the SEC under the new administration, which featured Ryan Wolfe, Heather Rosenberger, chief accountant, SEC Division of Corporation Finance, and Gaurav Hiranandani, acting deputy chief accountant, SEC Office of the Chief Accountant.
FASB’s agenda was the subject of the final morning panel discussion moderated by Angela Fergason, partner, National Professional Services Group, PwC and featuring Jackson Day, FASB technical director, Mark LaMonte, partner, Williams Marston, and Lara Long, managing director, Riveron. The afternoon began with a panel on FASB’s various disclosure projects—segment reporting, income taxes, and the disaggregation of income statement expenses. The discussion, moderated by Kimber Bascom, partner, KPMG, and featuring Mark LaMonte, Danielle Fontaine, vice president and assistant controller, ServiceNow, and Scott Taub, managing director, Financial Reporting Advisors, focused on how companies will implement the guidance and how users will utilize the resulting information. The conference concluded with a panel discussion on emerging technologies featuring Mark Besca, board member at Markel Group, Las Vegas Sands and Clarus Corporation, Todd Castagno, executive director of research, Morgan Stanley, Michael Gonzales, EY partner, Amy Park, Deloitte partner, Jonathan Rhine, PwC national office AI lead, moderated by Marc Siegel, Founder and Executive Advisor, Metrix Advisory. The panel discussed the uncertainty surrounding the regulation of and accounting for digital assets and crypto assets, and several panelists were bullish on the innovative potential of artificial intelligence in practice.
The keynote address was delivered by PCAOB Chair Erica Williams, in conversation with retiring conference chair Norman Strauss and successor Marc Siegel. Erica Williams was appointed PCAOB chair in 2021 and reappointed in 2024 to a term running through 2029. Before leading the PCAOB, she was a litigation partner at Kirkland and Ellis and previously served as associate counsel to President Barack Obama. She also spent a decade at the SEC, including as deputy chief of staff to three chairs and as assistant chief litigation counsel in the Enforcement Division. The following article presents her remarks, edited for clarity and length. The views expressed are her own, and not necessarily those of the PCAOB board members or staff.
Editor’s Note: After the print edition of this article went to press, the PCAOB announced that Williams would be leaving the PCAOB as of July 22, 2025. Her term had been scheduled to end in 2028.
Opening Remarks
For the past few years, I’ve joined you with a warning about a troubling trend in audit quality. In 2021, our inspectors began to see an increase in deficiencies known as Part 1A deficiencies across the audit firms that we inspect. And these deficiencies were of such significance that the PCAOB staff believed that the audit firm failed to obtain sufficient appropriate audit evidence to support their opinion on the public company’s financial statements or internal controls over financial reporting. That trend continued in 2022, and across smaller firms in 2023. The PCAOB demanded better on behalf of the investors we serve. We focused our resources to support firms’ efforts to improve. We actively engaged investors in audit committees.
Today I’m able to report that our 2024 inspections found significant improvement on average across firms. This includes an expected seven-point drop in the aggregate Part 1A deficiency rate across firms inspected and a sixpoint drop among the largest four firms, which at the end of last year collectively audited approximately 80% of the market capitalization of public companies listed on U.S. exchanges.
This is meaningful progress in our effort to protect investors in U.S. markets, and we have strong evidence that our approach is working. Still, while deficiency rates have dropped significantly, they remain too high. Our work is far from over, and today that work is more important than ever. History tells us that when the economy is tight, the risk of fraud goes up. At the end of 2001, our economy was just beginning to come out of a recession when the Enron scandal broke. Enron’s collapse was followed by the failure of its auditor, Arthur Andersen, and Enron wasn’t alone. In 2001, Enron’s bankruptcy was the largest in U.S. history. But just a few months later, it was dwarfed by the bankruptcy of WorldCom, yet another corporation caught cooking the books. It was these scandals, and the destruction left in their wake that prompted Congress to create the PCAOB with overwhelming bipartisan support.
