PCAOB landscape—What companies and auditors should know

0:02Hello, and welcome to PwC's accounting podcast.

0:11Today we're covering the latest developments at the PCOB and what they could mean for companies. With new leadership, evolving strategic priorities, and a refreshed standard-setting agenda, the PCOB is taking a new approach to audit oversight.

0:41Hi, I'm Diana Stoltzfus, a partner in PwC's national office and host for today's episode. Today we're covering the latest developments at the PCOB and what they could mean for companies. With new leadership, evolving strategic priorities, and a refreshed standard-setting agenda, the PCOB is taking a new approach to audit oversight. We'll discuss the board's priorities, recent amendments to its quality control standard, efforts to modernize inspections, and potential implications for companies, audit committees, and auditors. Joining me today is Brian Crotto, PwC's U.S. Chief Auditor, who's back on the podcast to discuss the latest.

1:20Hi, Brian. It's great to have you here in D.C. with me. It's great to be back here, Diana. There's a lot going on from a regulatory perspective, and so it's great to be here today in D.C. with you. The weather's changed. It's gotten cold here in DC. I know. The leaves are changing though, so it's beautiful. Yeah, true. Well, good. Well, I guess we'll jump into it. I know last time we had you on the podcast, Brian, we caught up on the PCOB and we just had some changes with leadership at the SEC, but now we're starting to see some of that flow through at the PCOB. We have a new board at the PCOB.

1:53They just recently put out their strategic plan and updated their standard setting agenda. So Brian, what stands out to you from the PCAB, you know, the biggest thing that you're seeing from their changes? Yeah, you're right. A lot has happened. It has been, I guess, about a year. And you're right, at that time, Kurt Hull had just been appointed as SEC chief accountant. And of course, Chair Williams had stepped down. And we've got, to your point, a full new board with four new board members, including a new chair. Certainly one board member, George Bota, continuing on. We'll get to that. But what's really clear to me from the outset is we have a board that is committed to a more transparent and more inclusive process and really seeking ways to go beyond the past approaches that they've taken to hear ideas and input and advice from stakeholders.

2:39You know, you mentioned the strategic priorities and strategic plan. You know, they really went out of their way, in my view, to seek input. And there have been ways for input to prior strategic plans, particularly early in the early years of the PCOB's existence. But I think this board has really gone out of their way for formal opportunities for public comment and other opportunities for public input relative to their strategic plan and the standard setting agenda in a really unprecedented kind of way. That's exciting. I think it's really good to get input into, you know, what they're focused on, what their priorities are.

3:11So, I mean, maybe one really good example of this too, Brian, is that we've seen the QC stand, the Quality Control Standard or QC 1000. You know, PCOB has recently made some changes to that, but that's a standard that's kind of had an interesting path over the past couple years. And it seems to be something that's reflective of what you're talking about, about them hearing feedback from stakeholders and making some changes. So maybe, Brian, can you talk to us a little bit about those changes and maybe what are some of the more significant amendments? Yeah, and certainly there were some changes that were proposed and then finalized now that they're at the SEC for final approval, which we expect to be imminent.

3:49I would say that, you know, as you look at kind of the changes, it's really about things that there were where there were challenges relative to the implementation. Some of that was foreshadowed in comment letters through the standard setting process. But things like allowing firms flexibility in choosing their annual evaluation date, providing some increased flexibility on certain of the specified roles and whether you could divide those roles into two as long as it was clear accountability, for example. areas of documentation and retention and some of the challenges that were created relative to some of the requirement there.

4:21I would say maybe one of the more controversial was rescinding the requirement to have an external QC function or an EQCF. That's one where there was quite a bit of controversy during the finalization of the original standard, resulting in a very lengthy comment letter from the PCOB to the SEC. And bottom line is our view had been, we don't think, and many commenters didn't think this would be required or necessary to achieve the objectives of the standard. And while there are different perspectives on that, my own certainly is that we as a firm, and I know others, do a lot to seek input from, like, for instance, our external audit quality advisory committee.

