Today, the Commission is voting to approve the 2025 budget of the Public Company Accounting Oversight Board (PCAOB) of nearly $400 million with no increase in headcount. I support it because of the important role the PCAOB plays in protecting investors and facilitating capital formation.
Well-functioning financial markets are built on trust. Critical to such trust are disclosures—including financial statement disclosures made by issuers and broker-dealers to the investing public.
Nearly 25 years ago, though, that system of disclosure and trust broke down. Fraud in financial reporting and accounting eventually led to historic bankruptcies, such as Enron and WorldCom.
My Grandpa Ellis Tillis often repeated the old line: “Figures don’t lie, but liars sure can figure.” Investors needed facts and figures they could trust — figures without the liars.
Congress responded by passing the Sarbanes-Oxley Act of 2002. Having had a ringside seat advising my home state senator, Paul Sarbanes, on this historic legislation, I saw how both Congressman Mike Oxley and he understood all too well the importance of figures.
Their vision led to reforms establishing the PCAOB as an independent watchdog over the audits of public companies and their auditors. It’s an independently funded board under the regulatory oversight of the Securities and Exchange Commission.
Auditing firms must register with the PCAOB if they audit one of the approximately 7,000 actively reporting public companies or one of the about 3,300 SEC-registered broker-dealers. Under the Sarbanes-Oxley Act, the PCAOB must conduct inspections of such audit firms at least once every three years. Last year, Board staff conducted more than 232 audit firm inspections of more than 930 firm engagements in 37 jurisdictions all around the world.
Of the PCAOB’s 945 staff, its 520-person inspections division, the largest group, makes up more than half of the board’s staff.
I want to thank the Board for their responsiveness to the Commission’s requests as included in the passback letter as well as staff questions along the way.
As today’s meeting is nearing the end of this Administration, I’d like to share some reflections about the PCAOB’s work these last four years.
First, for nearly 20 years, the Chinese authorities wouldn’t let the PCAOB inspect or investigate the auditors of Chinese-related companies listed in U.S. markets. With the help of a 2020 law, the PCAOB undertook serious negotiations with the Chinese authorities, which culminated in a Statement of Protocol signed in August 2022. I’m pleased to report that for the last three years, for the first time, the PCAOB has been able to fulfill its inspection and enforcement-related responsibilities as it relates to audit firms in China and Hong Kong.
Second, for practical reasons, Sarbanes-Oxley permitted the newly established PCAOB to carry over existing American Institute of Certified Public Accountants standards on an interim basis. When I started at the SEC, though, there were still 42 of these 49 so-called “interim standards,” which were intended to be temporary. I’m pleased to note that progress has been made: in the past three years, the PCAOB now has updated half of the interim standards.
Third, I have seen since the passage of Sarbanes-Oxley 22 years ago the importance of that law in promoting trust in public company figures. This trust, though, can easily be taken for granted. The PCAOB—an important reform of the George W. Bush Administration—writes the standards for auditors and audits the auditors. That’s the core of what it does, and it’s every bit as important now and into the future.
I’d like to thank PCAOB Chair Erica Williams as well as PCAOB Board Members Kara Stein, Anthony Thompson, George Botic, and Christina Ho.
I’d also like to thank my colleagues at the SEC for their work on this matter, including:
Paul Munter, Natasha Guinan, Anita Doutt, Shaz Niazi, Greg Hillson, Mark Jacoby, Fariba Nasary, and Taylor Pross from the Office of the Chief Accountant;
Caryn Kauffman, Allen Blume, Nikki Puccio, and Kristin Aveille from the Office of Financial Management;
Bryant Morris, Peggy Kim, and Hillary Holman from the Office of the General Counsel; and
David Bottom, Greg Schulze, and Bobby Sharma from the Office of Information Technology.