In the more than 20 years since, the board has faithfully and successfully executed its mission to protect investors and further the public interest in the preparation of informative, accurate, and independent audit reports. Today, the stakes are higher than ever. At its peak in August 2000, Enron had a market capitalization of around $70 billion, ranking it as the seventh largest publicly traded company in the United States, and it had over 20,000 employees. Since then, the values of the largest and most widely held companies in America has increased substantially. As of March 31, 2025, the top 10 companies alone had a combined market capitalization of $17.4 trillion and employed millions of people, a scale that makes Enron look small by comparison.
With millions of Americans invested in the markets, including through 401(k) s and pensions they’ve worked their entire lives to build, auditors must perform their audits with more care than ever. So, I am deeply troubled by the legislation passed by the House Financial Services Committee that proposed to eliminate the PCAOB as we know it. The integrity of our markets is not inevitable. It takes vigilance to guard against the negligence, recklessness, and fraud that threaten our system and the people who depend on it. The PCAOB plays a vital role in that effort, a role that our talented and dedicated staff have developed over decades, building unique experience and expertise that cannot simply be cut and pasted elsewhere without significant risk to investors at a time when the markets are already volatile and investors have so much to lose. Reflecting on the scandals that led Congress to create the PCAOB, Senator Paul Sarbanes, who co-authored that law, warned of complacency. When things get better, he said, companies tend to forget what happened or how serious it was at the time. Trying to maintain high standards is a difficult job.
Over the last 20 years, the PCAOB has proven itself up to the task. Under the current board, we have worked to build on the PCAOB’s strong legacy of protecting investors, setting four strategic goals to further advance the PCAOB’s mission: Number one, modernizing standards. Second, enhancing our inspections. Third, strengthening our enforcement. And fourth, improving our organizational effectiveness. When the PCAOB was first getting off the ground in 2003, it adopted existing standards set by the auditing profession on what was intended to be an interim basis. Unfortunately, far too many have not been significantly updated in the last 20 years, so we set an ambitious agenda to do just that. Thanks to the incredible work of the expert PCAOB staff, this board has taken more actions on standards setting and rulemaking than at any time since the PCAOB was created. Actions that investors deserve as they make decisions about their investments in the markets.
We finalized seven rulemaking and standard setting projects covering 24 rules and standards. They cover quality control, confirmations, the use of other auditors, the use of technology, constructive withdrawal of registered firms, contributory liability, and a suite of standards that address the core auditing principles and responsibilities, including reasonable assurance, professional judgment, and due professional care, known as AS1000. Public comment has been essential to that process, and I thank all of the stakeholders who shared their input.
The new quality control standard alone represents a watershed moment that will drive audit quality well into the future, because QC systems lay the very foundation for everything auditors do. When QC systems operate ineffectively, investors are put at risk, but when they operate effectively, quality audits performed in accordance with applicable professional and legal requirements are likely to follow, leaving investors better protected.
We are investing considerable time and attention toward helping firms implement all of our newly adopted standards setting and rulemaking projects. We created an implementation page on our website with everything from staff guidance and videos to interactive knowledge checks. Of course, our staff are also available should auditors have any questions. We have a dedicated hotline for auditors to call our staff if they have questions about standards, and we are also hosting in person workshops specifically targeted to smaller firms who face unique challenges without the resources and support that often come from a national office. The dedicated staff who do this work for the PCAOB are unmatched in their expertise. They have an average of nearly 10 years of standards setting and rulemaking experience at the PCAOB on top of a decade or more working in public accounting before joining the PCAOB. I’m grateful for their work, and I encourage firms to take advantage of the wealth of knowledge that they have to offer. I’m proud of the progress we’ve made under this board. Still, there is much more work to do.
More than 30 interim standards remain largely untouched since they were originally written in the 1980s and 90s. Our capital markets don’t stand still. They evolve constantly, practices change, and new risks emerge. To keep investors protected, our standards must keep up, and our work must continue.