4:58We also have external board observers on our board, and we have lots of opportunity to seek input on our system of quality management and get input on our system of quality management through certainly our own reviews of it internally, PCOB inspections, peer review, and the like, in addition to the external advice and views that we receive as well. So I think probably the right decision there in terms of the rescission of that. And then maybe the last one I'll highlight is for firms that don't play a substantial role or conduct audits rescinding the requirement to have a design-only system that complies with the PCAOB standard until such time as such firms would be accepting a client.

5:39So those are the nature of the changes. Again, I think relatively other than maybe the EQCF, uncontroversial, and we expect the SEC to move forward with the approval on that imminently. Oh, that's great. Well, maybe turning back to one of the things we talked about at the beginning, Brian, is that we have new board members at the PCAOB, and you talked about transparency and seeking input from outside voices. And so maybe one thing you could touch on is maybe just talking to us a little bit about each of the board members and maybe what their areas of focus are. Yeah, sure. And maybe starting with the chairman, Jim Lowe-Fedis, a former EY partner, certainly had been also a former audit committee chair and has that expertise that he brings to bear as well.

6:22And he's been particularly focused, I think, on modernization of the PCOB's inspection program, thinking about a QC-based approach, really thinking about modernizing for the future, and thinking about where risk exists in the system. It's not about less engagement-level inspections necessarily. It's about conducting the right level of inspections, both at the QC and engagement-level perspective, and really taking into account what firms are doing in their own monitoring, but really modernizing that program. also very focused on the degree of public input that they get across stakeholders relative to informing what they do from a standards perspective, rulemaking perspective, inspections perspective, all around.

7:02And so I think very, very helpful from that regard. Mark Calabria, his background is as an economist, certainly, and he also was former director of the FHFA, but certainly comes with a lot of great experience and expertise relative to his economic background. And he's been emphasizing really proportional evidence-based regulation, cost-benefit analysis, not surprisingly, without sacrificing on equality and really focusing on investor protection. So probably not surprising given his background. Right. And then Kyle Hoffman is the newest member who was sworn in in August after completing his role as chairman of the National Credit Union Administration.

7:42And he also served as economic policy advisor on the Hill and formerly was with the SEC's advisory committee on small and emerging companies. His first speech mentioned particularly trying to avoid regulation by enforcement or inspection and really having clarity and standards from that perspective. And so that certainly sounds positive as well. Then we have Steve Loftin, who is an attorney by background and with more than 30 years at the U.S. Treasury Department. He joined in 2022 as a counselor to Christina Ho at the time and now has continued on in a board role and so far has been focused on what I'll say is kind of practical standard settings, smaller audit firms and stakeholder engagement.

8:24You know, really, really his comments have been along the lines of, you know, full engagement with audit committees and maybe a more moderate sustainable path forward on standard setting than some of the more aggressive, what he considered to be the more aggressive kind of standard setting of the previous board. And then last but not least, we've got George Boda continuing on in his role. George has been with the PCOB since 2003 and really served in a number of important roles, including director of registration and inspections, and then was appointed as a board member in 2023, 20 years into being with the PCOB, and served as acting chair for some period of time prior to Chairman Logothetis joining and serving in his current role as chair.

9:05He's the only board member so far to have signaled dissent with some of the direction of the PCOB's current agenda, including some degree of dissent relative to QC 1000. He ultimately approved it because he or voted to approve it because he, as he rightfully indicates, didn't have a piecemeal ability to vote up or down on aspects of the changes, and he did support other of the changes. But I think particularly for EQCF, he would have liked to have seen that continue on. You know, George has been very focused on, and we'll get to it later, a number of the PCV's prior projects, including firm and engagement level metrics and some of those projects that the board had pursued but not completed previously.

