Pennsylvania CPA Journal
The Public Company Accounting Oversight Board (PCAOB) is considering changes that would place a greater emphasis on the role of firm leadership and audit practice oversight. This feature examines how the regulator may be revaluating audit quality and governance – a shift in emphasis that may reduce some of the pressure placed on individual auditors.
Trust in the capital markets doesn’t happen by accident – it’s built, tested, and, at times, strained. At the center of that trust sits the audit profession, charged with providing independent assurance that financial statements can be relied upon. The auditors continue to play a critical role in maintaining trust in capital markets by providing independent assurance that financial statements are fairly presented free of material misstatements. However, the playbook that has been in place for decades may be reworked to shift to new areas of focus.
In the United States, the Public Company Accounting Oversight Board (PCAOB) is responsible for overseeing the audits of public companies and broker-dealers to protect investors and the public interest. Since its formation over two decades ago, the PCAOB has conducted regular inspections of registered audit firms to assess compliance with auditing standards and identify deficiencies. Historically, these inspections have focused heavily on the detailed work performed by front-line audit teams. While this approach provides direct visibility into transaction-level compliance, evidence suggests this methodology may be insufficient for the modern financial landscape. The PCAOB seems to be recognizing the need to revamp routine firm inspections to prioritize the role of top leaders and their oversight of audit practices. So, it is considering changes that would place a greater emphasis on the role of firm leadership and audit practice oversight, align its regulatory framework more closely with international standards, and respond to emerging structural changes in the accounting profession, including private equity investment in audit firms and the continued leveraging of artificial intelligence (AI) tools. These developments suggest a broader shift in how regulators evaluate audit quality and governance.
The Inspection Process
The PCAOB inspection process has been the core method through which it evaluates the performance of audit firms. Each year, the PCAOB selects audit engagements performed by registered firms and reviews the work performed to determine whether the firm complied with applicable auditing standards and whether the audit provided sufficient evidence to support the auditor’s opinion. Findings from these inspections often identify deficiencies in areas such as internal control evaluation or the application and results of substantive procedures. While the inspection reports are intended to promote improvement in audit quality, the detailed focus on individual audit engagements has been criticized for creating significant pressure, whether real or perceived, on front-line auditors. Engagement teams should not, but may, feel compelled to design procedures primarily to satisfy inspection expectations rather than focusing on the most relevant risks to investors. In response to these concerns, the PCAOB has started to explore ways to modernize its inspection framework.
One proposal would refocus routine firm inspections away from individual audit teams and toward the responsibilities and accountability of firm leadership. Inspections would increasingly examine how firm leaders oversee their audit practices, allocate resources, establish quality control systems, and cultivate a culture of professional skepticism. This approach illustrates a notion that audit quality may be influenced not only by the work of engagement teams, but also by the broader governance structure of the firm. Senior leadership decisions regarding resourcing and engagement staffing, training investments, internal quality reviews, and risk management can have a significant effect on the consistency and reliability of audit work. By focusing inspections on leadership accountability and oversight processes, regulators believe they may uncover systemic issues that can affect multiple engagements simultaneously.
This shift in emphasis could also reduce some of the pressure placed on individual auditors. Under the traditional inspection model, engagement teams may perceive PCAOB inspections as retrospective examinations of their work, potentially leading to defensive auditing behaviors or excessive documentation. A leadership-focused approach would instead evaluate whether firm policies and oversight structures provide adequate support for audit teams to perform high-quality work. If implemented effectively, this could encourage firms to strengthen their internal quality control systems and invest more heavily in training and professional development. It would also reinforce the concept that responsibility for audit quality ultimately resides with firm leadership rather than with individual engagement partners or staff.
These developments reflect a broader evolution in how the PCAOB is approaching its oversight responsibilities. Rather than focusing exclusively on the technical execution of individual audits, the PCAOB appears increasingly interested in evaluating the systems, leadership decisions, and market dynamics that shape audit quality across the profession.
This shift recognizes that high-quality auditing depends on more than the performance of individual engagement teams. It also depends on effective governance structures, robust quality control systems, and regulatory frameworks that keep pace with global developments.
Global Alignment
As financial markets continue to evolve at great pace, so must the standards used to protect investors. In his November 2025 remarks at Baruch College in New York, Kurt Hohl, chief accountant to the Securities and Exchange Commission (SEC), called for the PCAOB to revise its rulebook and standard-setting approach, including taking a more active role in the development of audit standards employed outside of the United States.1
Many of the PCAOB’s auditing standards were initially adapted from earlier professional standards when it was first established. Over time, international standard-setting bodies – most notably the International Auditing and Assurance Standards Board (IAASB) – have issued updated standards that address evolving audit risks, technological developments, and global market expectations. As a result, some observers see PCAOB’s rulebook as dated relative to international frameworks.
To address this gap, Hohl suggested that the PCAOB should look to lean more heavily on the work of international standard setters when updating its own standards.
Aligning PCAOB rules more closely with international auditing standards could offer several advantages. Large accounting firms increasingly operate across multiple jurisdictions and conduct audits of multinational companies with operations in many countries. Differences between U.S. standards and international standards can create complexity for these firms, requiring them to reconcile and adhere to multiple regulatory frameworks. By harmonizing certain aspects of its standards with international practices, the PCAOB could help establish a more consistent baseline for global firms. This alignment would not necessarily mean adopting international standards wholesale; rather, it could involve incorporating key principles or concepts that enhance audit quality while maintaining the PCAOB’s investor-protection mandate.
