The continued need for a sound and durable regulatory environment was the key message at a Chamber event in May that focused on the rapidly changing landscape of U.S. public company audits.
Under the current leadership at the Public Company Accounting Oversight Board (PCAOB), the Board has been engaged in a historic push to update standards for public company audits. However, the rapid pace and expansive nature of its regulatory process have meant that important considerations—including an appropriate justification for standards updates and opportunities for meaningful stakeholder engagement—have gone overlooked.
Since the beginning of the current Board’s leadership in 2022, the Chamber has submitted 12 comments to the PCAOB, with a heavy emphasis on the need for the Board to perform a rigorous cost-benefit analysis to justify its regulations and the importance of providing sufficient comment periods for stakeholders to weigh in on proposals.
During remarks at the event, PCAOB Board Member Christina Ho, one of two licensed Certified Public Accountants (CPA) on the Board, expressed a regulatory vision that “getting the balance of regulations right is essential to driving solutions that improve lives in fostering a vibrant and dynamic economy that creates opportunity for people.”
Board Member Ho identified three criteria she believes must be adhered to when crafting regulations:
- Regulations should only be adopted when necessary;
- Regulations should be well-designed and in proportion to the problem to be solved; and
- Regulations should facilitate trust and innovation.
Targeted government intervention and regulation can benefit our capital markets system and investor protection, she noted, but the government’s responsibility is to intervene in markets only when required.
Regulations must be predictable, durable, balanced, and reasonable, Ho said, and not subject to the swings of the political pendulum because regulatory changes are costly, bad for business, and bad for capital markets and our investors.
Board Member Ho dwelled on the importance of audit quality but said, "Unfortunately, the standards adopted during the past two years [at the PCAOB] have fallen short of being sensible and in line with the Board’s investor protection mandate because they are poorly designed.”
She voiced a concern that because regulations at the PCAOB are often poorly designed and lack adequate cost-benefit analysis, they may actually reduce audit quality and competition, leading to investor harm rather than their protection. Audit quality drives success and trust in the U.S. corporate disclosure system, and audit quality rests on quality judgment and auditor expertise, not check-the-box compliance exercises.
PwC Vice Chair Wes Bricker, the firm’s U.S. Trust Solutions Co-Leader, and a former Chief Accountant at the Securities and Exchange Commission (SEC), agreed during a fireside chat with CCMC Executive Vice President Tom Quaadman that quality people determine quality audits.
Bricker noted that there had been a “dramatic” improvement in audit quality over the past few decades, noting that auditor independence and objectivity are key to audit success. Bricker expressed optimism about the future of the audit profession. He said that we can both have strong, quality audits today and a stronger system tomorrow, particularly through the use of technology. Bricker stated that auditors have benefitted from technology and concurred with Board Member Ho’s view that regulations should enable innovation.
Both Bricker and Ho called on the public to become more involved in policymaking around auditors and encouraged the PCAOB to consider all the different facets of regulation, not just the perceived benefits of a regulation to a particular segment of the marketplace.
About the authors
Evan Williams
Evan Williams is Vice President at the U.S. Chamber of Commerce Center for Capital Markets Competitiveness (CCMC).