9:46so we'll see sort of where that leads itself just given the full agenda that they have. Yes, and we'll be getting into that, so that's exciting. It's good to hear, though, that there seems to be kind of across the board a real desire to get this external input into the standard setting process, their priorities, the inspection process enforcement, so I think it's always good when you get lots of points of view. Maybe before we turn into getting into the details, though, the strategic plan and standard setting, putting it in perspective for companies and audit committees. Of the initiatives that we'll be discussing, Brian, what do you think will have the greatest impact on companies and audit committees, and where should they be paying particular focus?

10:28Yeah, I think there's a few areas that would be most impactful. I mean, you know, as an auditor, and us auditors, we're interested in the full agenda and the full strategic plan, and a lot of this is very exciting to see the direction of the new board. But, you know, if I were sitting in management's shoes and thinking about it from a company perspective, I do think where they may head relative to standards, policies, guidance relative to the use of AI by both management and auditors is going to be an important space. They've said that they're going to issue guidance in this space, and we've been long supportive of that.

10:57We'll get into kind of at least our perspectives or my perspectives on where I think they ought to head with that and hopefully being helpful to grounding in existing standards and not doing anything that would certainly stifle appropriate innovation. The other would be the PCOB inspection reports. We do expect there'll be some pretty significant change to what those will look like over time. Hopefully, it'll allow for better understanding of the nature of the issues, severity of the issues, and those types of things. But that will obviously affect how management and audit committees think about those types of reports, the results in those reports, and what it might mean for them more broadly.

11:31And then lastly, just it might seem minor or trivial to some, but one of the areas that they've indicated that they may issue guidance in the near term on would be auditors thresholds for determining a clearly trivial or de minimis level at which unadjusted differences wouldn't need to be reported to audit committees which over time has created a great degree of noise in the system because we're only under the current standards through an interpretation able to have one level of materiality for that clearly trivial threshold doesn't affect management's materiality levels right whatsoever but would allow a separate potential threshold if they issued this guidance for balance sheet type reclasses or adjustments that you might think about differently and what would be important for an audit committee.

12:14And I think we'll get into that a little bit later as well. But those are probably three things that I would say might be those, amongst some of the other projects like NOCLAR and the rethinking of the scope of those types of projects and some other standard-setting projects where management may want to be weighing in as the PCOB proceeds. But those would be the things I might have my eye on if I were in management's shoes. Yeah, and I think as always, I think we've talked about this before, Brian, but I think, you know, when there are opportunities to comment and where companies have a view, I think it's always important to get those external views as well.

12:46So I think as there are projects, you know, we're going to get into the standard setting agenda and thinking about, you know, as those are going to have impacts on companies, I think it's always good for people to get involved in the process and share their views. No doubt. And I know we say that a lot, but I mean, now more than ever, it matters because we have a board who really is interested in getting a lot of feedback at the right times, too. I think there have been some limitations on when that feedback could be provided, and I do think there'll be greater opportunities for feedback when it really matters that will really influence the decision-making.

13:16in. And I know the board's even doing a lot of outreach in addition to waiting to receive the input. So when those opportunities arise or as, you know, as management audit committees, other stakeholders have views, I think we've got a board that's really in staff. We're going to be very interested in hearing them. That's exciting to hear. And I think now turning, we're going to get into the strategic plan, but I think this was one of the areas where the board did something different, where we saw that this time, you know, they've put their strategic plan out for comment it before, but that was usually after the plan was fully developed by the PCOB.

13:48And so it was more to comment on what they'd already come up with. Whereas this time we saw before they even developed the plan or the standard setting agenda, asking for that feedback is to, so it would inform their process of developing it up front, which I think was a good change as to the timing, and I think speaks to what you just went through as well. But maybe getting into the strategic plan a little bit. What stands out to you, Brian, from these priorities? And, you know, how is this input that we've been talking about influence the board's direction? Yeah, I, you know, not to repeat anything that you've said, agree, agree totally with everything you've said to describe the process.