At the same time, our inspections division has been hard at work advancing goal number two. Last year alone, our inspectors spent over 750,000 hours inspecting 231 audit firms, including reviewing portions of over 900 individual audits and conducting our quality control and remediation process. They regularly conduct inspections in more than 50 jurisdictions around the world, including in China, where we secured historic access for the first time ever beginning in 2022. The hundreds of PCAOB staff who do this work have unparalleled experience and expertise. PCAOB inspection staff averaged 22 years of experience, including a decade in public accounting before ever joining the PCAOB. They have experience in more than 30 different industries and expertise across 40 different subjects. They speak 33 different languages, and they work around the clock and around the globe to protect investors in U.S. markets.
Under this board, we’ve worked to boost transparency and share more information about our inspections. The inspections results detailed earlier show significant improvements in deficiency rates and they were released five months or sooner this year than the year before and 11 months sooner than the year before that. This matters because when investors, audit committees, and other stake-holders have access to timely, relevant information they can hold firms accountable for delivering high quality results. And firms can use that same information to drive their own improvements.
We’ve added new information to our reports and are regularly adding new tools to our website to help users better understand and compare inspection results both across firms and over time. We’ve also have more than doubled the number of staff reports we call Spotlights, which provide valuable information, including ways firms can improve by remaining aware of key risks and good practices. And once again, because we understand that smaller firms face unique needs and challenges, we recently launched a new series called Audit Focus tailored for them. Similar to our standards setting and inspection staff, our enforcement professionals bring invaluable knowledge and experience to the work of conducting complex audit-related investigations. On average, our enforcement staff have over eight years of professional experience at the PCAOB and most have a minimum of seven years’ experience addressing complex legal and accounting or auditing issues before coming to the PCAOB. Removing bad actors from the profession and punishing wrongdoers protects investors, promotes deterrence, and bolsters trust in the vast majority of honest auditors who are working hard to live up to the trust investors have placed in them. As President George W. Bush said when he signed the law that created the PCAOB: “For the sake of our free economy, those who break the law, break the rules of fairness, those who are dishonest, however wealthy, or successful they may be, must pay a price.”
The cases we investigate and ultimately decide to enforce involve complex and serious matters, including 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’ve delivered historic sanctions—holding China-based firms accountable for violations, including falsifying audit reports, failing to maintain independence, and properly adopting the work of other accounting firms as their own and sharing answers on tests on mandatory internal training courses. And we’ve shown the PCAOB will not tolerate behaviors that erode the trust and threaten investor confidence that our system relies on.
This board has not only issued record breaking monetary penalties, we have revoked firms’ registrations, barred individuals, required functional changes to firm supervisory structures, and required firms to have outside consultants to drive improvements and protect investors. We’re using every tool in our toolbox to send a clear message: If you put investors at risk, you will be held accountable.
That brings me to our final goal, improving organizational effectiveness. One of the first major actions of this board was to reconstitute one of our advisory groups, the Investor Advisory Group, and also to reconstitute our Standards and Emerging Issues Advisory Group. We are incredibly grateful for the time the members of these advisory groups commit to providing us with valuable insights that help inform our work. Under this board, we’ve also expanded our stakeholder outreach and engagement by creating the Office of the Investor Advocate and adding a deputy director responsible for external engagement to enhance the PCAOB’s engagement with all stakeholders. We enhance these outreach activities with investors by creating investor advisories and bulletins which provide critical information to deepen investors’ understanding of the PCAOB’s work. We’ve engaged in a robust outreach campaign to audit committees, which includes conversations with more than 200 audit committee chairs each year. Our Office of Economic and Risk Analysis has expanded our engagement with the academic community. And our Office of International Affairs has continued to maintain the PCAOB’s status as a global leader in audit oversight.
I recently returned from a meeting of the International Forum of Independent Audit Regulators where I had a chance to see firsthand just how well regarded our expert staff is among their counterparts around the world, many of whom often look to them as the model for how to do this work well. And we’ve awarded a record number of scholarships to accounting students, to help ensure we have the qualified professionals needed to drive audit quality well into the future. Of course, none of this work is possible without the incredible staff at the PCAOB. They are some of the most talented and qualified individuals I have ever had the honor of working with. Simply put, the collective expertise and experience of PCAOB staff is irreplaceable.
