Emphasizing that the audit inspection program is the most important aspect of the Public Company Accounting Oversight Board (PCAOB), new Chairman Demetrios Logothetis stated that the board will revise and modernize its inspections process to better protect investors.
During his first public appearance before the PCAOB’s Investor Advisory Group at board headquarters in Washington, D.C., on April 29, 2026, Logothetis said that his efforts are guided by one central question: Why does the PCAOB exist?
The board was created by Congress to prevent another accounting scandal like those that toppled companies such as Enron and Worldcom, causing investors to suffer massive losses more than two decades ago. Among other regulatory activities, the PCAOB’s audit inspection program has been credited with improving audit quality over the years.
Logothetis understands the PCAOB’s inspections process very well, having previously been on the other side as a senior partner at Ernst & Young LLP for 40 years, where his last audit client was the Coca-Cola Company.
Inspections and Quality Control Standard 1000
He said that the new quality control standard (QC) 1000 must be incorporated into the board’s inspections program. QC is considered foundational to audit quality. The board is expected to seek feedback soon on potential modifications to the standard, as firms have said certain provisions are too burdensome to apply. Moreover, they have questioned the rationale behind some benefits claimed by previous board leaders regarding certain requirements.
“We’re going to make some modifications, which will go through the proper process, but we’re looking to make some changes while keeping the effective date [December 15, 2026] as is, without delay,” Logothetis said.
Analogy With Airplane Crashes
To better communicate his message and the direction he wants to take to the public, Logothetis compared the PCAOB to the Federal Aviation Administration (FAA).
Just as the FAA aims to prevent airplane crashes, he said he wants the PCAOB to prevent audit failures, especially significant ones.
Examining the root cause analysis of why Enron collapsed and Arthur Andersen failed as its auditor, he said audit failure was due to faulty QC at the then Big Five firm.
“More specifically, they allowed each signing partner to make the final decision on the accounting. They were able to get input from technicians—what we normally call, in most accounting firms, professional practice. They are there just to make sure that you know you’re applying accounting properly. In that particular case, the technicians told the partner exactly what the accounting should be, and he ignored it,” the PCAOB chief said. “That’s the primary reason they failed. It was the quality control system.”
Using the FAA analogy, he said that when passengers board airplanes, it is assumed that the airline has recruited the right pilots, trained them, and maintained the airplanes properly. “We take those things for granted.”
“So when you think about what the airlines do and what the FAA does, the FAA does not go out there and select 30 or 55 airplanes from a fleet of 1,000 American airline flights to check specific flights, to give you a report as you enter the door, to say this airplane has been inspected properly,” he said. “They do it at the entity level. They check the records, the maintenance records, their internal process.”
If accounting firms “don’t have the right quality, they will be out of business,” he said. “So, they have a natural incentive to do the right thing.” In addition, the PCAOB inspection is another incentive for firms to perform sound audits.
Firms have their own extensive QC process. They also assess the risk of PCAOB inspections.
“I was there, I know, and they do it based on the risks they have identified. And therefore, when they get a list of the priorities—the riskier clients that potentially could be inspected—they send an army of people out there to review their workpapers,” Logothetis said.
Then the PCAOB selects about 55 audits out of thousands to inspect, using a combination of risk assessment and random selection.
“So the idea is that, in terms of QC 1000, first and foremost, QC 1000 has to be implemented,” he said. “Most of the large accounting firms have been implementing aspects of this.”
Second, he said the PCAOB must then modernize its inspections following QC 1000 implementation.
“We are in the process of forming a task force to reconsider the inspection process, and the inspection process… will continue to be risk-based, but the risk element of it is going to be much, much higher,” he said.
More Details of QC 1000 and Inspections
Once QC 1000 is implemented, he said the PCAOB will assess the process firms follow to conduct the risk assessment of clients’ financials.
“That is a roadmap to figuring out what are the risky clients they have identified, and based on our own input, our own experience and expertise in industries, we’re going to say, ‘by the way’—and this is where our added value comes in—’Okay, the way you assess the risk of the client isn’t exactly right. We have another point of view. Let’s talk about it,'” he said. “But ultimately, we do not want to reduce the number of accounts we look at. It’s possible that we will look at more and more clients. But if we do it on a risk basis, and we do it top-down, it will give us a chance to focus on the areas that could cause the most important audit failures or, in the FAA analogy, airplane crashes.”
The PCAOB does not have to review the entire file but should focus on the specific risks at the highest levels, he stressed.
For example, at Coca-Cola, he said the riskiest area is the income tax provision because they have operations around the world.
“And so for me as the audit partner, the most important thing I needed to do was look at the tax provision, and I needed to make sure that I had the most … sophisticated tax partner in the world who would say to me, ‘yes, they did it the right way.’ The rest of it—they have very sophisticated people. EY has been the auditor for 100 years. We know what their history is. We know what the areas are.”
But if the PCAOB were to review EY’s audit of Coca-Cola and focus on its inventory, “it would make no sense. It would mean nothing. They have to come in and review the income tax provision and the disclosures around the income tax exposures.”
He said he doesn’t know what a revised inspection process will look like, but it needs to be rethought.
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