14:24And I think it's been fantastic to sort of see the level of engagement, the extent of comment that they received across stakeholder groups. They did release the plan for comment in July. And when you look at the overarching goals, some might say, well, geez, none of this is very surprising. Modernizing standard setting and the approach they take to it, modernizing the inspections process, sharpening their enforcement focus to things that truly matter relative to investor protection, and deepening stakeholder engagement in communication, modernizing oversight through technology and data, and then lastly, strengthening organizational effectiveness and stewardship.

14:59I mean, those all sound foundational and basic and probably the things you would expect. But I think the nature of the feedback that they got that went with it really helps shape how you think about those areas, perhaps, or how they might think about those areas. And we saw that in particular as well with the standard-setting agenda that I know that we'll get to. This is a plan that the board ultimately will submit to the SEC as part of their budget process. So we do expect them to finalize it here in the near term. That probably happens sometime in the November timeframe as they submit a final budget with a strategic plan to the SEC for them to approve by the end of the calendar year.

15:36So we'll see what they do relative to any incremental changes they work to finalize that, but at least the proposed version I thought was very helpful and a lot of great commentary that they received as a result of exposing it. Yeah, and I think one thing, Brian, that I thought was really good too was there was discussion around more alignment too with some of the other auditing standard setters. So thinking about the international standards, thinking about the AICPA here in the US. And so I think seeing more coordination and making sure there's alignment between those standards, I think that makes it easier for everybody in the ecosystem.

16:11So I thought that was a positive. Yeah, it's a really great point. And we're gonna get to that maybe on the standard setting agenda a little bit. It's a challenge to some extent, but we certainly highlighted in our comment letter And they've put it forth right from the get-go relative to their exposure that it would be helpful if they could better align with what we're seeing done from an international standards-setting perspective. We've added to that that we really think what the AICPA is doing through the ASB and task forces of the ASB is also equally very important because some of that's already considered the international standards, modified it for the U.S.

16:42environment, at least for private companies. And they may be able to make use of some of that good thinking as well. there's obviously things they need to think about from a u.s public company perspective or broker dealer perspective that might differ but nonetheless i i think that is good to see and there's also some greater acknowledgement i think of even the importance of staying aligned what would seem obvious with the sec of course with some of the rule makings we'll get to um later but also the fasby and what's happening from an accounting standard setting perspective so um that acknowledgement i think is hugely important because it's it's so easy for um each of these bodies to be off doing their own thing without the transparency coordination and, where possible, collaboration that can result, to your point, in a better system for everybody with less confusion about differences between them.

17:29Yeah, 100%. Okay, so let's get into it now, Brian. Let's talk about the standard setting and rulemaking agenda. So I think we touched on this. There are some new projects that we've seen added, and then there's some ones that have remained on. So maybe can you talk us through each of them? Yeah, so why don't I just take them in order of how they have them on the agenda? And the first really relates to AS6101 on comfort letters, and this one relates to the SEC's project on semiannual reporting and possibly making targeted amendments that would allow for comfort over when there are greater periods of time that have passed due to the lack of a Q1 or Q3 where companies have elected semiannual reporting.

18:05Obviously, this would stay tied to what the SEC does. We didn't think that such amendments were necessary. If they do extend the time, firms would obviously make their own risk management conclusions as to how far to go in providing comfort. And then the other on auditor independence that's teed up for potentially as soon as Q1 of next year would not change the foundational tenets of auditor independence, which we believe remain very important and we don't believe need change, but would address the fact that they adopted interim standards back in 2003. There's overlap with SEC and other requirements, which poses some degree of confusion, perhaps.

18:41And then also there are some things, I think, just from a modernization perspective that would make sense over time that just have become outdated or just don't make sense in the current environment. So I know that they're looking at those kinds of things. Okay. Well, I guess, Brian, that brings us to fraud and no-claw or noncompliance with laws and regulations. So I know these are two items that have been on the agenda for quite a period of time. So maybe a quick update on those. Yeah. Yeah, and fraud is one where I think they're really looking to align perhaps with some of what's been done from an ISA perspective, ISA 240 and SAS 151 at the ASB.

