Statement on the Adoption of the 2026 Budget – Missed Opportunities for Good Fiscal Stewardship

Remarks as prepared for delivery

Thank you, Acting Chair Botic.

Today I will be casting my fifth and final budget vote since I joined the PCAOB Board in November 2021. I expect that today will also be my last public vote. While I am not one to reminisce, I took this opportunity to review my last four budget statements.

In my first budget statement in November 2021 for the 2022 budget, I stated that “I am honored to join the PCAOB,” and I thanked Acting Chair “Duane DesParte for his leadership during this transition period.” I also expressed my appreciation for “his open and collaborative approach,” while noting that “his knowledge and transparency provided the PCAOB staff the steady leadership during a time of uncertainty.”¹

And today as the circle closes on my Board service, it has been an honor to work at the PCAOB these past 4+ years, and I thank Acting Chair Botic for his grace and equanimity during this transition period. His open, collaborative, and transparent approach has been a source of comfort for PCAOB staff during this most recent period of uncertainty. 

Now, turning to the 2026 Budget before us today. This Board has faced, through no fault of its own, considerable time pressures in formulating both the 2026 Preliminary Budget and this final 2026 Budget. However, I believe we have missed an opportunity by not taking a more targeted and strategic approach to incorporate in the 2026 Budget more cost-saving reductions in our programs and operations. Looking forward, I believe each Division and Office Director should proactively look for and identify spending reductions within their areas. Division and Office Directors and their staff, who are on the front lines of our programs and operations, have considerable insight into where efficiencies can be improved and costs can be reduced without compromising our mission. I realize that doing so might be painful, particularly when personnel are affected, but leaders are called to make tough choices while keeping our people and our mission in mind. This month the Office of Management and Budget unveiled the President’s Management Agenda calling for, among other things, the elimination of non-essential federal jobs.² While the PCAOB is not a federal agency, the PCAOB could have and should now take a “sharper pencil” in eliminating jobs that are no longer essential. 

While the approximately 9% decrease is not insignificant, it pales in comparison to the approximately 40% increase in the PCAOB’s budget between 2022 and 2025. Some may attempt to characterize the 9% decrease as “significant,” but I believe that would be an overstatement, when we consider that the PCAOB has historically “padded” (as a budget execution matter) its budget. In my dissenting statement for the 2025 Budget, I questioned the need for the approximately 4% budget increase noting that since 2018, the PCAOB has consistently underspent its budget by over 7% on average.³ And I was right about the PCAOB not needing the 4% increase in 2025, because it appears that the PCAOB will underspend its 2025 Budget by approximately 6%. Our consistent “underspend” from 2018 to 2025, suggests that the PCAOB could have and should have a deeper budget decrease than the approximately 9% decrease before us today. 

And there are additional reasons why I believe the approximately 9% budget decrease could have been greater.

First, the rationale for previous years’ double-digit increases has since abated. For example, in her 2024 Budget statement, the former Chair justified back-to-back double digit percentage increases in the PCAOB budget because “[w]e are currently seeing an increase in deficiency rates for a second year in a row” where we need “an additional net of 20 positions” where half “of these positions will reside in our Division of Registration and Inspections . . . .”⁴ However, in the past two years the deficiency rates have fallen where both Chair Williams in 2024 and Acting Chair Botic in 2025 stated that the preliminary 2024⁵ and 2025⁶ inspection results for both Global Network Firms and the other annually inspected firms show a decrease in Part I.A. deficiencies. If increased deficiency rates justified a budget and staffing increase; shouldn’t decreased deficiency rates justify a budget and staffing decrease? 

Second, in her 2025 Budget statement our former Chair justified the approximately 4% budget increase by citing firm inspections where she projected that by the end of 2024, PCAOB staff will have inspected “930 audits across domestic annual, domestic triannual, international, and broker-dealer audits.”⁷ However, recent remarks by the SEC’s Chief Accountant suggest that the PCAOB may be inspecting fewer audits beginning as soon as next year. Specifically, the SEC Chief Accountant stated that “[m]aybe there’s an opportunity for the PCAOB to shift the inspection program to focus more on system of quality management” and focus “less on individual engagement teams and the partners.”⁸ I believe that if the PCAOB shifts its inspection focus from individual audits to firms’ systems of quality management, inspection staffing levels could and should be reduced more. It seems clear that significant change is coming to the PCAOB inspections program as soon as next year, but this Budget reflects “a business as usual” approach.

Third, the double-digit budget increases were also justified by the former Chair to focus on more standard setting projects. For example, in her 2025 Budget statement, she referenced the November 2024 adoption of the Firm and Engagement Metrics and Firm Reporting rules noting that the 2025 budget “provides the funding to direct our focus to other standards . . . .” However, less than three months later the PCAOB withdrew those two rules without explanation. The PCAOB’s “midnight” and rushed adoption of those rules and their swift withdrawal evidence a waste of staff resources in the PCAOB’s standard setting program, especially when we consider that the PCAOB has not since proposed or adopted any standards or rules, with one exception. Specifically, on August 28, 2025, the PCAOB adopted a change to the effective date for QC 1000, by proposing to the SEC a one-year delay. Since the PCAOB’s standard-setting agenda has stalled, it raises questions as to whether the previous increases in staffing to support the former Chair’s radical standard setting agenda can be justified and whether they can and should be rolled back. For example, when I started at the PCAOB there was one Deputy General Counsel, but our former Chair increased that number from one to three. In today’s environment, is it fiscally sound to continue funding staffing levels that do not comport with the current fiscal and operating environment? I believe the answer is no.