Part of how we continue to attract and retain the best and most qualified people is by creating a culture where people want to work. I’m proud that by empowering our people to bring their best to this organization, we’ve increased the number of staff who say the PCAOB is a great place to work by 30 percentage points since I started. It is essential that the PCAOB continues to be a place where the most qualified, dedicated people want to be.
More than 20 years after Enron, investors are better protected today because of the PCAOB. And with more at stake than ever, we are hard at work every day meeting our mission for the people that we serve. From workers saving for retirement, to families investing for their futures, to businesses creating jobs because they can raise money through sound liquid markets, quality audits protect people and protecting people drives everything we do.
Question & Answer Session
Marc Siegel: Thank you, Chair Williams for that history lesson. I was intrigued because I’ve heard you speak over the years about deficiency rates. What were some of the key drivers of the improvements seen by the PCAOB?
Erica Williams: We’ve been very focused on trying to work with firms so that they can improve those deficiency rates, and I’m really delighted that we are seeing those deficiency rates go down. We put out a Spotlight recently that talked about this, but I think some of the reasons that we’ve seen the rates go up have to do in part to the lack of an apprenticeship model and the fact that there was less in-person work during the COVID-19 pandemic. Some of the things during our inspections and during our discussions with firms that we have heard is that they have had now more in-person work, and they are more focused on training, especially their less experienced professionals. We see more resources being dedicated to inspections and also better supervision and review.
Of course we have our quality control standard coming into effect in December, and we do think that that’s going to continue to drive audit quality, in that it’s going to have firms update their systems of quality controls where they’re able to now better identify the risks and put in place measures to mitigate those risks. Even though we’ve seen improvement, I think that deficiency rates are still too high, and we need to build on this momentum to deliver audit quality for investors.
Siegel: What’s going to be the key priorities of inspectors for the current inspection cycle going on now?
Williams: We put out an inspection Spotlight in December which talks about some of the areas that are key focus for us. We are continuing to look at areas where there’s a heightened risk of deficiencies, and some of those include audits that involve generative AI, cryptocurrency assets, and quality control procedures. And we’re also looking into companies and certain industries and sectors. One of the things that our staff is focused on is companies where there is specialized accounting, which then would have potentially more impact based on volatility in the markets, especially volatility and uncertainty in the economy and geopolitical space. We’re looking at companies where there have been historically higher deficiency rates, and also where there’s a higher possibility of going concern. We of course always leave some room for inspections of audits in areas of emerging risk.
Siegel: Talk a little bit about the smaller firms, what you’re seeing with firms that may not be in the Big Four.
Williams: Small firms play a critical role, and we want to make sure that they are successful. We have some resources dedicated to doing that. Last year, we started to do our small business forums in person in five jurisdictions around the country. Just a few weeks ago, I kicked off our 2025 series of small firm forums in Chicago. Just today, Board Member Botic is in Jersey City, hosting the second of those forums. We have some workshops coming up specifically targeted to help firms with implementation of our quality control standard. We have a new dedicated page on our website that is like a one-stop shop for the resources. We also have a publication that we started issuing late last year called Audit Focus, which is a slimmed-down version of our Spotlights, targeted to small firms with some of the key considerations and good practices.
Siegel: I’m curious as to your thoughts around auditors’ use of artificial intelligence in audits. What are you seeing, hearing, or thinking about?
Williams: This is an area that we’re really focused on, and we have a special project on our research agenda that’s dedicated to data and technology. I always say that with respect to any new tool, whether it be AI or anything else, we need to make sure that auditors and audit firms are still staying true to the investors that we all serve and also continuing to comply with PCAOB rules and standards. We put out a Spot-light last year, and we did a survey of firms about the use of generative AI in auditing and financial reporting. One of the things that we found there is that even as they consider how those tools might be used; they’re also considering how to put in place controls for things like data privacy and security. We are going to keep a careful eye on this area as it develops. There are specific areas that we need to make sure aren’t being lost, like professional skepticism, and you’re always going to need people to do that.