19:13We don't think that the current standards are broken. There could be some opportunity for some alignment and maybe some further focus on the whistleblower programs and the like. Some of the things would be things that we're doing in practice certainly today, but we can understand given the work of the other standard setters and the importance of fraud. some degree of refresh here could be appropriate as long as it's, you know, I think fairly well still aligned with their existing approach and that of the other standard setters. NOCLAR is one that obviously has gotten a lot of attention historically, and we did put this in our letter as one we thought they should take up in terms of bringing some closure to the project with some meaningful changes that would be, you know, I think much more measured than those that might have been proposed previously.

19:53So if you look back at, you know, I think some of the recommendations that were eventually made at their final roundtable when they had this project on the agenda. I think there are some things that could be meaningfully done. They could update the standard and modernize it as well, focus on the auditor's response when you do become aware of situations where there may be noncompliance with laws and regs and the effect that it may have on the rest of your audit. There are a number of other things that we raised that I think could be useful to give consideration to. Again, I think the way they've described it in the agenda does make me believe that it would be a much much much of a reset and much more um measured measured kind of an approach than than what the board previously had been considering and hopefully this will be an area too where there was a lot of feedback i think from a wide range of stakeholders on the original no clar so i think a lot of good information to feed into the project there certainly is and and i should have mentioned there's i mean there are still things going on in other jurisdictions relative to consideration of of no clar uh that they can they i'm sure undoubtedly they'll have have in mind but uh But you're right.

20:53I think the March 2024 roundtable is a good place to start in terms of, I think, some recognition of some of the issues in the prior proposal and some good recommendations. Okay, going concern? Yeah, I think these would be potentially targeted amendments. I mean, if you look back, when the FASB updated their standard, the PCOB issued staff guidance. It was SAPPA 13 at the time. And, you know, they still don't have alignment with the definition of substantial doubt nor the period of time for the evaluation. and the guidance does sort of provide a band-aid for that. But even in the guidance, they had recognized that they would over time update the standard.

21:27The standard's not been updated since adopted. So I think this one would be hopefully fairly targeted and really aimed at alignment with not only what the FASB has done, but also, of course, what's required under 10-CAP-A from an SEC perspective, which is always an ongoing requirement for the auditor relative to their own evaluation in this space, which will obviously remain. Right. Is there any update to the broker-dealer inspection program? Yeah, so that actually, Diana, is on their rulemaking agenda for a Q426 project. And I would expect that they'd get, you know, we'd see some increased focus on the compliance report relative to the carrying broker dealers.

22:01And then the non-carrying or clearing broker dealers, you'd presumably see less focus on, I don't know, whether they would fully exempt them or whether they'd still presumably want the ability to, over time, inspect some number of those where they might see increased risk, where there's a risk that they're actually claiming an exemption they're not eligible for. for example. So I think it's a chance for them to scope the program according to what they've seen over many years and the results that they've seen relative to the risks and the nature of the work that they see being performed by auditors in this space.

22:32They've got a lot of good material to work with relative to past risks and compliance in that space, but I suspect some narrowing there relative to the scope of that program. Okay. Well, that is a pretty full standard setting and rulemaking agenda and lots for them to get through. But there's also a number of projects on their research agenda as well. So what are the specifics we should keep in mind relative to those? Yeah, so I would start with, you know, the data and technology project, which, you know, we thought was hugely important in our comment letter. When you kind of look at it over time, this is an area in particular, and as you specifically think about the use of AI, this is an area where we thought their time would be most well spent.

23:13And we think there's a fair amount that they can do. When you look at management's use of AI and the incremental use that we're beginning to see over time and the use cases that are potentially coming into the scope of ICFR, really important that auditors are focused on assessing that risk, responding to that risk. And, you know, I think there's circumstances where, for instance, management may say, well, we're really not relying on AI because we've got human in the loop completely or the human review. too. But even that, where there's AI being used in a control or in a process, the nature of the human review is important, and assessing the effectiveness of the control could be dependent on assessing the nature of that human involvement and the adjustment that that has had relative to the use of AI.