The Private Equity Impact
Another factor influencing the PCAOB’s motivations is the increasing involvement of private equity (PE) investors in accounting firms. Audit practices have traditionally operated under partnership structures that limit outside ownership, a benefit of which was the preservation of auditor independence. In recent years, several large U.S. accounting firms have accepted outside capital to fund investments in technology, consulting capabilities, and expansion strategies. In just the past six years, PE groups have invested over $50 billion in CPA firms, with nearly half of the 30 largest U.S. firms accepting outside capital over this period.2 Proponents explain that external investment can provide firms with the resources necessary to modernize operations and compete globally, but the trend is raising regulatory concerns about potential conflicts of interest and firm governance changes.
The PCAOB has indicated that it plans to closely scrutinize PE-backed firms during upcoming inspections. Regulators are particularly interested in understanding whether or not outside investors can influence firm strategy, resource allocation, or risk tolerance. For example, PE investors typically seek financial returns over defined investment horizons. This “urgency” could, theoretically, create pressure on firms to increase profitability or pursue aggressive growth strategies. Such pressures could affect decisions related to staffing levels, audit pricing, or investments in quality control systems.
By examining governance structures and oversight mechanisms within PE-backed firms, the PCAOB aims to ensure that auditor independence and audit quality remain paramount, regardless of the presence of external investors.
The increasing presence of PE investment also intersects with broader economic pressures affecting the accounting profession. Many firms are navigating a challenging environment characterized by rising operating costs, talent shortages, and increased regulatory expectations. In some cases, firms have responded by implementing budget constraints or adjusting compensation structures.
Cost management is a common and age-old business practice, but regulators are being attentive to the potential implications for audit quality. Reductions in staffing levels, training budgets, or compensation competitiveness could affect the ability of firms to attract and retain qualified auditors. Over time, such pressures might lead to increased workloads for existing staff, which potentially could impact the thoroughness and execution of audit procedures.
The AI Effect
AI is here to stay, and companies continue to find methods to integrate and utilize AI tools in performing finance and accounting functions. Concurrently, the PCAOB is exploring an integration of AI tools into its oversight, inspection, and enforcement activities to enhance audit quality and better detect risks in an increasingly complex financial reporting environment.3 While still evolving, the exploratory use of AI reflects a broader regulatory shift toward data-driven supervision.
Leveraging AI in its analysis of large datasets – such as audit workpapers, financial statements, and firm-level quality control data – could provide more efficiencies in the inspection process. Machine learning models, for example, could identify patterns, anomalies, or outliers that may indicate a higher risk of audit deficiencies. Inspectors can then prioritize which audits or areas within audits to examine more closely, thus improving both speed and precision.
AI could also be applied in risk assessment. A targeted use of predictive analytics could help determine which firms, industries, or engagements are most likely to yield findings. For example, AI systems can flag unusual revenue trends, complex estimates, or inconsistencies across filings, allowing the PCAOB to allocate its limited inspection resources more effectively, focusing on areas with the greatest potential investor impact.
Another key application in the deployment of AI tools is in enforcement and investigations. The PCAOB’s role is to enforce compliance with auditing standards and bring disciplinary actions against firms or individuals if required. AI tools can be used during investigations to assist in reviewing large volumes of documents, emails, and audit evidence. Natural language processing would help identify relevant communications or suspicious language patterns that might otherwise be missed, resulting in the acceleration of investigations and a strengthening of the evidentiary basis for enforcement actions.
As the use of AI continues to expand, the PCAOB must monitor emerging risks in financial reporting, including those related to companies’ own uses of AI. As more public companies incorporate AI into their operations – such as in forecasting, valuation, or internal controls – the PCAOB must adapt its oversight to ensure auditors appropriately evaluate these technologies. AI can help the regulator stay ahead of these developments by analyzing trends across industries and identifying new risk areas.
All that said, AI should be a complement to, not a replacement of, professional judgment. Human expertise remains central to interpreting results, making enforcement decisions, and setting policy. The PCAOB would need to carefully evaluate risks associated with AI, such as model bias, data quality issues, and transparency. Further investment in this area could enhance its governance frameworks to ensure responsible and ethical use of AI.
The Bottom Line
The PCAOB’s inspection and regulatory agenda is undergoing a significant transformation. In doing so, the PCAOB must balance modernization efforts with its core mission of protecting investors.
Aligning standards with international frameworks and adjusting inspection priorities should not dilute the rigor of U.S. oversight. Instead, changes should aim to enhance the PCAOB’s ability to identify root causes of audit deficiencies and promote sustainable improvements across the profession.
By focusing on leadership accountability, global standard alignment, and emerging ownership structures, the PCAOB appears to be trying to address systemic risks that may affect the reliability of financial reporting. The growing involvement of PE investors in accounting firms and the economic pressures facing the profession underscore the need for vigilant oversight.
As these changes unfold, the PCAOB’s challenge will be to adapt its regulatory approach in a manner that promotes audit quality, supports the sustainability of the profession, leverages technology and AI effectively, and ultimately protects the interests of investors and the integrity of capital markets.
1 Amanda Iacone, “SEC Accounting Chief Pushes for Global Harmony on Audit Rules,” Bloomberg Tax (Nov. 20, 2025).
2 Professional Services Industry Update, KPMG (Winter 2025).
3 AI and the Pursuit of Audit Quality: A Regulatory Perspective, The MindBridge Vision 2025, PCAOB Speeches and Statements (Sept. 16, 2025).
Rikki Williams, CPA, is a senior director within Centri Business Consulting’s National Office. He serves as the firm’s subject matter expert for complex financial instruments. He can be reached at rwilliams@centriconsulting.com.