Securities Regulation Daily Wrap Up, PCAOB NEWS AND SPEECHES—PCAOB Board Member concerned about possible ‘over-correction‘ of inspection process, (May 12, 2026)
Organizations Mentioned:International Organization of Masters, Mates & Pilots, ILA | University of Kansas
George Botic supports a sharper focus on quality control, but worries about what might be sacrificed if the Board moves away from its established approach to engagement reviews.
The fear that the PCAOB might select an audit for inspection is a key driver of audit quality, in the opinion of Board Member George Botic. As the PCAOB rethinks its strategic priorities, including possible changes to its inspection process, he worries that the Board may lose this and other benefits if it changes its established approach to engagement reviews.
“I strongly support sharpening our inspection focus on quality control, particularly as our new quality control standard, QC 1000, takes effect. I would hesitate, however, to move away from our established approach to engagement reviews before we have carefully considered whether important things would be sacrificed by doing so,” he said in remarks at the Deloitte/University of Kansas Auditing Symposium.
Possible shift in focus. He noted that one suggestion for changing the PCAOB’s inspection process is to shift the focus of the inspection process towards the review of a firm’s system of quality management, corroborated by engagement-level reviews targeted for that narrow purpose. The idea, he said, is that such a change might provide the PCAOB with more relevant information about audit quality.
However, in his view a key aspect of the inspection process involves the way that an auditor’s awareness of the potential check affects the auditor’s conduct of the audit. In particular, he believes that a significant benefit to audit quality likely comes directly from an engagement team’s awareness of the real possibility that their audit might be inspected.
“We need to move forward, but that does not necessarily mean leaving the track we are on, if it appears to be a good track,” he stated. “The results of our efforts provide ample reason to believe it is a good track.”
Before the PCAOB significantly reduces the number of audits it selects for review, he added, he hopes the Board will thoughtfully consider whether that is the aspect of inspections that has had the single greatest impact on audit quality. He acknowledged that it might be hard to find data points to answer that question, but said that intuitively an auditor that thinks there is a real possibility that PCAOB inspectors will review his or her work will perform differently than one who thinks that possibility is remote.
The PCAOB also has evidence that accounting firms try to avoid PCAOB findings in inspected audits and that they often motivate their partners through the prospect of a financial penalty in the event of a PCAOB audit finding. “It therefore seems to me that there is ample reason to suspect that a meaningful prospect of PCAOB review of an audit likely leads to better audit quality in the face of business pressures that might otherwise marginalize the good intentions of honest, capable auditors,” he said.
Auditor anxiety. Botic noted that the Board has received complaints that audit partners have so much anxiety about the possibility of a PCAOB inspection finding that they react with over-auditing. While remaining open to thoughtful criticism, he believes the complaints validate that the Board’s current approach to inspecting audits does have an effect on audit partner behavior. This is one of the key goals of the program, he said, so the Board needs to be careful not to over-correct.
“The Sarbanes-Oxley Act requires us to inspect and review selected audits, separate from our evaluation of the quality control system,” he stated. It is no surprise, he added, that auditors whose work is selected for inspection would wish that it were otherwise. While it should not remain complacent about its inspection program, Botic concluded, the PCAOB also should not treat auditor anxiety as a reason to significantly modify a successful element of its implementation of the Sarbanes-Oxley Act.
RegulatoryActivity: AccountingAuditing SarbanesOxleyAct