Securities Regulation Daily Wrap Up, PCAOB NEWS AND SPEECHES—PCAOB chair addresses impact of AI, private equity on audits, (Oct 21, 2025)
The use of AI in audits, he said, could put an auditor’s professional skepticism and judgment at risk.
George Botic, acting chair of the PCAOB recently noted that he believes the agency should "serve as a marketplace of ideas." In his October 16 remarks before the 2025 OERA Conference on Auditing and Capital Markets, Botic took on the subject of audit quality in a changing world, and the PCAOB's ability to react and adjust to market activity. Botic's speech encompassed three areas: defining "audit quality"; exploring private equity investments in accounting firms; and understanding the current and future use of artificial intelligence in auditing.
Audit quality. Audit quality, Botic began, is the foundation of investor confidence, and how the PCAOB defines it matters because that is the guiding light for all participants in the financial reporting ecosystem. The phrase, he said, is more invoked than defined, and pinning it down has long been a topic.
Referring to one common definition of audit quality, Botic observed that discovering a material misstatement is but one factor in a good quality audit, and he offered four core concepts for consideration. First, integrity and independence: these factors are heavily influenced by firm culture and can impact audit quality. Next, technical competence in accounting principles and audit standards are a core input to audit quality. The third concept is audit performance, including due professional care and skepticism. The fourth concept is outcomes and impact. These concepts, Botic said, are a start to the task of defining audit quality, and he welcomed the audience's help in continuing the debate.
Private equity and accounting firms. Botic then turned to the rise of alternative financings. Private equity investments can help a firm grow and expand its business. There are risks, however, because private equity firms are ultimately seeking returns for their investors, and this has the potential, Botic said, to reshape incentives for auditors to prioritize profits over audit quality. But the tension “between an auditor's professional obligations and the interest in maximizing profitability will likely always be with us.” Botic acknowledged the scholars studying the issue and encouraged more work in this area.
AI and audits. Botic then recognized that "AI is on the cusp of transforming financial reporting and the audit." Accounting firms do not wish to be left behind and are investing billions in the new technology, he said, but this also comes with new risks, and the potential impact on financial statement auditing should be studied. He suggested that more technology used in audits can put at risk an auditor's professional skepticism and judgment.
The path forward. Botic concluded by charting what he feels is the PCAOB's course forward. First, the agency should engage with all participants in the financial ecosystem to create a definition of audit quality. The PCAOB should also act on recommendations from the Standards and Emerging Issues Advisory Group for the PCAOB, the SEC, and the National Association of State Boards of Accountancy to work together on exploring the risks and impact of private equity investments in accounting firms. Finally, the PCAOB should consider hosting roundtables on the impacts of private equity and AI.
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