23:55So I think that's an area that's important for them, as well as for, you know, really the auditor's use of AI, I think grounded in their existing standards. So when you think about, you know, auditor's use of AI, there's still going to be, you know, the human accountability that we would expect ultimately, but you think about things like areas where, you know, the auditors are making judgments about sufficiency of evidence or risk assessment or applying professional skepticism. I mean, those are all areas where we still expect that auditors would ground in existing standards, there'd be human involvement, even though it can be informed by the use of AI.

24:25And I think the PCOB beginning to lay that out and just ground in existing auditor concepts would be very helpful to do as a starting point relative to then further guidance they may have over time. You know, there are issues around or questions around how much documentation should there be relative to the use of AI and the way that it was used in an audit. And we could have probably a whole podcast on how one might think about that and the pros and cons and risks and the like relative to that. But, you know, in firms, to be fair, I think firms are doing a lot in the space we have in terms of developing our own policies.

24:58And I feel very good, for instance, where we are, but I do think from a profession perspective, having the dialogue and then guidance in the space that ultimately in time could then be grounded in standards, but I would go slowly so that they don't get ahead of themselves just relative to and impeding good use of technology and innovation. So that's one that I think is most important. Well, and I think that's a great point, Brian, because I know there had been a view maybe of some of the previous PCOBs that there had been a little bit of, you know, maybe holding back some of the innovation at the firms, and then also how that impacts management and companies as well.

25:37So I think, you know, the support of data and technology and the acknowledgement of AI, and especially we see adoption and the impact and being supportive of that, I think is an important piece of their agenda. Yep. The other two I'll just mention quickly, firm engagement level metrics was one I mentioned that George Bodic has been particularly interested in. It remains, on the research agenda. Again, we remain of the view that audit committees really should be in the role relative to evaluating this type of information. And there's sufficient dialogue that happens today between management and audit committees.

26:07And audit committees have the ability to ask for anything they'd like if firms aren't already providing it. So I think this one's going to compete with a very full rulemaking agenda. So we'll see what that eventually leads to, if it leads to anything relative to guidance or rulemaking. And then lastly is communication with audit committees. And here is really research and outreach to really enhance the oversight activities and ultimately better inform the communications that occur. And so that is one that we're very supportive, particularly, I think, of honing in on those things that really matter relative to communications between auditors and audit communities that can really affect audit quality and be meaningful relative to the PCV's overall mission.

26:47Right. Well, Brian, anything else we should touch on in terms of rulemaking or standard setting before we move on to inspections? Yep. Well, I mentioned already, and they have areas where guidance is likely forthcoming. And one of those is AI. We kind of talked about that already, both management and auditors, so I won't repeat that. Another is digital assets. And I do think in the crypto space, there are areas where I think it would be helpful for the PCOB notwithstanding all the good work the AICPA has done and the guidance that's been issued, really to weigh in on in collaboration or coordination, I should say, with the SEC.

27:20see those relate to areas such as safeguarding and ownership and custodial arrangements and really thinking about sufficiency of evidence and what the expectations are around some of that. Is it different for an integrated audit versus a non-integrated audit and how you think about it across various types of audits under PCOB standards versus AICPA standards? I do think that having a level playing field as to what the expectations are is important for those types of concepts. In addition, I think for investors and other stakeholders, it's good to have transparency around what the residual risks are, what are auditors' management and auditors responsible for, and then ultimately what are the residual risks related to those types of concepts, I think is really important.

27:59And so that's an area that we've encouraged, you know, more attention and perhaps guidance over time. And then the last one is this clearly trivial, which I talked about earlier on, just in terms of the materiality, having a potential separate level of materiality for audit purposes and communication with audit committees, where they've said that they are likely to issue some guidance there that could be useful to reducing the need to communicate certain amounts that would be what we would view to be clearly trivial to being able to have that separate threshold rather than just the one under 2810 that's allowed to be established today.

