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Remarks before the 2019 AICPA Conference on Current SEC and PCAOB Developments

Nipa Patel
Professional Accounting Fellow, Office of the Chief Accountant

Washington D.C.

Dec. 9, 2019

The Securities and Exchange Commission disclaims responsibility for any private publication or statement of any SEC employee or Commissioner.  This speech expresses the author's views and does not necessarily reflect those of the Commission, the Commissioners, or other members of the staff.


Good Morning.  It’s a pleasure to be here today to speak with you on a few topics related to audit standard setting.  You have heard from members of the Office of the Chief Accountant (“OCA”) over the years speak to the important role that the independent auditor plays in the financial reporting ecosystem.  An audit of the financial statements enhances the reliability of financial information.  Audit quality, both domestically and internationally, is a critical element driving this continued reliability.  With this in mind, I’d like to spend a few minutes discussing the role of the Commission with regard to PCAOB standard-setting and follow with the existing governance structure for audit-related standard setting[1] at an international level, including its relevance to the U.S. investor community.  

Commission’s Oversight Responsibilities - PCAOB Standard Setting

In establishing the PCAOB, the Sarbanes-Oxley Act also established the requirement for Commission approval of rules adopted by the PCAOB in order for them to become effective.[2]  OCA assists the Commission during this approval process and is informed through, among other things, its ongoing engagement with the PCAOB.  This dialogue begins early on in the PCAOB’s standard setting process, providing the PCAOB with early opportunities to consider feedback while also allowing OCA to understand the genesis of a new standard’s objectives.  OCA does not perform these activities in isolation, but rather engages the staff of other offices and divisions, as appropriate. 

With respect to both the PCAOB’s research and standard-setting projects, OCA often provides perspectives for PCAOB staff to consider as they progress towards public consultation.  Public feedback is an important part of the PCAOB’s standard setting process.  As a result, OCA’s perspectives typically focus on clarity and consistency within the document, questions of potential unintended consequences not yet considered, and potential conflicts with existing securities laws or Commission rules.  Hopefully this allows for the public feedback to focus on the policy proposals within the document.  

After the Board adopts a new rule, that rule is subject to Commission review.[3]  The Commission’s review process begins with a request for public feedback through a Notice of Filing.  After the comment period closes the staff prepares a recommendation for the Commission to consider, including an analysis of the comments received.  As part of this analysis, the staff examines whether similar feedback was provided and considered by the Board during its consultation period.   The Commission considers the staff’s recommendation but ultimately reaches its own determination whether to approve or disapprove the standard.  OCA supports the Commission throughout the process and the Commission makes its approval determination within ninety-days from the date the PCAOB files its adopted standard with the Commission.[4] 

The Commission staff’s interaction with the PCAOB does not stop with the Commission’s approval of the PCAOB Standards.  Commission staff works with the PCAOB in monitoring implementation of new standards, including receiving feedback from the relevant stakeholders.  The PCAOB’s monitoring and outreach of the implementation of Critical Audit Matters[5] is a good example of this, a topic that my colleague Louis Collins will expand upon today.

International Audit-Related Standard Setting

As with domestic audit standard setting, international audit-related standard-setting benefits from oversight of the standard setter.  Before I dive into the international structure, let me provide a few perspectives on why the establishment and maintenance of high quality international auditing standards are relevant to the U.S investor.

First, at the end of 2018, U.S investors had invested more than $11.3 trillion in foreign equity and long-term debt securities, a portion of which relates to companies based outside the U.S.[6] and whose securities are listed in non-U.S. jurisdictions.  Second, the accounting profession, through the AICPA’s Auditing Standards Board (ASB), has a strategic objective to converge its standards with those of the IAASB.[7]  In turn, certain entities with SEC filing obligations include auditor reports performed under AICPA standards.[8]  Third, U.S. accounting firms that are members of global networks incorporate international audit-related standards as part of a common global audit methodology, training, and governance.  And fourth, the PCAOB often tracks the work of the IAASB.

The existing international structure focuses on the importance of high-quality audit-related standards being set in the public interest while also considering the importance of consistency in adopting such standards across the globe.  This structure contemplates different roles and responsibilities, including:

  • Expert and objective standard setting boards, the IAASB and IESBA, focused on setting high-quality international standards for auditing, assurance, quality control and ethical standards for accountants;[9]
  • An organization to oversee that the public interest activities of the International Federation of Accountants (“IFAC”) are properly responsive to the public interest, known as the Public Interest Oversight Board (“PIOB”);[10]
  • And finally, public authorities within the Monitoring Group[11] to shield the oversight body from undue influence while enhancing its public accountability.

It is important for us to step back periodically and consider whether there are opportunities for improvement.  Recently, the Monitoring Group has undertaken an evaluation of areas of potential improvements to strengthen the structure.  In that regard, I would encourage each of you to follow any developments as they work to strengthen international audit-related standard setting, which in turn will contribute to our collective goal of improving audit quality.  Thank you for your time today.


[1] Refers to standards set by the International Auditing and Assurance Standards Board (IAASB) for audit, assurance, and quality control and the International Ethics Standards Board for Accountants (IESBA) for ethical standards for accountants.

[2] Section 107(b) of the Sarbanes Oxley Act.

[3] See Section 19(b)-4 of the Exchange Act.

[4] See Section 19(b)(2)(A)(ii) of the Exchange Act which requires the Commission to approve or disapprove a proposed rule change no later than 45 days after the date the PCAOB files the adopted standards with the Commission.  Further, the Commission has traditionally requested a 45-day extension for its consideration due to the Commission separate consideration of whether the adopted standards should apply to Emerging Growth Companies (“EGCs”).   

[5] See AS 3101 The Auditor’s Report on an Audit of Financial Statements When the Auditor Expresses an Unqualified Opinion, paragraphs .11-.17.

[6] See U.S. Department of the Treasury, Federal Reserve Bank of New York, and Board of Governors of the Federal Reserve System, U.S. Portfolio Holdings of Foreign Securities as of December 31, 2018, at page 5 (Oct. 2018), available at

[7] See  for AICPA ASB’s strategic plan, which includes the Board’s objective to converge its standards with those of the IAASB, while avoiding unnecessary differences between its standards and those of the PCAOB.

[8] This includes, for example, 1) examination engagements under the Custody Rule (See Commission Guidance Regarding Independent Public Accountant Engagements Performed Pursuant to Rule 206(4)-2 Under the Investment Advisors Act of 1940, Release No. IA 2969 (Dec. 30, 2009)), 2) review and audit engagements under Regulation Crowdfunding (See Crowdfunding, Release No. 33-9974 (Oct. 30, 2015)), 3) audit engagements under Regulation A (See Amendments for Small and Additional Issues Exemptions Under the Securities Act (Regulation A) Release No. 33-9741 (March 25, 2015)), and 4) non-issuer entities whose financial statements are filed to satisfy Rule 3-05 or Rule 3-14, (See Corporation Finance Financial Reporting Manual paragraph 4110.5).

[9] See and for further detail on IAASB and IESBA respectively.

[11] Members of the Monitoring Group are the Basel Committee on Banking Supervision, European Commission, Financial Stability Board, International Association of Insurance Supervisors, International Forum of Independent Audit Regulators, International Organization of Securities Commissions, and the World Bank.  See

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