The Public Company Accounting Oversight Board (“PCAOB” or “Board”) plays an important role in our capital markets as an independent audit regulator. The PCAOB’s work furthers the public interest, including the protection of investors, through its oversight of the preparation of independent audit reports. Today, the Commission approved a PCAOB rule that requires significant enhancements to certain public company audit reports, including the communication of critical audit matters (“CAMs”) and the disclosure of auditor tenure. These changes are intended to make the auditor’s report more informative.

The PCAOB commenced this project in 2010 in response to investor comments that the independent auditor’s report should provide more specific information about how the auditor reached his or her opinion.[1] The PCAOB engaged in three rounds of public solicitation of comment as well as substantial outreach to various stakeholder groups. The result of this deliberative process is the rule that the SEC approved today.

I strongly support the objective of the rule to provide investors with meaningful insights into the audit from the auditor. CAMs are designed to provide investors and other financial statement users with the auditor’s perspective on matters discussed with the audit committee that relate to material accounts or disclosures and involved especially challenging, subjective, or complex auditor judgment. Investors will benefit from understanding more about how auditors view these matters.

As discussed in the Commission’s approval order,[2] some commenters raised questions about the PCAOB’s rule. These questions included whether CAMs will result in an increase in litigation that does not benefit investors; whether CAMs will convey meaningful information specific to the audit or will instead provide boilerplate; and whether CAMs will chill auditor-audit committee dialogue. I am sensitive to these concerns.

In particular, I believe that the independent audit committee has emerged as one of the most significant and efficient drivers of value to Main Street investors. The audit committee’s key role in the oversight of the audit and the auditor, and in the integrity of a company’s accounting and financial reporting processes, has significantly enhanced financial reporting quality.[3] Impairing or otherwise negatively affecting the work of well-functioning audit committees could have significant adverse effects on investors.

I would be disappointed if the new audit reporting standard, which has the potential to provide investors with meaningful incremental information, instead resulted in frivolous litigation costs, defensive, lawyer-driven auditor communications, or antagonistic auditor-audit committee relationships — with Main Street investors ending up in a worse position than they were before.

I therefore urge all involved in the implementation of the revised auditing standards, including the Commission and the PCAOB, to pay close attention to these issues going forward, including carefully reading the guidance provided in the approval order and the PCAOB’s adopting release.

In this vein, I am also pleased the PCAOB intends to monitor the results of implementation, including consideration of any unintended consequences. Post-implementation review of new standards, including the use of economic analysis tools, is an important component of high-quality regulatory decision-making. The phased effective dates for CAMs should facilitate some early-stage analysis through the PCAOB’s Post-Implementation Review (PIR) process,[4] based on the experiences of large accelerated filers. Depending on the findings of this analysis, including an evaluation of unintended consequences, the Board should be open to making changes, if necessary, to the revised auditing standards, including to the effective date for companies other than large accelerated filers. Ultimately, I support a timely and effective PIR for these revised auditing standards, and it will be critical that this PIR is completed as soon as practicable. To this end, I have directed the SEC staff to assist as needed in that process.