We’re also considering AI as we think about updating our standards. We want to make sure that our standards are not too prescriptive. We don’t want small firms that may not have as many resources to dedicate specific resources to specific technologies, but we also want larger firms who want to use the technology to be able to do so. As we are working to update the standards, we want to make sure that they’re principles-based, that they allow for responsible use of technology, and that they allow firms of all sizes to implement them.
Siegel: Another trend besides AI that we’re seeing a lot of is alternative investment structures, with audit firms taking on equity investments. How’s the PCAOB thinking about the effect of such shifts on firm governance?
Williams: This is an area that we also have a focus on. Board Member Botic is conducting a research project on this. One of the things that we want to make sure that firms, no matter how their business is structured, are continuing to focus on is compliance with our rules and standards, and that includes independence.
We also think that as firms think about a private equity structure, they should also think about how it might impact the culture. If the goal is monetary, how does that also fit in with an auditor’s responsibility for investor protection? And how does that impact the culture of the firm? One of the things that we’ve been focused on in our inspections is firm culture and how culture may impact audit quality. I think that those are key considerations that firms need to keep in mind as they are considering alternative practice structures.
Siegel: We haven’t talked about enforcement. What are some of the key violations you’re seeing that are driving cases at the PCAOB?
Williams: We’re really focused on serious areas of wrongdoing. I mentioned some of the types of cases that we’ve brought over the last few years, including cases in China involving altering work papers, taking on work that firms can’t complete, adopting work papers whole-sale from other firms without doing any work, that type of thing. We also had some work that we’ve done on our form AP. Form AP is one of the most basic forms that investors use because it tells you who’s actually doing the audit, and we found that it’s important to stakeholders. We had done some work in our enforcement group around firms not accurately completing form AP, and I’m pleased to see that the violations in that area have gone down, I believe as a result of our work in that area. But we are really focused on making sure that our enforcement is based on severe violations so that we can hold wrongdoers accountable and deter future wrongdoing.
Siegel: What do you think boards and audit committees should be asking their auditors based on what the PCAOB is seeing in their inspections and enforcement?
Williams: There’s no substitute for an informed and active audit committee. They are a critical stakeholder and they’re a critical part of investor protection. They play a really important gatekeeping role in that they hire and oversee the auditors. I mentioned that every year we have more than 200 audit committee chairs that we meet with in the course of our inspections. And we also put out a Spotlight that includes questions that audit committee chairs should consider asking auditors. Things like, has our inspection team been inspected? Were there any deficiencies? What are you doing to decrease all deficiencies? We really do want to make sure that audit committees are reviewing our inspection reports and using them to help oversee auditors.
Norman Strauss: Can I ask, is there much coordination between you and the SEC’s enforcement people to decide who works on what?
Williams: So, we have concurrent jurisdiction with the SEC and our enforcement matters. I think that investors are best protected when we each bring our unique experience and expertise to the table. We do coordinate with the SEC and in our enforcement matters and we talk to the SEC about them. There are times when the SEC, which has different resources and the ability to go to federal court, may bring cases but we would not. And we have brought cases where they’ve gone after the issuer and we’ve gone after the auditor. We’ve worked very well with them over the years to make sure we’re not duplicating efforts but we’re each using our experience and expertise and talents to protect investors against wrongdoing.
Siegel: A question came in from the audience: you noted that less in-person work during the pandemic and lockdown potentially had an impact on audit deficiencies. Do you have a sense of what might have had a bigger impact and why? Less technical guidance, less opportunities for mentorship?
Williams: What we have heard through our discussions with auditors over the last few years is that a lot of auditors learn from sitting at the foot of more senior auditors in person on their engagement teams, and by the nature of the COVID-19 pandemic, that wasn’t done. Some firms were able to adapt and other firms had a skills gap and they’re catching up now by providing more in-person work, more training, more supervision, and more review. It was something unexpected and it required a lot of folks to sort of pivot quickly. But I do think that the concentrated efforts the PCAOB has brought to this area, as well as the work of the firms, are starting to show up in deficiency rates going down and skills gaps being closed, and that’s great for investors.