28:32So we hope to see some guidance come in that space. So those three they did list as potential areas for guidance in the near term. Well, and I think that can be really important to companies and audit committees. We already see that audit committees have a very full agenda these days. And so allowing them to focus the discussion on the important matters is always good. So let's turn to the inspection modernization now, which is another area of focus from the PCAOB. So what are some of the changes that the PCAOB is considering? Yeah, so I would say most importantly, looking to tailor their approach to the assessment of the firm's system of quality management and be able to scale what they do and tailor what they do based on what they see from the firm's system of quality management.

29:13I think there's a lot for them to leverage there, and that includes a lot of the self-evaluation that a firm does, as well as then what they've learned over past years from their own inspection activities and current year. In terms of informing not only the number, people are very focused on the number of inspections, engagement inspections, but I think it's not just the number. It's what you do relative to each inspection individually, how deep, what areas, and do you focus on the areas where the firm already knows there's an issue, or do you focus on the areas where you're not sure if there's an issue because maybe the firm focused less on it.

29:41There's a lot of judgments for them to make in their inspection process because theirs is not a reasonable assurance audit when they're conducting an inspection. So they have a lot of latitude. And I think fully being informed by the firm's system of quality management and their assessment of it makes a lot of good sense, especially this far into the maturity of the PCOB and the maturity of firm's systems of quality management. And, of course, QC1000, which sets the right grounding for them to do this at this point in time. So I know they're very excited about that. You know, I think the revised reporting relative to inspections is another area that we talked about briefly, and I think that's something they'll be focused on as to making the reporting hopefully a little clearer on nature severity.

30:23My hope is they don't overly complicate some of this. I know some of what they've put out initially for the Inspection Modernization Council seems to be a little bit complicated in some respects and maybe focuses on some things that don't even come from the inspection process, like, you know, firm restatement rates, which they could produce these kinds of things in other reports that they do. But overall, firm restatement rates or those kinds of things seem to me would be better outside of the individual firm reports. and that leads to another area which is under their Rule 4010 there's a lot they can produce relative to profession-wide observations whether that be about the kinds of things they see in individual engagement inspections or systems of quality management without naming individual firms that I think provides for a lot of flexibility in terms of what they communicate, when they communicate, how they communicate it beyond what they might have in individual firm reports but that's an area where that's evolving fairly rapidly, they've got a lot of good thinking that they're doing in this space and transparency over it.

31:21They put an example report out on their website under the Inspection and Modernization Council page. It's the JAMS report. It's the example report, but it provides at least an example of their thinking. Again, I think that's going to evolve. I think there was a fair amount of feedback they're receiving already, but we'll continue to stay close to that. But I'm encouraged by all the good thinking that they're doing in that space. And the feedback we'll be talking about at the CEAG meeting. It was a topic of discussion at the IAG meeting last week as well. Oh, great. Well, maybe, Brian, another topic that we've touched on a little bit here is talking about the activity at the SEC and how that's informing some of the projects that we're seeing at the PCAOB.

32:01And so we talked about, you know, semiannual reporting and filer status. But maybe you can go into a little bit more detail on what are some of the potential implications for companies and their auditors? Yeah, it's a great question. I do think for semi-annual reporting, I mean, what we're hearing is a mix of things from our clients. For those that actually would continue, in some cases may continue to just report as they have in the past, and they may produce a full set of quarterly reporting and furnish that or produce it and not furnish it, but certainly some are going to continue to do that even if they're given the option not to, whereas others would elect to report only semi-annually.

32:39Now, for those that elect semi-annual reporting, in some cases we're hearing they would still want auditor involvement to a similar extent on things that they would produce in 1Q and 3Q, even though not a full set of financial statements. And that's where it gets a little bit challenging. We did put in our comment letter to the PCOB that it would be helpful for them to work with the SEC on a path forward and maybe even with the FASB on a path forward as to how the auditor could be involved in conducting something similar to an interim review on something less than a complete set of financial statements.