Fourth, the waste of staff resources has not just been limited to the standard setting program; it also extends to the PCAOB’s enforcement program. In her 2025 Budget statement, our former Chair wrote that the PCAOB’s Enforcement Division continues “to focus on cases with significant audit violations, failure to comply with auditor independence rules, and matters threatening the Board’s oversight activities, such as noncooperation with PCAOB inspections and investigations.” Unfortunately, the numbers tell a different story. Between January 1, 2022, and March 31, 2025, approximately 27% of the PCAOB’s enforcement orders consisted of “traffic violations;” for example, failures by firms to comply with PCAOB reporting requirements. This 27% of enforcement orders resulted in only 6% of total civil money penalties.⁹ To make matters worse, the PCAOB just wrote another “traffic ticket” this month by imposing a $35,000 civil money penalty on a firm that failed to file certain forms.¹⁰

Fifth, I am concerned that the PCAOB is “regulating by inspection” where there are no currently applicable standards in areas such as firm culture, digital assets, Artificial Intelligence (AI), and private equity. Last December, PCAOB staff issued a report outlining their inspection priorities for 2025. Areas of emphasis included the use of generative AI; crypto assets; and culture at audit firms.¹¹ I believe these priorities were putting the “cart before the horse,” because the PCAOB has not adopted any standards in these areas and our current standards do not cover these inspection priorities. For example, in terms of firm culture, the PCAOB staff issued a December 2024 “Spotlight” report containing their “Insights on Culture and Audit Quality.”¹² The report notes that through the PCAOB’s “QC inspection procedures, we assessed steps firms have taken to embed integrity and a commitment to audit quality in the audit firm’s culture,” including whether the firm has “established core values related to integrity and audit quality,” and whether “audit leadership emphasizes its commitment to integrity and audit quality through its communications.” My concern is that staff’s use of QC inspection procedures to assess a firm’s culture will inappropriately seep into staff’s inspection findings, when firm “culture” and specific communications about a firm’s “core values” and “its commitment to integrity and audit quality” are not reflected in our currently applicable quality control standards. For example, our currently applicable QC 20.23 standard addresses “communication” using a principles-based approach as opposed to a prescriptive approach. It specifically provides that a firm should communicate its quality control policies and procedures to its personnel in both a timely and sufficiently comprehensive manner that provides reasonable assurance that those policies and procedures are complied with. The words “core values” or specific communications related to “audit leadership emphasizing its commitment to integrity and audit quality” do not appear in QC 20.23. With regard to private equity, Acting Chair Botic recently stated that “[g]iven the important role that financial statement auditors play in the capital markets, there are enough risks and questions around private equity investments that I am concerned.”¹³ He also stated that “the challenges presented by private equity will require more than the work of the PCAOB to ensure the public good . . . .” And while Acting Chair Botic suggested, as a near term action item, that the PCAOB consider hosting roundtables focused on the impact of private equity investments on auditor independence and audit quality, I worry that PCAOB staff will take “a sharper pencil” in inspecting certain audit firms only because they operate under an alternative practice structure. 

Finally, I have spoken previously about how the number of PCAOB registered firms in the United States has been declining. By my back of the envelope math, the number has declined by nearly 25% since 2021. In contrast, the number of non-U.S. registered firms has declined by less than 10% over the same period. I attribute the decline to our unduly aggressive enforcement and unreasonable inspection postures toward smaller firms. Chairman Atkins wants to make IPOs great again. That requires a resilient public company audit marketplace. If PCAOB continues to use its enforcement and inspection programs to drive U.S. small public company audit firms to exit this marketplace, smaller U.S. issuers will have fewer options.

In conclusion, while I believe the approximately 9% decrease for the 2026 Budget does not come close to scratching the surface in terms of making the PCAOB a more efficient and leaner organization, the next Board will have a lot of work ahead of it to fix the excesses over the past four years. Therefore, I will support the 2026 Budget with the hope that the next Board will have more success in its fiscal stewardship of the PCAOB.

I want to express my heartfelt appreciation for the tireless work of Randy Thornton, Mia Holland, Jim Hearn, and Yoss Missaghian. They worked long hours and weekends, and I thank them for their dedication and hard work. They are the exemplars of the PCAOB’s professional staff. I also want to thank Acting Chair Botic and his staff who also worked long hours and weekends to get this to the finish line. 

I wish everyone a happy holiday season and a healthy and prosperous New Year.

Back to you, Acting Chair Botic.