33:07And there are ways we can do that under existing standards, although that may result in qualification of a report ultimately or adverse report or may result even in types of engagements that would perhaps be more assessed, recommend, or discussion, but not ultimately a conclusion or report. So there's a lot of different ways in which one could be involved. The most typical way would be that as part of our normal ongoing audit, there are procedures certainly we perform throughout the year, and there are things we could do relative to, for instance, estimates at the quarter or transactions that occur at the quarter.

33:39We would want to do a lot of that and not surprise management outside of the period in any case as part of the annual audit. But once you start getting beyond some of that, that's where the questions will arise as to how much more and what's the nature of that engagement. So obviously, it will depend how the SEC finalizes their rule. And I think that's an area where, again, per our comment letter, we did make some suggestions from a PCOB perspective. Some of the other large firms and some of the other commenters also had recommended some degrees of incremental transparency around what's covered by a review by an auditor or by the audit itself and having a lot more clarity than what might be the case today because the expectation today is anything that's submitted in terms of the quarter, in terms of the financial statements, has been reviewed because it's required to be whether there's a report or not.

34:26So we saw a fair amount of comment around that as well. Obviously, this is an area that companies should be paying attention to. And it was very important to them, too, as they're thinking about what decisions they might make. So another SEC proposal that you mentioned, Brian, was filer status. So are we expecting to see anything from the PCOB in this area? Yeah, so this is one where there may be less for the PCOB potentially to do. I mean, this could open up the possibility for a larger population of public companies not being required to have an integrated audit. And certainly as we think about that, we're being prepared to have the right discussions with management and audit committees around that.

35:02And certainly if there's re-scoping to do any particular audits, we do think that often and the most cost-effective way to perform an audit is an integrated audit, particularly for larger public companies where the nature of the accounts and transactions would tell you that really the best way to conduct the audit is to conduct an audit of the controls and then be able to place reliance on the operating effectiveness design and operating effectiveness of those controls relative to then your substantive approach. So that doesn't mean that's the case for all the controls, certainly. And so each audit and each area of the audit would need to be looked at relative to appropriate scoping if there's a larger swath of companies that, again, would have non-integrated audits that would be conducted.

35:41That's not new for us. We conduct lots of non-integrated audits today. It's just making the right choices and the like relative to scoping of audits if there are changes in that space. We're yet to be seen relative to where the SEC would land on that and what the thresholds might be. And ultimately, there may be things the PCOB would decide they want to do to emphasize certain things in existing standards or things that they might have seen over time relative of the conduct of non-integrated audits that could be relevant as they see a broader population of audits that would be in play. But, you know, I think there's maybe a little less to do from a PCAOB perspective there.

36:15Well, Brian, we have covered a lot today, and there's a lot going on at the PCAOB and, you know, very ambitious agenda that they've set out. What do you think will be the most important thing for the board to be successful? Well, I do think that many of the things for the board to be successful are the things they're already doing. But the one thing I would comment on here, maybe in closing, is prioritization. They have a lot that they're thinking about relative to the inspection program, relative to standard setting in the agenda and various projects and guidance and research. And then you kind of look overall at what they're trying to accomplish in coordination with the SEC.

36:50And then just the environment that we're in relative to AI and use of technology. There's a lot going on. Things are moving rapidly. The world's changing rapidly around us. So I do think prioritizing, staying focused on what really matters, I think putting AI pretty high on that list is important for them. Everything they're doing around getting the inspection program modernized for the future, this is the right time to do that. So I think prioritization would be the key. And I'm not here to second guess. I think from what I can gather, they're very much focused on that. And they seem to have the right things at the top of the list.

37:22But I think that's going to be really the key for them. Well, that makes sense. Well, thank you so much for joining me today, Brian. It's been a great conversation yeah i really appreciate it it's always nice to sit down with you